You’re thinking about integrating prediction market features into your platform. Maybe you’ve watched Kalshi or Polymarket gain traction and thought “we could do that.” But here’s what you need to know before you start building: prediction markets in the U.S. fall under Commodity Futures Trading Commission (CFTC) oversight. And that oversight isn’t just paperwork—it’s real technical infrastructure you’ll need to build.
This guide is part of our comprehensive resource on understanding prediction markets and their rapid growth. While that overview covers the broader ecosystem, this article focuses specifically on the regulatory landscape technical leaders face when building or integrating prediction market features.
Getting CFTC approval means demonstrating you’ve got operational readiness across surveillance systems, governance, and technology infrastructure. Recent enforcement cases show this matters – the Porter NBA prosecution and the Maduro incident on Polymarket demonstrate that insider trading creates concrete business liability, not hypothetical risk.
This guide walks you through the practical side of CFTC compliance. It’s not legal advice—we’re here to explain the technical reality of what you’re signing up for. We’ll cover what the CFTC does, how platforms obtain Designated Contract Market (DCM) designation, what compliance architecture you actually need, and how to assess whether the regulatory burden makes sense for your business.
Disclaimer: This content provides technical implementation guidance, not legal advice. Consult legal counsel for compliance decisions.
What Is the CFTC and How Does It Regulate Prediction Markets?
The Commodity Futures Trading Commission (CFTC) regulates derivatives markets in the United States. Prediction markets fall under their jurisdiction as “event contracts” under the Commodity Exchange Act (CEA)—basically, they’re derivatives based on future outcomes, not securities.
To offer prediction markets to U.S. retail investors, you need what’s called Designated Contract Market (DCM) designation. This requires you to demonstrate compliance with 23 Core Principles covering governance, surveillance, financial resources, and participant protections.
The CFTC enforces anti-manipulation rules through CEA Section 6(c)(1) and Rule 180.1 and supervises market surveillance systems. But here’s the reality check: the CFTC operates with one-eighth the staffing of the SEC despite comparable market volumes. They’re stretched thin.
The Division of Market Oversight (DMO) handles DCM applications and monitors registered exchanges. Understanding the distinction between commodity futures (CFTC) and securities (SEC) matters because it affects which regulatory framework applies and what compliance path you’ll follow.
What Is DCM Designation and How Do Platforms Obtain It?
DCM designation is the CFTC registration status that authorises exchanges to offer derivatives contracts to U.S. retail investors under federal oversight. Without it, you can’t legally operate a prediction market platform for Americans. Simple as that.
Getting designation involves submitting a Form DCM application to the Division of Market Oversight. You’ll need a Chief Regulatory Officer (CRO) appointment, a comprehensive rulebook, business continuity and disaster recovery (BC/DR) test results, surveillance system validation, and Appendix C market analysis for each proposed contract.
The Commodity Exchange Act specifies a 180-day statutory review period. But that clock only starts when your application is “materially complete”—meaning detailed operational policies and system descriptions, not placeholder documents. In practice, DCM applications commonly exceed two years due to staff presentations, clarification requests, and technology validation. Plan accordingly.
DMO staff will examine your actual day-one operations. They want to see your exact initial product set and risk controls tailored to what you’re launching—not aspirational features you might build later.
A few recent examples show different paths to market:
- Kalshi became the first CFTC-registered prediction market in 2021, following a regulation-first model from day one.
- Gemini Titan received approval in December 2025, becoming the first crypto-native exchange with DCM designation.
- Polymarket announced a $112 million acquisition deal to purchase QCX (a licensed exchange) for U.S. market access, after being forced to exit following a $1.4 million CFTC fine.
- Robinhood acquired MIAX Derivatives Exchange to obtain existing DCM designation rather than applying from scratch.
These different pathways—regulation-first, crypto-native, acquisition—all get you to the same place, but the journey and costs vary wildly. For a comprehensive platform architecture comparison examining the regulatory trade-offs between CFTC-regulated and decentralised approaches, see our detailed analysis.
What Compliance Requirements Apply to Prediction Market Platforms?
Once you have DCM designation, you’re committed to ongoing compliance. It’s not a “set it and forget it” situation. Core requirements include market surveillance systems, KYC/AML procedures, restricted trading lists, audit trail infrastructure, and Chief Regulatory Officer governance.
Market surveillance involves continuous monitoring for manipulation, insider trading, wash trading, and prohibited conduct. You need both pre-trade controls and post-trade analysis.
Pre-trade controls enforce restricted lists, position limits, and margin requirements before order execution. Post-trade analysis uses pattern recognition to detect suspicious activity after trades occur—connecting dots that weren’t obvious in real-time.
KYC/AML procedures enable restricted list enforcement and support suspicious activity detection. Your identity verification needs to integrate with surveillance systems, not exist as a separate silo. CFTC-registered DCMs undergo regular audits and must submit new market proposals for compliance review.
Audit trail requirements mandate timestamped records of all trading activity. You need five-year retention with immutable logging and sub-second timestamp precision. When regulators come calling, they expect complete data.
The Chief Regulatory Officer (CRO) is an independent senior executive required for DCM designation. The CRO manages compliance programmes, interfaces with CFTC staff, oversees surveillance, and reports directly to the board—not to your CEO or product team. The CFTC will scrutinise this separation from business operations.
Under CFTC Rule 166.3, you must diligently supervise employee handling of commodity interests. Your compliance programme needs employee training, whistleblower channels, and third-party audits.
Oracle integrity matters too. Your outcome determination mechanisms need to be transparent and auditable. How you decide who wins and who loses can’t be a black box.
How Should Developers Implement Market Surveillance Systems?
Building surveillance systems requires understanding two-phase architecture: pre-trade controls and post-trade forensic analysis.
Pre-trade controls are preventive. They block restricted individuals from trading, enforce position limits, and apply margin requirements before orders execute. These controls integrate with your KYC systems and update dynamically as restricted lists change—think league rosters updating as teams trade players, or political insiders changing as campaigns evolve.
Post-trade analysis is detective. It identifies patterns suggesting prohibited conduct after trades occurs. You need to connect unusual trading patterns to moments when non-public information became available. This requires aggregating data from trading systems, KYC databases, blockchain activity, and third-party sources.
Real-time monitoring tracks external data streams—social media, news, betting lines, blockchain analytics—to distinguish legitimate sentiment from coordinated misinformation. It’s complex work. For deeper technical implementation of market integrity security and manipulation prevention systems including detection algorithms and monitoring dashboards, see our dedicated security guide.
Consider third-party surveillance providers like Eventus. They offer specialised monitoring systems with pre-built compliance frameworks, reducing your implementation time and demonstrating regulatory credibility to the CFTC. Building surveillance from scratch is time-consuming and harder to validate during your DCM application.
The philosophy you want is compliance-as-design: embedding regulatory requirements into platform architecture from inception rather than retrofitting controls later. This means surveillance systems integrated with trading infrastructure, KYC verification required before account activation, and restricted lists enforced at order entry—not as afterthoughts.
How Can Restricted Lists Prevent Insider Trading?
Restricted lists are rosters of individuals prohibited from trading specific contracts because they can influence outcomes—athletes, referees, data vendors, platform employees, policymakers with material non-public information.
Kalshi bans insiders from betting on markets that intersect with their knowledge. Politicians, campaign staff, vendors, PAC employees, media members—all blocked from relevant markets. They use third-party screening tools for “politically exposed persons” to identify and block prohibited individuals.
The enforcement mechanism has two components. Pre-trade controls block order execution for restricted individuals in real-time. Post-trade monitoring detects circumvention attempts through proxies, family members, or anonymised wallets. Your surveillance systems integrate KYC data with league rosters, news timestamps, and trading behaviour to catch clever workarounds.
Data sources matter here. You’re aggregating league rosters (NBA, NFL player lists), regulatory feeds (CFTC restricted persons), and event-specific insiders (campaign staff for political markets, meteorologists for weather events). It’s a lot of moving pieces.
The Porter NBA case demonstrates why this matters. Former NBA player Jontay Porter and Brooklyn resident Long Phi Pham pleaded guilty to wire fraud conspiracy involving sports betting, netting over $1 million across two games. The case shows wire fraud statutes provide criminal enforcement when CFTC civil rules fall short.
Platform implementation varies wildly. Kalshi uses the IC360 platform (the same one Caesars Sportsbook uses) to impose trading prohibitions. Polymarket asks users to self-certify they aren’t U.S.-based, with basic geofencing that users regularly circumvent. Guess which approach the CFTC prefers.
What Are the Regulatory Gaps and Enforcement Limitations?
The CFTC’s resource constraints create real limitations you should understand. While the broader prediction market landscape shows explosive growth, the regulatory infrastructure hasn’t kept pace. With one-eighth SEC staffing despite comparable market volumes, the CFTC’s surveillance capacity is limited. The whistleblower office faces potential shutdown with only two of five commissioner positions filled. They’re doing more with less.
Here’s a regulatory gap that matters: CFTC rules do not explicitly address insider trading in prediction markets the way SEC rules govern securities trading. Enforcement relies on general anti-manipulation provisions (CEA Section 6(c)(1), Rule 180.1) and wire fraud statutes. The CFTC has yet to bring any enforcement actions for market manipulation on event contracts. That’s not because violations aren’t happening—it’s a resource and precedent issue.
The Maduro incident on Polymarket illustrates enforcement challenges. Suspicious trading patterns around Venezuelan political events in early 2024 showed how detecting information asymmetry and proving insider status is difficult when you’re dealing with anonymous cryptocurrency trading.
Federal-state tensions add complexity. DCM designation provides federal compliance but doesn’t preempt state gaming laws. Seven states have issued cease-and-desist letters to CFTC-registered platforms. Nevada and New Jersey courts granted Kalshi preliminary injunctions, while Maryland denied injunction, preserving state gambling authority.
This creates a novel legal question: whether regulatory inaction by the CFTC can preempt state law. The issue appears Supreme Court bound. Until there’s clarity, you’ve got regulatory uncertainty to manage.
Where Can You Access Official CFTC Guidance?
The CFTC provides official guidance through several channels. Part 38 Regulations document DCM Core Principles. Form DCM templates, Appendix C requirements, and rulebook exemplars are available through the CFTC website and Federal Register.
Interpretive letters and no-action letters offer guidance on specific compliance questions. Polymarket’s September 2025 no-action letter demonstrates an alternative pathway to full DCM designation, though it offers less certainty and can be revoked if the CFTC changes its mind.
Review publicly filed rulebooks from approved platforms. Kalshi and Gemini Titan filings demonstrate compliant governance frameworks. These show what “materially complete” applications actually look like—not what marketing materials promise.
But here’s the reality: the DCM application process requires specialised legal counsel experienced in derivatives regulation. This isn’t a DIY project. The Division of Market Oversight staff will scrutinise your governance, surveillance, technology, and financial resources through multiple rounds of questioning.
Industry resources exist too. The Coalition for Prediction Markets formed in 2025, uniting exchanges, brokers, and advocates. Third-party compliance vendors like Eventus offer implementation guidance and can connect you with others who’ve been through the process. For a comprehensive directory of developer resources and CFTC regulatory guidance, including links to official documentation and compliance resources, see our curated resource guide.
How Should You Assess Regulatory Risk for Enterprise Adoption?
You have strategic pathways to consider. The regulation-first approach (Kalshi’s model) involves a ground-up DCM application with a 2+ year timeline. The acquisition strategy (Robinhood acquiring MIAX, Polymarket acquiring QCX) provides faster market entry but you inherit legacy compliance obligations. The crypto-native pathway (Gemini Titan) demonstrates emerging routes for blockchain-based platforms.
Cost structure matters a lot here. Budget for DCM application legal fees, technology infrastructure (surveillance systems, audit trails, BC/DR), ongoing compliance staff (CRO, surveillance analysts), third-party audits, and clearing arrangements. Financial requirements include demonstrating capital exceeding 12 months’ operating expenses. The investment is substantial—plan for seven figures minimum.
Timeline expectations: the statutory 180-day vs actual 2+ year approval process reflects material completeness delays and iterative staff inquiries. Every round of CFTC questions adds weeks or months.
Liability exposure includes wire fraud prosecution for insider trading violations (Porter case precedent), Rule 166.3 supervisory failures, aiding and abetting under CEA Section 13(a), and CFTC enforcement actions for manipulation or compliance failures. These aren’t theoretical risks.
State regulatory risk adds another dimension. Arizona and Pennsylvania have challenged CFTC-registered platforms despite federal DCM status. You might win federal approval and still face state enforcement.
Technology requirements include audit trail systems, surveillance platforms, BC/DR infrastructure, oracle mechanisms, and KYC integration. Organisational readiness needs CRO appointment, compliance programme development, and surveillance infrastructure—all in place before launch.
Risk mitigation strategies include compliance-as-design philosophy (embedding requirements from day one), third-party audits (demonstrating independent validation), voluntary disclosure protocols (reporting issues before regulators find them), and cross-industry information sharing. Material non-public information (MNPI) poses threat to firms and individuals, requiring proactive measures rather than reactive responses.
Wrapping It Up
CFTC oversight through DCM designation establishes the federal compliance pathway for prediction markets. You need demonstrated operational readiness across surveillance, governance, and technology—not promises, actual working systems. The multi-year application process, 23 Core Principles compliance, and surveillance architecture demand real enterprise investment.
Your strategic pathway decision—regulation-first versus acquisition—depends on timeline constraints, cost considerations, and risk tolerance. Official CFTC guidance, publicly filed rulebooks, and compliance vendors provide roadmaps, but you absolutely need specialised legal counsel for the DCM application process.
Next steps: consult derivatives regulation counsel, evaluate compliance vendor partnerships, and honestly assess your organisational readiness. For comprehensive understanding of prediction markets and their rapid growth across technical, regulatory, and business dimensions, explore our complete resource series.
FAQ Section
What is the difference between CFTC DCM designation and a no-action letter?
DCM designation is full regulatory registration authorising platforms to offer prediction markets to U.S. retail investors. It requires comprehensive compliance with all 23 Core Principles. A no-action letter (like Polymarket’s September 2025 letter) provides temporary regulatory relief for specific activities without full DCM obligations, but it offers less legal certainty and can be revoked if the CFTC changes its mind. DCM designation is the gold standard for long-term regulatory compliance.
How long does the DCM application process actually take from start to finish?
While the Commodity Exchange Act specifies a 180-day statutory review period, this timeline begins only when Form DCM is “materially complete”—meaning detailed operational policies and system descriptions, not placeholder documents or draft proposals. In practice, DCM applications commonly exceed two years due to staff presentations, clarification requests, technology validation, and product refinements. Every round of CFTC questions adds time, and there will be multiple rounds.
Can I operate a prediction market without DCM designation if I exclude U.S. users?
Excluding U.S. users through geo-blocking may reduce your CFTC enforcement risk but it doesn’t eliminate liability if U.S. residents access your platform through VPNs or proxies. Platforms must implement robust KYC/AML procedures verifying participant locations, and enforcement actions can still target organisational conduct that facilitates prohibited U.S. access. This isn’t a loophole—it’s a compliance grey area. Consult legal counsel for offshore operation risk assessment.
What surveillance systems are required to prevent insider trading in prediction markets?
Insider trading prevention requires two-phase surveillance: pre-trade controls (restricted lists blocking athletes, referees, data vendors, employees) and post-trade forensic analysis (pattern detection, relationship mapping, correlation analysis). Your systems must integrate KYC data with league rosters, news timestamps, wallet activity, and trading behaviour to detect material non-public information trading. Building this yourself is complex and time-consuming. Third-party providers like Eventus offer pre-built compliance frameworks that demonstrate regulatory credibility.
How much does it cost to obtain DCM designation and maintain compliance?
The CFTC doesn’t publish official cost estimates, but DCM applications require substantial investment across multiple areas: specialised legal counsel (derivatives regulation expertise), technology infrastructure (surveillance systems, audit trails, BC/DR), compliance staffing (CRO, surveillance analysts), third-party audits, and clearing arrangements with a Derivatives Clearing Organisation. Financial resource requirements include demonstrating operating expenses exceeding 12 months in reserve. Budget for a multi-year application timeline and seven figures minimum in total costs.
What happens if my platform fails to detect insider trading activity?
Platforms face organisational liability under CFTC Rule 166.3 for supervisory gaps—failure to diligently monitor employee and participant conduct. Additionally, CEA Section 13(a) addresses aiding and abetting liability if your platform practices facilitate prohibited trading. Individual traders face criminal wire fraud prosecution (Porter NBA case precedent) for violating platform terms, while platforms risk CFTC enforcement actions, civil penalties, and potential DCM designation revocation. The consequences are real.
Do state gaming laws apply to CFTC-registered prediction markets?
Yes. DCM designation provides federal compliance but doesn’t automatically preempt state gaming laws. Arizona and Pennsylvania have issued cease-and-desist orders and licensing challenges to CFTC-registered platforms, creating federal-state jurisdictional tension that hasn’t been fully resolved. Platforms must assess state-by-state regulatory risk, particularly for sports-related prediction markets that some states view as gaming rather than derivatives trading. You might need to navigate both federal and state compliance.
Can I acquire an existing DCM designation instead of applying from scratch?
Yes. Robinhood acquired MIAX Derivatives Exchange and Polymarket acquired QCX to obtain existing DCM designations, providing faster market access than ground-up applications. However, acquisition strategies inherit legacy compliance obligations, existing clearing arrangements, and operational frameworks that might not align perfectly with your plans. The CFTC must approve ownership changes and material modifications to rulebooks or product offerings, so it’s not instant—but it’s typically faster than starting from zero.
What is the role of a Chief Regulatory Officer (CRO) in prediction market platforms?
The CRO is an independent senior executive required for DCM designation, responsible for regulatory compliance oversight separate from business operations. The CRO manages compliance programmes, interfaces with CFTC staff, oversees surveillance and disciplinary functions, ensures regulatory independence, and reports directly to the board—not to your CEO or product team. This separation is non-negotiable. The role demonstrates regulatory credibility and prevents organisational conflicts of interest that could compromise compliance.
How do clearing arrangements work for prediction market platforms?
DCM-designated platforms must partner with CFTC-registered Derivatives Clearing Organisations (DCOs) to provide clearing and settlement services. This ensures customer fund protections and settlement integrity. Clearing arrangements include oracle integrity mechanisms (transparent outcome determination), dispute resolution protocols, margin requirements, and risk management systems. These relationships must be documented in your Form DCM applications—you can’t just figure it out later.
What technical infrastructure is required for audit trail compliance?
Audit trails must capture comprehensive timestamped records of all trading activity, order modifications, cancellations, executions, and system events. Infrastructure requirements include five-year retention (life of contract plus five years for swaps), immutable logging, standardised data schemas enabling regulatory reporting, sub-second timestamp precision, and integration with surveillance systems. Audit trails must support forensic investigations and regulatory examinations by CFTC staff. This isn’t optional—it’s table stakes.
How can platforms demonstrate “compliance-as-design” to CFTC reviewers?
Compliance-as-design embeds regulatory requirements into platform architecture from inception rather than retrofitting controls after you’ve built everything. Demonstrable practices include: surveillance systems integrated with trading infrastructure (not bolt-on monitoring added later), KYC verification required before account activation (not post-registration verification), restricted lists enforced at order entry (not post-trade detection), and audit trails capturing all system events (not selective logging). This philosophy builds regulatory credibility with CFTC staff and makes the entire process smoother.
