CFTC warns prediction markets against using sportsbook-style odds
The regulator said American odds could mislead users about the nature and pricing of event contracts.
U.S.- The Commodity Futures Trading Commission (CFTC) has warned prediction market operators against displaying event-contract prices using the American odds format commonly associated with sportsbooks. The warning was made in a joint letter from the CFTC’s Division of Market Oversight and Market Participants Division.
The divisions reminded exchanges, brokers and other regulated entities that pricing information must be presented clearly and accurately and should not create confusion about the products being offered. The agency specifically raised concerns about the use of plus-and-minus odds. According to the CFTC, “displaying pricing information for derivatives products in bookmaker-style odds is likely to mislead market participants about the nature of the transaction into which they are entering”.
Sportsbooks widely use American odds to show the potential return or required stake on a wager. Positive figures indicate the profit generated from a $100 stake, while negative figures show how much must be wagered to earn $100. For example, odds of -110 could represent a favourite, while +200 could indicate an underdog.
The CFTC’s position is that derivatives should instead be displayed using nominal or percentage values, allowing the quoted price to reflect the underlying market value rather than adopting terminology associated with sports wagering.
The CFTC notice applies to regulated entities involved in listing, soliciting or accepting orders for event contracts. Such firms have been asked to examine their pricing displays, marketing materials and other communications, including practices carried out by their partners and affiliates. Entities covered by the notice must confirm that they have received it by August 31.
The CFTC warned that confusion between derivatives and sportsbook products could potentially be used to steer customers toward what it described as “higher-margin, non-market-priced bookmaking products.” The divisions also reminded regulated firms that misleading pricing information on federally regulated products could violate laws prohibiting manipulative practices.
