The U.S. regulator overseeing prediction platforms such as Kalshi and Polymarket has cautioned that flawed compliance practices surrounding trading incentives could increase the risk of market abuse.

Prediction-market operators use incentive programs to attract frequent traders and encourage firms to provide liquidity as market makers. While these programs are intended to increase participation and trading volumes, the Commodity Futures Trading Commission is concerned about the way some of them are being structured.

In guidance issued Wednesday, the CFTC said it has seen a growing number of filings related to incentive programs, many of which contain procedural or substantive deficiencies. These shortcomings can make it difficult for the agency to determine whether platforms have properly disclosed program conditions and sufficiently assessed whether the arrangements comply with regulatory requirements.

The regulator also highlighted concerns over rewards offered to high-volume traders. Incentives tied to trading thresholds could encourage participants to place trades simply to meet volume requirements, potentially raising the risk of wash trading, prearranged transactions and other fraudulent or manipulative behavior.

Market-maker programs have also attracted scrutiny. Some arrangements use stipends and rebates to guarantee returns or offset losses for firms providing liquidity on both sides of an event contract. The CFTC warned that these incentives could potentially encourage fraudulent activity, manipulation or other disruptive trading practices.

CFTC Expands Oversight of Prediction Markets

The CFTC has become increasingly involved in the development of U.S. prediction markets, including legal battles involving states that claim platforms violate local sports-betting regulations.

The agency proposed its first dedicated prediction-market rules in June. It has also continued issuing guidance to help event-contract platforms comply with existing requirements for designated contract markets, or DCMs.

Last month, the CFTC warned operators against taking shortcuts when submitting standardized contract certifications.

The latest guidance reinforces the regulator’s expectation that prediction-market companies properly review, document and structure their incentive programs to ensure they comply with federal rules and do not create unnecessary opportunities for market manipulation.