Back after three years
The US Commodity Futures Trading Commission (CFTC) issued a “no-action” letter regarding swap data reporting and recordkeeping regulations for event contracts, opening the door for prediction markets leader Polymarket to operate in the States.
The letter, released Wednesday in response to QCX LLC and QC Clearing LLC, reads: “The divisions will not recommend the CFTC initiate an enforcement action against either entity or their participants for failure to comply with certain swap-related recordkeeping requirements and for failure to report to swap data repositories data associated with binary option transactions and variable payout contract transactions.”
Polymarket stopped operating prediction markets in the US in early 2022 under orders from the CFTC. It acquired Florida-based exchange QCEX for $112 million in July as way to get back into the country.
Importantly, the CFTC’s letter not only gives Polymarket the green light to offer its popular political prediction markets in the US, but also sports prediction markets as the NFL season gets underway. As such, people in states that do not yet have legal sports betting – Texas, Georgia, and California are a few of the remaining holdouts – could soon start wagering on games.
The company’s submitted rules do not kick in until Friday, so it appears that markets on Thursday night’s NFL season opener between the Philadelphia Eagles and Dallas Cowboys will not be available to people in the United States.
Gambling by any other name….
Critics of the CFTC’s decision point to the notion that prediction markets, despite their name, are just another form of betting. As such, they should be governed by state gambling regulators and subject to the same rules and laws that sports betting operators must obey.
For those unfamiliar with prediction markets, they operate essentially like stock markets for specific events. Instead of the operator setting traditional betting lines, site users buy and trade shares of event results. Shares range in price from $0.01 to $0.99 – everyone who holds shares in the winning result receives $1 pers share. Losing shares zero out.
And because it’s an active trading market, share prices can fluctuate as people buy and sell, so it is entirely possible to earn a profit before a result is even determined: if the price goes up, you can sell your shares and make money.
To illustrate, let’s look at the Eagles/Cowboys game, which is up on Polymarket, even if it’s not available to users in the US just yet. The Eagles are heavy favorites, sitting at about -8 at sportsbooks. They are also huge favorites on Polymarket, though the “line” looks much different.
As this piece is being written, the Eagles are trading at $0.80, the Cowboys at $0.21. If you were to buy the Eagles right now and they win, you would make $0.20 per share. If they lose, you would win nothing and be out your $0.80 per share.
If the Eagles price goes up to $0.85 per share, you could sell and lock in $0.05 per share profit. Prices will likely fluctuate as the game is underway.
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