CFTC Commissioner Kristin Johnson expressed concern over the risks associated with prediction markets for retail investors in her farewell address.
Risks of Prediction Markets for Investors
In her farewell public address, Johnson noted that some market participants are offering leveraged contracts to retail investors without clear regulatory boundaries. "As of today, we have too few guardrails and too little visibility into the prediction market landscape," she said.
Criticism of Licensing and Consumer Protection
Johnson also criticized the growing trend of 'renting or buying licenses' in derivatives markets, stating that companies obtain licenses for traditional products and then pivot to self-certifying prediction market contracts once approved. She emphasized that "if we fail to rightly prioritize consumer protection or market stability, the results can be devastating."
CFTC Actions Regarding Polymarket
Johnson's warning against prediction markets coincided with the CFTC issuing a no-action letter to QCX LLC and QC Clearing LLC linked to the prediction market platform Polymarket. This decision allows Polymarket to operate event-based markets in the US without immediate regulatory penalties.
Kristin Johnson's remarks highlight the need for stricter regulation of prediction markets and consumer protection as the growing popularity of these markets poses new risks for retail investors.
