Prediction-market companies are pushing back against federal rules meant to keep exchange-owned trading desks from gaining an advantage over customers. Dan Bernstein reports for Sportico that Underdog, Novig, Fanatics and DraftKings objected to a Commodity Futures Trading Commission proposal addressing affiliated traders. The dispute tests what the industry’s claim to be “federally regulated” means when regulation constrains how it makes money.
The conflict is structural: one parent company can own both the venue that sets trading rules and a business placing bets there. The CFTC’s proposal would not ban that arrangement. It would require independent surveillance, limit affiliates to bona fide market-making activity and put their orders last at each price, regardless of when they were submitted. These are proposed safeguards, not rules already in force.
Operators argue that restricting their trading arms would reduce liquidity and worsen prices for customers. Novig disputes the need for separate offices for exchange and trading-desk staff. Underdog questions the agency’s legal authority to impose order-priority subordination. DraftKings Market Making says that requirement could force it to stop market making or restructure its relationship with the exchange. Bernstein notes that the companies’ comments do not disclose their affiliates’ strategies, trading volume or degree of competition from independent market makers—information needed to assess the claim that customers depend on these arrangements.
Other market participants want stronger restrictions. CME Group and Cboe Global Markets favor an outright ban on affiliated trading arms. Sporttrade proposes a cap on exchange ownership of market makers and identifies a less visible advantage: fees an affiliate pays return to its parent, while the same charges remain a real expense for independent competitors. Its argument is that apparently equal rules can still leave the exchange’s own desk with better economics.
Kalshi opposes order-book subordination but offers to cap its affiliate at 5% of quarterly exchange volume. Polymarket says it has no active affiliated trading arm and supports the proposal. Those differing positions matter: the industry’s response is not uniform, and each company’s business model shapes the restrictions it is willing to accept.
The immediate issue is fairness for customers wagering on these venues, rather than a demonstrated addiction outcome. If an exchange can privilege its own trading business or price independent rivals out, users may face a market less competitive than the peer-to-peer description suggests. The proposal concerns that risk; the reporting does not establish that every affiliated desk has abused it. Federal oversight is a starting point, not evidence that the conflict has been resolved.