Prediction markets and “event contracts” have entered a new phase: rapid growth, expanding product scope, and sharply increased regulatory attention. Trading volumes on leading platforms are now measured in the billions of dollars per month, and market data providers track these markets in a way increasingly analogous to traditional asset classes.

At the same time, the Commodity Futures Trading Commission (CFTC) has abandoned its prior blanket opposition to event contracts and is instead moving to clarify the rules of the road while asserting exclusive federal jurisdiction and emphasizing that traditional anti-fraud, anti-manipulation, and insider-trading principles apply.

For institutional participants — including hedge funds, asset managers, proprietary trading firms, and corporates using event contracts as signals or hedges — two practical risk categories have become increasingly salient:

1. Settlement risk/contract interpretation risk, highlighted by recent disputes over the terms governing the outcome or resolution of certain event contracts.
2. Source/information‑integrity risk, highlighted by recent incidents where financial incentives reportedly led to pressure campaigns aimed at influencing reporting that could determine contract resolution.

These practical risks in turn trigger regulatory compliance obligations applicable to derivatives and swaps.

As part of Baker McKenzie’s series on predictive markets, this article provides a roadmap of key statutory and regulatory provisions along with recent CFTC notices relevant to predictive markets, explains why they matter to investment managers, proprietary trading firms and other institutions that are considering trading in events contracts, and provides a practical checklist for their compliance and risk management programs.