CFTC to Monitor Cryptocurrency and Prediction Markets Through Nasdaq System

The Commodity Futures Trading Commission is enhancing its surveillance of financial markets by leveraging Nasdaq technology for a more detailed analysis of crypto transactions, as highlighted in a press release issued on Wednesday.

Nasdaq’s Market Surveillance platform, which encompasses various asset classes including digital assets and prediction markets, represents a crucial advancement, the CFTC noted, as it aims to modernize its outdated detection system from the ‘90s for identifying illegal activities among market participants.

A Nasdaq representative informed Decrypt that while prediction markets are currently trendy, they are fundamentally similar to derivatives regulated by the CFTC since its inception in 1974.

“Prediction markets function similarly to most derivative markets, posing comparable risks of market abuse and manipulation,” the spokesperson added. “Therefore, the technology can be tailored to cater to nearly all types of event-driven markets.”

Simultaneously, the CFTC recognized the swift evolution of markets in recent years, with digital frameworks enabling 24/7 trading capabilities.

“The expansion of both traditional and new markets coupled with innovative market structures, such as the introduction of continuous trading hours, necessitates the use of increasingly advanced tools to detect and prevent potential market misconduct,” the CFTC stated.

This update coincides with ongoing discussions in Congress regarding the CLARITY Act, a comprehensive legislative proposal aimed at defining the jurisdictional boundaries between the U.S. Securities and Exchange Commission and the CFTC.

The legislation, which was approved by the U.S. House of Representatives last month, currently categorizes most cryptocurrencies as commodities instead of securities, thus exempting them from SEC oversight.

The CFTC pointed out that 50 exchanges and nearly 20 international regulators currently utilize Nasdaq’s Market Surveillance platform. A recent regulatory guide by Nasdaq also indicates that the CFTC has been “exploring applications of blockchain technology to enhance regulatory oversight capabilities.”

The Commission stated it is undergoing a “crypto sprint,” swiftly acting on proposals from a comprehensive White House report on cryptocurrency released recently, which may impose new responsibilities on covered intermediaries.

The 166-page document recommended that “venues for non-security digital assets should be mandated to report market data, according to reporting requirements set by the CFTC,” encompassing crypto exchanges and prediction markets.

The top prediction market, Polymarket, recently purchased a CFTC-regulated derivatives exchange for $112 million, aiming for a return to the U.S.

The Nasdaq representative told Decrypt that the underlying technology of its platform “can be customized for applications across all crypto markets.” The rising “need for institutional-level surveillance capabilities” has grown as the crypto market evolves,” they noted.