Every legal prediction market in the US operates under a license known as a designated contract market, or DCM. Originally created for grain futures exchanges, this federal license has become the gatekeeper for platforms legally offering event contracts across the country. Despite its roots in commodities, the DCM now governs everything from political betting markets to sports events, shaping the US event-contract landscape.

What a DCM Means in Practice

A designated contract market is an exchange registered with the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act. It can list futures, options, and event contracts and serve retail customers directly. But holding a DCM requires strict adherence to 23 core principles. These rules cover everything from preventing market manipulation and monitoring trading activity to enforcing financial integrity and maintaining thorough records. The CFTC regularly reviews exchanges to ensure ongoing compliance.

Yet, a DCM alone cannot operate fully. Contracts must clear through a registered derivatives clearing organization, and customer transactions usually involve a futures commission merchant. This creates a three-license framework that keeps the system regulated and secure.

Interest in DCMs surged as prediction markets grew. Kalshi received its DCM status in 2021, while firms like Crypto.com and Gemini secured full regulatory registrations. Robinhood and Susquehanna took a shortcut by acquiring existing licensed exchanges and clearinghouses, then rebranding them. This approach allowed them to enter the market quickly without building from scratch.

The CFTC emphasizes the role of DCMs as frontline regulators. According to a 2026 advisory, exchanges must carefully design event contracts and watch trading patterns closely as volumes rise. This responsibility includes vetting contracts to prevent abuse and ensuring fair play.

Understanding the DCM explains why some prediction platforms can legally serve US retail customers while others cannot. It clarifies why certain exchanges are bought instead of built and why regulators focus on venues rather than individual traders. Most importantly, the license offers specific protections to users whose funds are at risk within these regulated exchanges.

This article provides informational content and does not constitute financial advice.