Comment Text:
March 4, 2026
Vanessa A. Countryman, Secretary
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Re: Comment on Non‑Intermediated DCM/DCO Models and Prediction Markets
Dear Chairman Selig:
I write to comment on the ongoing debate over non‑intermediated designated contract markets (DCMs) and derivatives clearing organizations (DCOs) for non‑leveraged prediction contracts, and the growing interest in extending those models to leveraged products. My concern is not primarily about incremental risk to clearinghouses or narrow questions of statutory construction under the Commodity Exchange Act (CEA). Rather, it is about the structural damage that an expansive non‑intermediated model would inflict on the relationships among futures commission merchants (FCMs), introducing brokers (IBs), and exchanges that have long been central to the success, resilience, and public‑interest mission of U.S. derivatives markets.
Much of the current discussion has been framed around fully collateralized event contracts and the claim that, because these products are non‑leveraged, they can safely be offered on a direct‑to‑retail basis. Proponents argue that in this context, the traditional FCM‑centric architecture is unnecessary: the DCM and DCO can handle onboarding, risk management, and default procedures entirely in‑house, with little or no need for intermediaries. The implied next step is that, once this model is accepted for non‑leveraged prediction markets, it can be gradually extended to leveraged contracts and more complex products.
At the same time, FCMs are telling you something important: their customers are not broadly demanding prediction markets, and they do not see these products today as core hedging tools. For many FCMs, the prospect of building support, infrastructure, and compliance around a narrow set of event contracts, offered outside the traditional intermediated channel, is not remotely attractive. They see new platforms effectively trying to disintermediate them on fully collateralized products while leaving them to shoulder the capital, operational, and compliance burdens for the rest of the systemically important derivatives complex.
The Commission has properly focused on familiar questions: What is the risk to the DCO? How should margin, liquidation, and default management work under a direct model? What does the CEA say about who may “sell” futures and options, FCMs, IBs, CTAs, and CPOs, versus the role of DCMs and DCOs? These are necessary questions, but they are not sufficient. Even if a non‑intermediated model could be engineered to pose little direct risk to a clearinghouse for fully collateralized prediction contracts, the Commission would still need to ask whether the broader market structure consequences are consistent with the public interest.
For more than a century, U.S. derivatives markets have been built on a dense network of relationships among exchanges, FCMs, IBs, and end users. FCMs and IBs introduce customers to products, provide risk education and ongoing advice, and stand between clients and the clearing system with their own capital and reputations at stake. Exchanges, in turn, develop contracts in dialogue with these intermediaries and their customers. This relationship capital is not an incidental feature of the system; it is a critical layer of soft infrastructure that has repeatedly helped the markets absorb shocks, manage defaults, and maintain confidence.
A broad, non‑intermediated model for prediction markets, especially once leverage and more complex products are introduced, effectively tells exchanges and clearers that they no longer need the human intermediation layer for retail and smaller-institutional flow. It encourages a vertically integrated, platform‑style approach in which the DCM and DCO play the roles of venue,
clearinghouse, and quasi‑broker, with FCMs and IBs pushed to the margins. Over time, that approach risks hollowing out the FCM community, reducing investment in client education, and weakening the relational glue that has historically supported market integrity and resilience.
There is also a political and regulatory risk in allowing prediction markets to become the wedge issue through which non‑intermediated models are normalized. Prediction contracts live at the boundary between hedging and gaming, and they have already attracted scrutiny from state regulators, advocacy groups, and the media. If non‑intermediated prediction markets are used as the test case for displacing FCMs and IBs, the Commission may find that it has staked long‑term market‑structure changes on the most controversial and least institutionally grounded subset of derivatives products. That is a recipe for backlash, abrupt policy reversals, and uncertainty that can damage both incumbents and innovators.
The choice before the Commission is not a binary one between innovation and tradition. The question is whether innovation in prediction and event markets will be channeled through and aligned with the existing intermediated framework, or whether it will be allowed to grow outside and eventually against that framework. The former path preserves and refreshes the network of FCMs, IBs, and exchanges that have delivered liquidity and stability across cycles. The latter path risks fragmenting the industry into vertically integrated event‑betting platforms on one side and a thinner, more fragile set of intermediaries on the other, precisely when broad‑based resilience is most needed.
I respectfully urge the Commission to:
Recognize explicitly, in any rulemaking or orders on non‑intermediated DCMs/DCOs and prediction markets, that preserving a strong, diverse, and viable FCM and IB community is a core public‑interest objective under the CEA.
Limit non‑intermediated models to narrowly defined, fully collateralized products, and make clear that any move toward leveraged contracts or complex options in a direct‑to‑retail framework will require a separate, rigorous public‑interest analysis that places heavy weight on intermediated market structure.
Encourage, and where appropriate require, structures that integrate FCMs and IBs into the distribution, risk‑management, and customer‑support functions, even for new prediction and event contracts, rather than bypassing them.
Use the comment process to solicit and seriously weigh the perspectives of FCMs, IBs, and end users on how non‑intermediated models affect their ability to serve clients, invest in technology and human capital, and remain viable in an increasingly concentrated industry.
The long‑term health of U.S. derivatives markets depends on more than the solvency of individual DCOs or the legal classification of any one class of products. It depends on whether exchanges, clearers, and intermediaries remain aligned, with incentives to collaborate rather than compete over who “owns” the customer. A regulatory framework that rewards the disintermediation of FCMs and IBs in the name of efficiency or innovation will, over time, weaken that alignment and, with it, the markets’ collective capacity to serve the real economy.
FCMs, IBs, and exchanges should be working together, not being pulled apart by regulatory edict, opportunistic business models or political pressure. I urge the Commission to ensure that its approach to prediction markets and non‑intermediated models strengthens, rather than fractures, the relationships at the core of the derivatives ecosystem.
Thank you for the opportunity to submit these comments. I would be pleased to discuss these views further or to participate in any future roundtables on this topic.
Respectfully submitted,
John J. Lothian
Executive Chairman & CEO
John J. Lothian & Company, Inc.
Elmhurst, IL
