Prediction markets
Audit, tax, and compliance for prediction market operators
If your firm cleared futures commission merchant registration to list event contracts, your first certified annual financial report is due 60 days after fiscal year end.
The rules that report gets measured against were written for futures, and the firm that signs it has to clear a bar most CPA firms never reach.
Who this is for
- Registered prediction market operators holding futures commission merchant registration
- Designated contract markets and clearing organizations listing event contracts
- Platforms with an application pending at the Commodity Futures Trading Commission
- Compliance and law firms placing an audit on behalf of a client in this sector
Your first certified annual report
The report is due 60 days after fiscal year end, and it is a certified annual financial report. That means an independent audit, not a compilation and not a review.
Regulation 1.17(a)(1)(i) sets minimum adjusted net capital as the greatest of the listed amounts rather than the sum of them. Reading it as a sum is a common error and an expensive one.
A futures commission merchant does not trade the contracts it lists. It routes orders to a designated contract market and holds the customer money. The Commodity Futures Trading Commission is the regulator and the National Futures Association is the self-regulatory organization that runs the examination.
Where your customer money sits
In the Commodity Futures Trading Commission’s own published financial data, registered prediction market operators report zero dollars in futures customer segregation and their entire customer balance in cleared swaps segregation. That follows from treating event contracts as swaps, which is what the platforms say in their own terms.
Federal courts have split on whether that reading holds. Until it settles, the account classification, the clearing arrangement, and the segregation math all rest on an open question, and the firm signing your report needs an answer ready for it.
Who is permitted to sign your audit
Regulation 1.16(b)(1) limits who can sign a futures commission merchant’s certified annual report. The auditor has to be registered with the Public Company Accounting Oversight Board. The auditor has to have been through a Public Company Accounting Oversight Board examination. And the auditor cannot be under a disciplinary bar from examining public issuers or brokers and dealers registered with the Securities and Exchange Commission.
Ask any firm you are considering to confirm all 3 in writing before you engage them. Most CPA firms in the country cannot.
What we do
- Certified annual financial report audits for futures commission merchants
- Customer funds and adjusted net capital computations
- National Futures Association examination readiness
- Tax treatment of event contract gains and losses
- Ongoing accounting and back-office support
Michael Coglianese CPA, P.C. has audited Commodity Futures Trading Commission and National Futures Association registrants for over 30 years and is registered with the Public Company Accounting Oversight Board.
Schedule a ConsultationPartner with a team you can count on, year after year.
Tell us your fiscal year end and where you are in the registration process. We will tell you what your first report needs and when the work has to start.
Schedule a Consultation