What is a designated contract market? The licence behind Kalshi, Polymarket US and every legal US prediction market

Guide · Updated November 6, 2026 · 18+ · Not legal advice · By BetG8 Editorial · Prediction Markets

The definition, in plain terms

The CFTC describes designated contract markets as “boards of trade (or exchanges) that operate under the regulatory oversight of the CFTC,” pursuant to Section 5 of the Commodity Exchange Act, codified at 7 U.S.C. 7. Two features separate a DCM from the other venue types the CFTC licenses. First, a DCM “may allow access to their facilities by all types of traders, including retail customers.” A swap execution facility, by contrast, is restricted to eligible contract participants, which in practice means institutions and wealthy individuals. Second, the rule is mandatory: any trading facility that wants to serve ordinary customers must be designated as a DCM unless a specific exemption applies.

That is why the prediction-market industry reorganised itself around this licence. An app that lets a 19-year-old in Texas buy a contract on who wins a football game is offering a derivative to a retail customer, and under federal law the matching engine behind that app has to be a DCM. Everything else in the stack, the brokers, the clearing house, the geofencing software, hangs off that fact.

How an exchange becomes one

An applicant files Form DCM, which the CFTC says “contains instructions and a list of necessary information and documentation.” The Commission reviews the application against the designation criteria in Section 5 of the Act and in Part 38 of its regulations. Appendix B to Part 38 publishes guidance and, for some principles, “acceptable practices” that an exchange can adopt to be treated as compliant. Once designated, the exchange lists new contracts mostly by self-certification: it files the contract terms and certifies that they comply with the law, and the contract can trade unless the Commission intervenes within the review window.

Designation is not a one-time event. To obtain and keep it, a DCM must comply with 23 core principles under CEA Section 5(d). The CFTC’s own summary groups them as follows.

Core Principle 2 became front-page material on November 5, 2026, when the CFTC issued an interpretation stating that blocking traders by US state violates the impartial access requirement in Regulation 38.151(b) and gave exchanges 30 days to stop or explain. Our report on that order covers the collision with state court injunctions.

DCM, DCO, FCM: the three licences behind one trade

The exchange is only one of three regulated roles, and the brand on the app is often not the exchange at all.

The DCM is the matching engine, where a buy order for Yes meets a sell order for Yes, or equivalently a buy order for No. The derivatives clearing organization (DCO) stands between the two sides after the match, holds the collateral and pays out at settlement, so neither trader has to trust the other. Some prediction-market exchanges clear through a sibling company, as Kalshi does with Kalshi Klear and Polymarket US does with QC Clearing; others, such as ForecastEx and CDNA, are registered as both. The futures commission merchant (FCM) is the broker that can accept customer money and route orders to the exchange. An introducing broker can solicit and route orders but not hold funds, so it pairs with an FCM.

A worked example makes the roles concrete. Suppose you put $50 into a sports-contract app at 1pm on a Sunday and buy 100 Yes contracts at 50 cents each on your home team winning that night.

If the team loses, the contracts settle at $0 and the seller receives the $100. The $50 you risked and the $50 the seller risked were both held by the clearing house from the moment of the match, which is why a regulated exchange does not need to take the other side of your bet the way a sportsbook does. Fees are charged on top; our fee calculator shows what Kalshi and Polymarket US take at different prices.

Which prediction markets are DCMs

The table below lists the designations most relevant to prediction markets, with dates from CFTC filings as compiled by ticker-tracker.com and DeFi Rate. Check the CFTC’s trading organizations search for the current record, because the list has grown every few months since 2025.

Two names people expect to see are missing. Sporttrade and Smarkets had DCM applications on file as of mid-2026 rather than designations, and Novig’s Ludlow Exchange was designated in June 2026 but is a smaller venue. The original Polymarket, the one with billions in election volume, is not on the list at all: it runs on the Polygon blockchain, settles in USDC, and has been closed to US users since a 2022 CFTC settlement. Polymarket’s US business runs entirely through QCX. Our Polymarket legality guide explains that split.

Why the licence is being fought over

Section 2(a)(1)(A) of the Commodity Exchange Act gives the CFTC “exclusive jurisdiction” over accounts, agreements and transactions involving contracts of sale of a commodity for future delivery traded on a DCM. Exchanges read that sentence as preemption: if a sports contract is listed on a DCM, a state cannot prosecute it as unlicensed gambling, any more than it could prosecute a corn future. States read the same statute as covering derivatives, not bets, and point to Section 5c(c)(5)(C), which lets the CFTC prohibit event contracts involving “gaming” or activity unlawful under state law.

The appellate courts have split. The Third Circuit sided with Kalshi against New Jersey; the Ninth Circuit (Nevada, August 28, 2026) and the Sixth Circuit (September 25, 2026) sided with the states. The Supreme Court has been asked to resolve the question in New Jersey v. Kalshi, docket 26-299, with the NFL and 39 state attorneys general filing briefs against the exchange. Our state tracker lists where each state stands while that case is pending.

The practical point for a trader is simple. DCM status tells you that the exchange is federally supervised, that your collateral sits at a clearing house, and that the contract terms were filed with a regulator. It does not, as of November 2026, tell you that the contract is legal to trade in your state, and in Nevada, Michigan, Washington and Utah courts and prosecutors have said it is not.

What this guide does not cover

This guide describes the licence, not the products. It does not cover how individual contracts are written or resolved, which is in how prediction markets resolve, or the fee schedules, which are in Kalshi fees explained. Designation dates are taken from secondary compilations of CFTC filings and should be checked against the Commission’s own records before being relied on. Corporate ownership changes quickly in this sector; the ownership notes reflect public reporting as of November 2026. Nothing here is legal, tax or financial advice.

Related

• The CFTC gave prediction markets 30 days to stop geofencing states
• Kalshi legality tracker: every state, every order
• How does Kalshi work?
• Is Polymarket legal in the US?
• Prediction market fee calculator
• Glossary: designated contract market

Frequently asked questions

What is a designated contract market?

A designated contract market, or DCM, is an exchange that the Commodity Futures Trading Commission has licensed under Section 5 of the Commodity Exchange Act. DCMs may list futures, options and event contracts and may admit retail customers directly. To keep the designation an exchange must comply with 23 core principles set out in the Act and in Part 38 of the CFTC’s rules.

Is Kalshi a designated contract market?

Yes. Kalshi EX LLC was designated as a contract market on November 3, 2020 and also runs its own clearing house, Kalshi Klear LLC, registered as a derivatives clearing organization in August 2024.

Is Polymarket a designated contract market?

Polymarket US is. It operates on QCX LLC, which the CFTC designated on July 9, 2025 and which Polymarket acquired in 2025, with clearing through QC Clearing LLC. The original Polymarket platform, which settles in USDC on the Polygon blockchain, is not a DCM and is not open to US residents.

What is the difference between a DCM, a DCO and an FCM?

A DCM is the exchange where orders match. A derivatives clearing organization, or DCO, guarantees and settles the trades. A futures commission merchant, or FCM, is a broker that holds customer money and routes orders to a DCM. Robinhood Derivatives is an FCM that routes to Kalshi; DraftKings Predictions and Fanatics Markets act as introducing brokers that route to other firms.

Does being a DCM make sports contracts legal in every state?

That is the question the courts are deciding. Exchanges argue the Commodity Exchange Act gives the CFTC exclusive jurisdiction over contracts traded on a DCM, which would preempt state gambling laws. The Third Circuit agreed in a New Jersey case; the Ninth and Sixth Circuits disagreed. The Supreme Court has been asked to resolve the split in New Jersey v. Kalshi, docket 26-299.

Sources

• CFTC, Designated Contract Markets (DCMs), industry oversight page
• CFTC, Trading organizations: industry filings and DCM search
• CFTC, CFTC Issues Impartial Access Requirements Interpretation, November 5, 2026
• Cornell LII, 7 U.S.C. 7, Designation of boards of trade as contract markets
• ticker-tracker.com, Every CFTC-regulated prediction market, records as of August 2026
• DeFi Rate, Prediction market land grab: DCMs, FCMs and the race to control the stack, March 23, 2026
• Supreme Court of the United States, Docket 26-299, amicus brief, October 7, 2026

18+ only. Prediction market contracts carry real financial risk. This page is a guide, not legal, tax, financial or betting advice. If gambling stops being fun, help is available at 1-800-GAMBLER.