Novig Pursues Federal Regulation Through CFTC Application for Prediction Market Exchange

Kevin Jones
2 days ago
8 min read

As US regulatory posture softens toward event contracts, Novig moves to separate its consumer brand from a federally supervised exchange model.

In a significant strategic pivot toward federal oversight, Novig formally submitted an application to the Commodity Futures Trading Commission (CFTC) in January 2026 to operate a regulated exchange. The application was filed under a distinct legal entity, Ludlow Exchange LLC , with Novig listed as the parent holding company. This corporate structuring separates the exchange operations from the consumer-facing brand, a common practice in regulated derivatives markets.

Designated Contract Market (DCM) vs. Derivatives Clearing Organisation (DCO)

Novig’s regulatory strategy is notable for its specific licensing targets. The company has applied for Designated Contract Market (DCM) status, which would authorise it to list and trade event contracts under the Commodity Exchange Act. However, unlike some competitors who seek dual registration, Novig is explicitly not pursuing registration as a Derivatives Clearing Organisation (DCO) at this stage.

Instead of operating its own clearinghouse, Ludlow Exchange’s filings outline a fully collateralised trading model. This structure mitigates the need for traditional margin and leverage mechanisms, which typically require a DCO license to manage credit risk. Key operational characteristics of the proposed exchange include:

Contract Structure: Contracts will be binary or combination event contracts sized at $1, quoted in dollars and cents.
Collateralization: The model requires 100% collateralization upfront, eliminating the risk of default and the need for margin calls.
Intermediation: Ludlow Exchange does not intend to offer intermediated trading through third-party Futures Commission Merchants (FCMs), opting instead for a direct-access model.
Market Oversight: An internal Outcome Review Committee will be established to certify final market outcomes, ensuring integrity in contract settlement.

Submission Timeline and Status The application was submitted on or around January 21, 2026, and is currently listed as "pending" by the CFTC. The review process for DCM licenses is rigorous and historically lengthy; for context, similar applications by entities like Railbird and QCEX took approximately two years to move from filing to approval (2022 to 2024). Novig’s leadership, specifically co-founders Jacob Fortinsky and Kelechi Ukah, are listed as directors of Ludlow Exchange, with Fortinsky signing the "Form DCM" as CEO.

Corporate History and Strategic Evolution

Novig’s move toward federal derivatives regulation represents the third major iteration of its business model, reflecting a rapid adaptation to the shifting US regulatory landscape for betting and prediction markets.

Founding and Initial Market Entry Founded by recent Harvard graduates Jacob Fortinsky and Kelechi Ukah, Novig initially positioned itself as a high-frequency, commission-free sports betting exchange. The company’s original value proposition was to eliminate the "vig" (vigorish) charged by traditional sportsbooks, utilising institutional-grade trading technology to facilitate peer-to-peer wagering.

Pivot to Sweepstakes and Prediction Markets Novig launched as a licensed sports betting operator in Colorado in 2024. However, facing the high costs of state-by-state licensure and a complex patchwork of state regulations, the company pivoted to a sweepstakes model. This "dual-currency" system allowed users to play with "Novig Coins" (social currency) and "Novig Cash" (redeemable for real prizes), a structure utilised to offer services across a broader range of states without obtaining individual gambling licenses in each. The subsequent application for CFTC regulation signals a move away from this gray-market sweepstakes approach toward a federally compliant framework, likely a response to increasing state-level scrutiny of sweepstakes operators and the rising legitimacy of regulated event contracts.

Investment Profile and Capitalisation

Novig has secured significant backing from high-profile venture capital firms and angel investors, validating its technological approach to market-making. As of August 2025, the company has raised approximately $24.9 million in total funding.

Key Investors and Backing The company is an alumnus of Y Combinator , the prestigious startup accelerator, which participated in multiple funding rounds. The investor roster includes a mix of institutional venture firms and notable individual technology investors.

Lead Investors: The Series A round was backed by Lux Capital , a firm known for investing in emerging science and technology ventures.
Notable Firms: Other institutional backers include Forerunner , Gaingels , NFX , Liquid 2 Ventures (co-founded by Joe Montana), and Soma Capital.
Individual Investors: The company has attracted capital from tech luminaries such as Paul Graham (co-founder of Y Combinator) and Arash Ferdowsi (co-founder of Dropbox).

Funding Rounds

Round	Date	Amount Raised	Transaction Context
Series A	August 10, 2025	$18,000,000	Major capital injection to fuel regulatory pivot and platform scaling.
Seed	September 1, 2023	$6,400,000	Early funding to support initial Colorado launch and technology development.
Pre-Seed	June 1, 2022	$500,000	Initial capital for prototype development post-founding.

This capitalization structure provides Novig with the runway necessary to endure the potentially lengthy CFTC approval process while maintaining its technological infrastructure.

The 2026 Regulatory Pivot: From Prohibition to "Future-Proofing"

Novig’s application arrives during a decisive shift in federal derivatives regulation. On January 20, 2026, the regulatory environment for prediction markets underwent a fundamental transformation when newly appointed CFTC Chairman Michael Selig announced the withdrawal of the agency's restrictive 2024 event contracts rule proposal. This proposal, originally advanced under the previous administration, had sought to explicitly define contracts involving political elections and sporting events as "gaming" and therefore "contrary to the public interest."

The withdrawal of this proposal, alongside the rescission of a 2025 staff advisory that cautioned registrants against offering sports-related event contracts, signals a move toward a permissive "future-proof" regulatory framework. Chairman Selig has directed staff to draft new rulemaking aimed at providing "clear standards" and legal certainty for event contracts, explicitly stating that the CFTC supports "lawful innovation" in these markets. This pivot is critical for Novig, as the previous regulatory regime had characterised the exact markets Novig seeks to operate—sports and political event contracts—as potentially illegal under the Commodity Exchange Act (CEA).

The "Gaming" Definition and Event Contract Boundaries

The central regulatory conflict Novig must navigate is the statutory definition of "gaming." Under the CEA, the CFTC cannot list contracts that involve "gaming," but the interpretation of this term has been fiercely contested.

The Restrictive View (2024 Proposal): The now-withdrawn 2024 proposal argued that event contracts tied to political contests, awards shows, and sporting events served no economic purpose and were functionally equivalent to gambling. Proponents of this view, including advocacy groups like Better Markets and Public Citizen, argued that such contracts could "commoditise and degrade" the democratic process and incentivise election interference.
The Industry Rebuttal: Opponents, including Coinbase and the Hamilton Lincoln Law Institute, successfully argued that the CFTC’s definition of "gaming" was overly broad and exceeded its statutory authority. They contended that prediction markets provide valuable economic data for hedging and forecasting, differentiating them from pure games of chance.

Novig’s business model relies on the latter interpretation—that sports event contracts are valid hedging instruments rather than mere wagers. The 2026 regulatory reset suggests the CFTC is now open to this argument, provided the exchange can demonstrate the economic utility of its contracts.

Competitive Precedents: Lessons from Kalshi, Polymarket, and PredictIt

Novig’s path to registration is illuminated by the distinct trajectories of its predecessors, each establishing different boundaries for what is permissible.

Kalshi: The Regulated Standard Kalshi serves as the primary precedent for a fully regulated Designated Contract Market (DCM) offering event contracts. While Kalshi successfully listed non-political contracts, its struggle to list political event contracts defined the legal battleground for years. The CFTC’s recent instruction to staff to "reassess the CFTC's role in pending federal court cases" implies that the aggressive litigation posture taken against Kalshi’s political contracts may be softening, potentially easing Novig’s entry into similar markets.

Polymarket: The Off-Exchange Warning Polymarket represents the regulatory "third rail" of offering event contracts without DCM registration. The CFTC previously sanctioned Polymarket for operating an illegal unregistered facility, establishing that decentralised or offshore structures do not exempt operators from CEA compliance. Novig’s choice to apply for DCM status via Ludlow Exchange directly addresses this precedent, opting for upfront compliance rather than the "ask forgiveness" model that drew enforcement actions.

PredictIt: The Academic Exception Limits PredictIt operated under a "No-Action" relief letter meant for academic research, which limited the scale and scope of its markets. The platform faced existential threats when the CFTC attempted to revoke this relief, arguing the market had outgrown its academic mandate. Novig’s application avoids this vulnerability by seeking full commercial licensure from day one, rather than relying on discretionary regulatory relief.

Specific Implications for Sports and Political Markets

While the 2026 initiatives have reduced hostility toward prediction markets, specific challenges remain for the asset classes Novig targets.

Sports Derivatives: The withdrawal of the 2025 advisory warning against sports contracts removes a significant chilling effect. However, Novig still faces the complexity of distinguishing its "event contracts" from state-regulated sports betting. The industry still faces uncertainty regarding how federal commodities law interacts with state-level gambling prohibitions.
Political Contracts: Despite the new Chairman's stance, political markets remain a sensitive area. Critics continue to argue that these contracts "cheapen the sanctity" of elections. Novig will likely need to implement robust surveillance to address concerns about market manipulation and election integrity, satisfying the "clear standards" Chairman Selig has promised to codify.

The "Exchange-First" Operational Model

Novig’s core operational strategy diverges sharply from traditional sportsbooks by functioning as a pure exchange rather than a counterparty. While traditional operators ("the house") profit from the vigorish (margin) on losing bets, Novig’s model facilitates direct peer-to-peer trading where users take positions against one another. This structure is designed to be commission-free for peer-to-peer trades , a significant differentiator intended to attract high-frequency traders and price-sensitive institutional liquidity.

Monetisation via Data and Institutional Flows Instead of charging retail commissions, Novig's revenue model relies on alternative streams that align more closely with financial market structures than gambling operations:

Market Making: For illiquid markets or less popular events, Novig acts as a market maker, charging a spread commission estimated between 1% and 4% to ensure liquidity.
Data Monetization: The platform intends to generate revenue by selling high-fidelity market data to institutional traders, leveraging the granular pricing information generated by its exchange activity.
Institutional Access: Novig specifically targets institutional traders who require direct market access (DMA) and low-latency execution, effectively creating a two-tiered ecosystem of retail participants and professional liquidity providers.

Technological Infrastructure: The High-Frequency Stack

Novig claims to be building the first true high-frequency trading (HFT) platform for sports prediction markets, with infrastructure designed to rival equities and futures exchanges rather than standard betting apps.The technology stack is engineered for millisecond-level execution to support automated trading strategies.

Core Architecture and Performance

Matching Engine: The backend is built in Java , a standard choice for high-performance financial trading systems due to its balance of speed and stability.
Latency Optimisation: The system is designed for low-latency execution, utilizing techniques common in HFT such as direct market access and optimised network infrastructure to minimise "environmental friction."
Throughput: Public benchmarks indicate the system can handle massive throughput, with trading volume reportedly increasing 50x since the platform's public launch in late 2024.
Frontend: The consumer-facing application is built on React Native, ensuring a responsive mobile experience that interfaces with the high-speed backend.

Liquidity Provision and "Kill Switch" Controls To manage the risks associated with HFT, Novig’s architecture includes embedded pre-trade risk controls and "deterministic kill switches." These features allow the exchange to instantly halt trading if algorithms behave erratically or if market integrity is threatened, a critical compliance feature for a CFTC-regulated Designated Contract Market (DCM).

Market Impact: Bridging Betting and Derivatives

Novig’s entry into the regulated space represents a concerted effort to financialize sports betting, treating sports outcomes as a new asset class of "event contracts" under the Commodity Exchange Act.

Disrupting the "Vig" Economy By eliminating the vig—which can run as high as 10% on traditional sportsbooks—Novig aims to compress spreads and improve price discovery. This efficiency argument is central to their regulatory pitch: that prediction markets serve a valid economic purpose by producing more accurate probability data than centralised bookmakers.If successful, this model could force traditional operators to compress their margins to remain competitive, particularly for price-sensitive segments of the betting population.

Institutionalising the Asset Class The application for DCM status is a strategic move to unlock institutional capital that is currently barred from state-regulated gambling markets. Regulated financial institutions, such as hedge funds and proprietary trading firms, cannot legally wager on sportsbooks but can trade federally regulated derivatives. By structuring sports bets as CFTC-regulated binary options, Novig creates a compliant pathway for these entities to deploy capital into sports markets, potentially increasing overall market liquidity and depth significantly beyond what retail-only sportsbooks can offer.

The Peer-to-Peer Shift Novig reports that over 90% of its current trades are fully peer-to-peer , validating the demand for an exchange model where users trade against each other rather than a centralised house. This high adoption rate of peer-to-peer functionality challenges the industry assumption that liquidity is the primary barrier to exchange-based betting, suggesting that with sufficient technological backing, a self-sustaining liquidity pool is viable.