CFTC Chair Clarifies Role of Regulator in Prediction Markets on ‘Odd Lots’ Podcast
If there’s a phrase to summarize Commodity Futures Trading Commission (CFTC) Chairman Mike Selig’s method to prediction markets, it’s this: “versatile guardrails.”
At first, that doesn’t make sense: A guardrail that bends and flexes wouldn’t be probably the most dependable in holding, let’s say, a runaway automotive from tumbling over the aspect of a cliff. But Chairman Selig has the utmost confidence that the CFTC’s “principle-based regulation” method will make sure the integrity of these prediction markets and the safety of their prospects.
Selig laid all of it out on the Feb. 12 episode of Bloomberg’s Odd Lots podcast. “We’re actually at a pivotal second,” Chairman Selig excitedly advised hosts Joe Wiesenthal and Tracy Alloway. “Prediction markets, crypto, AI, all method of new applied sciences and merchandise which might be impacting our markets.”
“The CFTC was actually this type of little-known regulator earlier than the monetary disaster, regulating futures markets,” he added. “And now, we see a lot innovation [with things like] prediction markets and crypto. The company is basically at this distinctive second the place it has the chance to form the longer term of these new and rising markets.”
‘Flexible guardrails’ and ‘principle-based regulation’
Unsurprisingly, Selig doesn’t assume the CFTC will “form the longer term” of prediction markets with a agency hand.
Selig beforehand stated he needs to “future-proof” the markets via rulemaking, not via regulation, which he sees as a solution to stifle innovation.
Citing the recent debate over whether or not or not Cardi B carried out throughout the Super Bowl LX Halftime Show, Selig stated that platforms like Kalshi and Polymarket have their very own “necessities for contracts” to find out how a contract resolves. He doesn’t see any want for the CFTC to step in and problem a judgment.
“We’re seeing some variations between Kalshi’s rulebook and Polymarket’s rulebook,” he stated. “But, that’s the beauty of our markets — being able to construct a enterprise, to develop an change, with some versatile guardrails on high, that the [CFTC] oversees. But we don’t prescribe what precisely needs to be in the rulebook. We have a principles-based system of regulation.”
Maintaining ‘integrity’ of the foundations however no ‘advantage’ regulation
Listening to Odd Lots, it’s evident Selig is well-versed in the U.S.’s monetary historical past, which is one thing one would need in the chairman of a significant monetary fee. Selig introduced up the CFTC’s origin in the Nineteen Thirties with the passage of the Commodity Exchange Act, and the way the fee initially lined merchandise comparable to grain and pork bellies.
Selig views these fashionable prediction exchanges and crypto markets as the subsequent step in monetary evolution, and his CFTC is working accordingly. While some individuals could be appalled on the thought of putting a wager on whether or not or not it’ll rain tomorrow, Selig sees it as a reputable market.
“We don’t advantage regulate,” he stated. “We don’t inform individuals what they need to be getting into into contracts on. We create guidelines and laws for these markets to make sure they’re integrity, resilient, vibrant, and have guardrails and investor protections … We’re not telling individuals whether or not to commerce pork bellies or Cardi B contracts or anything.”
Sports markets are completely different from sports activities playing, based on Selig
Recently, New York City impartial information publication Pigeon Post mentioned Kalshi and Polymarket’s NYC pop-ups, which gave out “free” groceries. The publication argued these publicity stunts had been a solution to achieve favor with Mayor Zohran Mamdani, who needs to open city-run grocery shops.
Why do they wish to buddy with Zohran? Mamdani carries so much of political weight in New York, and the Pigeon Post inferred that Kalshi and Polymarket needed to cozy as much as him since New York Attorney General Letitia James warned that prediction market platforms could be thought of “unregulated gambling.” This is a crimson flag, since playing in New York is closely regulated and closely taxed. Polymarket and Kalshi don’t need both of these issues.
However, on Odd Lots, Chairman Selig argued that prediction markets’ sports activities contracts aren’t playing. Selig highlighted the structural variations, citing historic cases of markets that “had by-product devices and contracts the place you really had been in contract with one other particular person.”
“And then now in our markets, we have now a clearinghouse novating and standing in the center of these contracts, however you will have a purchaser for each vendor,” he stated. “With the type of ‘bookie mannequin,’ that’s not the case. You’re betting towards the home. And there’s so much of completely different guidelines if you’re betting towards the home.”
Selig identified that the bookie mannequin has bettors “going through the percentages of the bookie versus [prediction markets], the place the contracts go up and down in worth based mostly on precise market exercise.”
When requested about considerations about sports activities occasion contracts successfully decreasing the authorized age to gamble (some states require customers to be 21 to guess on a sports activities sport, whereas you need to be 18 to commerce a future), Selig stated that the CFTC shouldn’t be a “advantage regulator.” Selig sees these not as playing, however as “fiscal market exercise.”
“These aren’t wagers, you’re not betting towards the home,” he stated. “We have vital overlay from a regulatory standpoint over these markets. And so we’re not gatekeeping explicit classes of markets, elections, or sports activities by having completely different requirements.”
Selig may need to make his case sooner quite than later, as a number of states pursue authorized motion asserting their authority over sports activities occasion contracts. In Massachusetts, for instance, Polymarket recently filed a federal lawsuit in search of to keep away from potential geoblocking, after a court docket ordered rival platform Kalshi to block users in the state.
Chairman says CFTC can deal with its work
Currently, Chairman Selig is the one governor on the CFTC, a panel that usually has 5 members (picked by the president). While the panel often splits 3-2, usually in favor of whichever occasion is in the White House, there at present is zero resistance to Selig’s designs for the CFTC.
This can be emblematic of how the company is working. Recent reports of the CFTC losing key enforcement figures and a tradition of “chaos, cutbacks and paranoia” have many left many doubting that the fee may do its job.
Selig assured listeners that the CFTC is greater than succesful of dealing with its workload. “We’re really leveraging so much of new applied sciences like AI to ensure we’re surveilling the markets,” he stated, “and we’re reviewing issues like insider buying and selling and bringing circumstances the place it is smart.”
“We regulate a virtually 500 trillion notional market with the swaps market,” Selig stated. “We have very stringent necessities and controls round our exchanges, and these contracts replicate that.”
“They undergo a really stringent course of of self-certification. They can’t be readily inclined to manipulation. We surveil these markets. We’ve policed issues like insider buying and selling. And so it’s a way more strong scheme on high of these markets, a lot larger, stringent necessities.”
And for these pondering that the CFTC is asleep on the wheel?
“Rest assured, we’re on high of these markets,” he stated. “These have the identical kinds of investor protections that you’d count on in the securities markets and in our futures markets.”
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