CFTC Chair Defends Prediction Markets in WSJ Op-Ed as Agency Moves to Intervene in Legal Battles
Commodity Futures Trading Commission chairman Michael Selig used a Wall Street Journal opinion column Monday to defend federally regulated prediction markets, signaling a extra assertive federal posture as the company prepares to weigh in on a carefully watched appeals courtroom case involving Crypto.com and Nevada regulators.
“The CFTC will not sit idly by whereas overzealous state governments undermine the company’s unique jurisdiction over these markets by searching for to set up statewide prohibitions on these thrilling merchandise,” Selig wrote in the column headlined “State Encroach on Prediction Markets,” in which he positions the problem as a direct problem to federal derivatives oversight.
The op-ed arrives amid intensifying authorized clashes between state authorities and federally regulated occasion contract exchanges, and seems designed to reinforce the CFTC’s argument that prediction markets fall beneath federal commodities regulation fairly than state playing statutes.
“The Commodity Futures Trading Commission for many years has overseen regulation of prediction markets — or occasion contracts, as we refer to them — that assist market individuals hedge threat, combination data and check hypotheses about future outcomes,” he wrote.
Recent CFTC submitting indicators federal involvement in Nevada dispute
The timing of the op-ed aligns with a Feb. 5 filing in the U.S. Court of Appeals for the Ninth Circuit in which the CFTC requested permission to submit an amicus transient supporting Crypto.com | Derivatives North America (CDNA), Crypto.com’s CFTC-regulated U.S. derivatives change by way of which it gives occasion contract buying and selling to U.S. prospects. The attraction stems from a dispute between CDNA and Nevada gaming regulators over whether or not sports activities prediction markets fall beneath federal or state authority.
In its movement for go away to file an out-of-time amicus transient, the company stated the attraction raises important questions on whether or not state authorities can regulate buying and selling on CFTC-registered Designated Contract Markets regardless of the Commodity Exchange Act’s grant of unique federal jurisdiction.
In explaining its late submitting request, the CFTC pointed to management modifications, noting Chairman Selig was confirmed in December and a brand new normal counsel was sworn in Jan. 28, transitions that “altered the CFTC’s programmatic priorities and institutional posture.”
The fee stated it intends to file its amicus transient by Feb. 17 and requested the courtroom to modify the briefing schedule to permit time for responses.
‘Derivatives vs. playing’ battle intensifies
The authorized dispute displays a rising nationwide battle over whether or not prediction markets, notably these tied to sports activities outcomes, ought to be handled as monetary derivatives or as a type of on-line playing.
Selig famous exchanges face “an onslaught of state-driven litigation throughout the nation, with almost 50 lively circumstances presenting a spread of authorized challenges,” mostly ones that argue that sports activities occasion contracts represent playing.
State regulators, tribal gaming pursuits and a few lawmakers have more and more superior that interpretation, arguing prediction markets encroach on regulated betting industries and shopper protections historically overseen on the state stage.
Prediction market platforms and their supporters proceed to emphasize the CEA’s expansive definition of commodities and swaps as the governing framework. A central theme of Selig’s op-ed is the financial usefulness of occasion contracts past leisure buying and selling.
“Event contracts serve professional financial capabilities,” he wrote. “They permit companies and people to hedge event-driven dangers, allow traders to handle portfolio publicity, and supply the general public with details about the result of future occasions. Farmers can handle threat associated to temperature modifications that will have an effect on crops, and small-business house owners can hedge in opposition to tax will increase or energy-price spikes, to title two examples.”
In the op-ed, Selig doesn’t as soon as point out the phrase “sports activities,” a notable omission as sports-related occasion contracts have develop into the first flashpoint in the state-vs.-federal regulatory debate.
Selig defends occasion contracts as regulated markets
Selig additionally framed his argument round present federal commodities regulation, stressing that occasion contracts match squarely inside established monetary market guidelines fairly than representing a regulatory grey space.
“Under the plain language of the Commodity Exchange Act, occasion contracts are ‘swaps.’ They are spinoff devices that permit two events to speculate on future market situations with out proudly owning the underlying asset,” he wrote.
Selig argued that Congress deliberately designed derivatives regulation to accommodate innovation, cautioning in opposition to treating newer merchandise otherwise just because they’re unfamiliar.
“The CEA’s textual content is designed to account for monetary innovation,” Selig wrote. “Futures have been novel at one level. So have been swaps and exchange-traded funds.”
Selig additionally sought to counter criticism that prediction markets function with out ample safeguards.
“These exchanges aren’t the Wild West, as some critics declare, however self-regulatory organizations which are examined and supervised by skilled CFTC employees,” he wrote, pointing to surveillance necessities, anti-money-laundering guidelines and fraud prevention obligations as proof the markets function inside established monetary regulatory pointers.
Jurisdiction battle removed from settled
Ultimately, the dispute might hinge on whether or not courts settle for the CFTC’s preemption argument or permit states authority to regulate sure occasion contracts as playing merchandise. While no definitive appellate ruling has settled the problem, some courts and most regulators have up to now proven reluctance to totally embrace blanket federal preemption, notably the place occasion contracts carefully resemble conventional wagering merchandise.
Selig closed his column with a warning concerning the broader stakes.
“America is house to probably the most liquid and vibrant monetary markets in the world as a result of our regulators take critically their obligation to police fraud and institute applicable investor safeguards,” he wrote. “Any erosion of the CFTC’s means to regulate transactions in commodity derivatives is a direct risk to the markets and traders Congress meant the company to oversee.”
With appellate litigation advancing, a number of parallel lawsuits underway, and potential future rulemaking on the horizon, the jurisdictional battle over prediction markets is way from settled. Federal regulators now seem more and more keen to play a much bigger function in shaping how that boundary is finally outlined.
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