Mike Selig, chairman of the Commodity Futures Trading Commission, told CoinDesk that the agency will continue to defend its “exclusive regulatory authority” to oversee prediction markets in court. “It doesn’t matter whether it’s sports, politics or anything else, if it’s a product offered legitimately within a CFTC-regulated exchange, we regulate it,” Selig said.
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NASHVILLE, Tennessee – The Commodity Futures Trading Commission is defending its turf in states suing prediction markets, the head of the regulator told CoinDesk.
CFTC Chairman Mike Selig, speaking on the sidelines of the Digital Assets and Emerging Tech Policy Summit hosted by Vanderbilt University and the Blockchain Association on Monday, said the agency’s lawsuits against Arizona, Illinois and Connecticut make it “very clear … that the CFTC has exclusive regulatory authority when it comes to commodity derivatives markets.”
Selig, who is speaking at CoinDesk’s Consensus Miami conference next month, said Monday’s Third Circuit Court ruling that the CFTC has to oversee prediction markets bolsters his agency’s approach.
Under Selig, the CFTC has launched a major litigation effort to strengthen prediction markets’ arguments that they are providing derivatives products under the Commodity Exchange Act rather than gambling services regulated by states.
“Our view is that the statute is very clear that when you offer swaps on a federally regulated named contract market, those transactions, those trades are subject to federal regulation,” he said. “It doesn’t matter whether it’s on sports, politics or anything else; if it’s a product offered legitimately within a CFTC-regulated exchange, we regulate it, and states don’t have the ability to override federal oversight and replace gambling laws where derivatives laws apply.”
Asked why the CFTC did not sue Nevada or Massachusetts – two states that have successfully won preliminary injunctions against prediction market providers – Selig said “I would not say, just because these are the first states, that they will be the last.”
He noted that the CFTC has filed an amicus brief in a consolidated case before the Ninth Circuit Court of Appeals, which will be heard next week. The Ninth Circuit includes Nevada.
Dodd-Frank swap
Under the Dodd-Frank Act, the CFTC can regulate swaps and block certain types based on whether they are in the public interest. These categories include war, terrorism, murder, gambling, anything otherwise illegal or “other similar activity”.
Selig said the key issue is how, under the law, the CFTC decides whether a product is contrary to the public interest. Lawsuits involving this have focused on that aspect – regardless of the events underlying the contracts.
“Regardless of the categories of those underlying categories, whether it’s war terrorism, murder, gaming, etc., even if we have to do a public interest analysis, or we choose to do a public interest analysis, that doesn’t mean it’s not within our particular regulatory authority,” he said. “And so that’s what the cases are about, and that’s what we’re fighting for.”
The CFTC is currently going through a formal rulemaking process to clarify its oversight of prediction markets.
“We are open to suggestions about what that process should look like and how it should be evaluated,” he said. “We are certainly considering that provision of the Dodd-Frank Act.”
interpretive guidance
Outside of prediction markets, Selig said the CFTC will review any comments on the final interpretation published with the Securities and Exchange Commission last month.
“To the extent that we get feedback on some things that we can change or need to reconsider, we will certainly do that,” he said.
More importantly, he said, the creation of a taxonomy means that if a company wants to self-certify a futures product tied to a digital asset, the CFTC and SEC can look to their guidance to ensure that the token is not a security.
“To the extent that you have a tokenized security, we are not at odds with the CFTC claiming that it is a commodity or the SEC claiming a different type of commodity as a security,” he said. “We have drawn clear lines in the law.”
The guidance was intended to be comprehensive, he said, so both companies and agencies had examples.
“We need to have a great deal of unity across all agencies,” he said.
monday
- 13:00 UTC (9:00 am ET) SEC Chairman Paul Atkins will speak at the IMF-IOSCO conference on new technologies.
Thursday
- At 14:00 UTC (10:00 am ET) the House Agriculture Committee will hold a hearing with CFTC Chairman Mike Selig. There are not many details about the subject of the hearing – it only says that it is “for the purpose of obtaining testimony.”
- At 16:00 UTC (9:00 am PT) a Ninth Circuit Court of Appeals panel will hear arguments in a consolidated set of cases involving prediction markets and state regulators. The CFTC filed an amicus brief in the case and will also speak during arguments.
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