Commodity Futures Trading Commission Headquarters in Washington, December 23, 2022.
Ting Sheng | Bloomberg | Getty Images
A coalition of 44 state attorneys general said in a letter to the Commodity Futures Trading Commission on Monday that the commission does not have the authority to regulate sports-related event contracts on prediction market platforms.
The letter was sent after the public comment period for the CFTC’s first proposed rule on prediction market regulation ended on Monday night. The measure primarily focuses on the exchange’s sports offering.
“The proposed rule exceeds the CFTC’s statutory authority, is inconsistent with the Constitution, and would otherwise be arbitrary and capricious in its current form,” a coalition of state attorneys general led by Ohio Attorney General Andy Wilson said in a statement. “The CFTC should start over and make it clear that sports betting and gambling cannot be traded.” [designated contract markets]is instead subject to state law. ”
Attorneys general representing Florida, Georgia, New Hampshire, Missouri and Texas did not sign the letter.
States and the CFTC have been embroiled in a jurisdictional dispute since trading volume on prediction market exchanges exploded last year, driven largely by the popularity of sports-related contracts. The 2026 FIFA World Cup saw platform volume reach new heights.
The CFTC and prediction market platforms maintain that all event contracts are swaps and derivatives regulated by the Commission. However, states across the country consider sports-related contracts so similar to sports betting that they fall within their jurisdiction.
In June, the commission released its first draft of proposed rules for regulating prediction markets. The draft law focuses on controversial sports-related event contracts and also describes which contracts could ultimately be banned.
The commission also created a definition of “game” in its regulations, which the commission said is one played for recreation or entertainment, governed by regulations, and based on measurable results determined by skillful activity during the activity. Derivatives market group CME Group disagreed with this definition in a letter to the CFTC.
“By defining ‘gaming’ as the sport itself, rather than a monetary wager on a sport, the CFTC’s definition suggests that: [Commodity Exchange Act] “This preempts state sports regulations, which is a gross overreach,” CME General Counsel Jonathan Marcus said in the letter.
The CFTC has used federal preemption rights as an argument in proceedings against states across the country to defend what it considers exclusive jurisdiction to regulate prediction markets. The commission has filed lawsuits with nine states across the country to defend its beliefs.
Although CME is concerned about the federal government’s regulation of sports-related event contracts, the exchange serves as a CFTC-regulated exchange for the sportsbook FanDuel sports prediction market.
Meanwhile, prediction market platform Rothera, which was launched in June, argued that the commission should adopt the very definition of a “game.” Because it’s about the activity itself.
“As the Commission recognizes, a definition focused on gambling, or ‘risking anything of value,’ will pervade all event contracts,” Rosella CEO Thomas Tsipas wrote in a letter to the Commission. “Mr. Rossella agrees that definitions that focus on ‘bets’ should be rejected.”
Prediction market observers widely agree that the Supreme Court will likely have the final say on who regulates sports-related event contracts. Until then, a flurry of decisions from other courts will determine the availability of prediction markets.
These decisions often have different outcomes. A Michigan judge in late June blocked platform Karsi from offering sports betting in the state, while a federal judge in Minnesota on Monday temporarily blocked a statewide ban on Saturday prediction markets from taking effect.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
Never miss the most trusted news moments in business news when you choose CNBC as your preferred source on Google.
Source link
