The Commodity Futures Trading Commission (CFTC) filed an amicus brief recently that confirms its exclusive jurisdiction over the U.S. commodity derivatives markets, including prediction markets.
The brief was filed in the U.S. Circuit Court of Appeals for the Ninth Circuit for North American Derivatives Exchange, Inc. et al v. The State of Nevada on relation of the Nevada Gaming Control Board et al.
“CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets. This power grab ignores the law and decades of precedent,” CFTC Chairman Michael Selig said. “Event contracts allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events. These products are commodity derivatives and squarely within the CFTC’s regulatory remit. As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do.”
The amicus brief outlines the details of the CFTC’s exclusive jurisdiction over all commodity derivatives markets, including prediction markets. Over the years, courts and Congress have affirmed the CFTC’s role in regulating these markets. States and other federal entities do not have the authority to further regulate markets within the CFTC’s exclusive jurisdiction. The CFTC argues that attempting to do so would have destabilizing economic effects.
The CFTC first officially recognized event contracts in 1992 when it allowed the Iowa Electronic Markets to buy and sell contracts pegged to events such as presidential elections and corporate earnings.
Following the 2008 financial crisis, Congress granted the CFTC authority over any such contract based on a commodity, which is broadly defined in statute. Further, the Commodity Exchange Act is designed to account for innovation in the financial markets, allowing for new and emerging use cases within CFTC-regulated markets.