In a new communication to operators and exchanges regulated by the Commodity Futures Trading Commission (CFTC), the organization finally gave some feedback on its stance on sports contracts.
That feedback?
They haven’t reviewed them to make a determination yet.
Communication says CFTC hasn’t reviewed sports
In a footnote to the guidance, three acting CFTC directors warned operators that the offering of sports-related event contracts has not been evaluated by the regulator. The authors of the letter were Market Participants Division Acting Director Thomas J. Smith, Division of Market Oversight Acting Director Rahul Varma and Division of Clearing and Risk Acting Director Richard Haynes.
“The Commission has not, to date, been requested to take or taken any official action to approve the listing for trading of sports-related event contracts on any DCM,” the footnote read.
“All sports-related event contracts that are currently listed for trading on DCMs have been listed pursuant to self-certifications filed by the relevant DCM pursuant to CEA section 5c(c)(1) and Commission regulation 40.2, 7 U.S.C. § 7a-2(c)(1).17 CFR 40.2, and the Commission has not, to date, made a determination regarding whether any such contracts involve an activity enumerated or prohibited under CEA section 5c(c)(5)(C)(i), 7 U.S.C. § 7a-2(c)(5)(C)(i), or Commission regulation 40.11(a), 17 CFR 40.11(a).”
The footnote included the text of the Special Rule related to gambling, but did not offer an interpretation on how to read the rule, which has been hotly debated by both sides of the legal debate.
CFTC wants plans on potential sports contract shutdowns
The guidance also cautioned for a range of financial organizations, including Futures Commission Merchants (FCM) and Designated Contract Markets (DCM), to be prepared to submit paperwork to the CFTC regarding plans to potentially limit sports contract markets in certain states in this time of legal uncertainty around the issue.
With a government shutdown pending, the memo went out to offer preemptive guidance in the wake of a potential government shutdown.
That guidance potentially undermines a legal argument that Kalshi has repeatedly put forward, arguing that offlining its sports contracts in any particular market would potentially compromise its status with the CFTC.
DCMs need to present potential geofencing solutions
However, the CFTC is cautioning exchanges to be prepared to not only potentially geofence certain markets out of sports contract offerings but also to preemptively submit contingency plans for how the groups plan to do so if mandated by law to cease operation in a state.
“The Divisions note that FCMs, IBs, DCMs, and DCOs should be prepared to identify such contingency plans, disclosures, and risk management policies and procedures as part of the routine registration, oversight, and examination activities of the CFTC and applicable self-regulatory organizations, including monitoring legal developments and have risk mitigation and contingency plans in place to deal with any developments that may affect customer, market participant, or clearing member positions and funds.”
