What was supposed to be a procedural hearing to discuss the reauthorization of the Commodity Futures Trading Commission (CFTC) turned into a session for several lawmakers to express their concern and frustration at the scope of offerings entities regulated by the CFTC are offering.
There is no set date to reauthorize the CFTC, but it is standard practice for Congress to periodically reauthorize agencies. The process includes evaluating funding, policies and oversight, then reauthorizing the group via legislative act.
Congress last reauthorized the CFTC in 2008, before the Dodd-Frank Act was passed in 2010, opening up the ability for companies like Kalshi and Crypto.com to offer swaps, which has eventually led to the rapid expansion of sports-related event contracts this year.
CFTC’s lack of resources were top of mind
On Thursday, the House Committee on Agriculture took an early step in the authorization process by holding a hearing where they hear from a variety of stakeholders about the CFTC and the purposes it serves.
The hearing lasted for nearly three hours and covered a range of topics, but the two most talked-about points were the small, stretched staff currently at the CFTC and the broadening range of event contracts available to users.
“When markets move faster than the regulators, everyday people are often left to pay the price,” cautioned Rep. Shontel Brown about the lack of budget and staff at the CFTC.
“I have serious concerns the Trump administration is purposefully handicapping CFTC’s capacity,” admitted Andrea Salinas, pointing to his financial ties to companies regulated by the CFTC and the slow pace at which the administration has been nominating people to fill the many vacant positions within the organization.
While the CFTC carries on with one commissioner, Chair Caroline Pham, a growing list of prediction market companies continue to self-certify new markets not just in sports but a range of cultural and political topics.
Are war contracts really in the public interest?
Rep. Jim Costa asked former CFTC General Counsel Rob Schwartz why the CFTC isn’t doing more to limit these event contracts that, in his mind, are clearly tied to gambling and war, two categories covered under the special rule.
“It’s because the statute gives the CFTC discretion. It’s a yellow light rather than a red light,” Schwartz explained, taking the stance that the proper interpretation is that a contract can be gambling-related so long as the CFTC determines it is in the public interest to exist.
Costa pushed back, citing some examples of existing contracts such as whether or not the United States will bomb Venezuela and suggested these are certainly not in the public interest.
“Where the hell are we going with this?’
“The CFTC has not taken any action, Schwartz reiterated. However, he said he is confident these contracts are swaps and the sole jurisdiction of the CFTC and the issue at hand is a policy question, not a state’s rights question.
Not everyone on the panel agreed with Schwartz’s stance.
“I don’t think the CFTC has the authority or expertise to regulate sports betting,” said Director of Securities Policy for Better Markets Benjamin Schiffrin, who focused most of his testimony on narrowing the scope of what the CFTC does and increasing the resources it has to do its job.
Vasquez suggested legislative action
Most of the House members expressed their sentiments as concerns. Rep. Gabe Vasquez of New Mexico was a bit more forceful in his statements and more openly advocated to include changes to how the CFTC regulates sports contracts as part of the reauthorization bill.
He also stated very plainly the economic problems this new vertical is creating for tribes and the gaming industry.
“What worries me is that the CFTC allows these companies to move forward unchecked and we’re gonna end up with unregulated and unsafe online sports betting that is offered by unlicensed operators with none of the protections that tribes and the states have spent decades building and have to follow,” Vasquez said.
“If online sports betting suddenly shifts into the CFTC’s purview, the traditional system for these types of activities get bypassed along with tribal compacts the U.S. government has made. It’s going to impact tribal revenue, it’s going to have an impact on tribal authority and, in New Mexico, that’s a real impact on our schools and our rural communities and those casinos that depend on that revenue,” he added.
“This committee has a responsibility to make sure the CFTC is enforcing the laws Congress has passed, obviously make sure that we modify those that we understand our outside of the law, so as we discuss reauthorization, I hope we are going to continue to protect consumers and that we stand with all our tribes across the country, not just in New Mexico.”
This was just the first in likely multiple hearings across the House and Senate regarding the reauthorization of the CFTC as the committees work towards drafting a reauthorization bill.
