On Thursday, The Event Horizon broke the news that the CFTC had canceled its prediction market roundtable.
The event had been pitched as an opportunity for stakeholders in gaming, finance, and government regulation to resolve some of the conflicts that event contracts on sports and elections had sparked.
Acting CFTC Chair Caroline Pham first announced the roundtable on Feb. 6, but the most recent update came during her keynote address at the International Futures Conference on March 11.
“I have announced that the CFTC will host a prediction markets roundtable, currently likely to be held at the end of next month…This roundtable is a necessary first step in order to establish a holistic regulatory framework that will both foster thriving prediction markets and protect retail customers from binary options fraud such as deceptive and abusive marketing and sales practices. The prediction markets roundtable press release identifies a number of key issues regarding CFTC regulation of event contracts, and requests public feedback, suggestions, and requests to participate as panelists.”
Courts positioned to address gaming vs. investing questions
Even though the roundtable is either delayed or canceled, the courts are already working to resolve emerging conflicts between state gambling regulators and prediction market platforms.
CFTC-regulated prediction market platform Kalshi has received over half a dozen cease-and-desist letters over its event contracts on sports. Kalshi has sued three state gambling regulators and is likely to follow with more.
Gambling regulators have alleged that Kalshi’s sports contracts are “gaming” and should fall under the authority of state sports betting laws. Kalshi has retorted that as a federally regulated derivatives platform, only the CFTC can limit its event contracts.
If the courts rule in Kalshi’s favor and confirm that only the CFTC has regulatory authority over Kalshi’s event contracts, then attention must turn to the commissioners.
Former Kalshi supporters and board members
Kalshi may have made headlines for Donald Trump Jr.’s advisory role in the company. However, Kalshi may have a more powerful ally in President Trump’s CFTC Chair nominee, Brian Quintenz.
Quintenz was a Kalshi board member after his initial term as a CFTC commissioner. He also defended another prediction market platform, ErisX, in 2021 when it tried to offer contracts on NFL games. Quintenz argued:
“All events are commodities, which means all contracts on future events are commodity futures contracts, which means all future event contracts need to be traded on a regulated and registered futures exchange.”
But as sports betting attorney Daniel Wallach has observed, Quintenz has also admitted that Rule 40.11, the CFTC’s regulation prohibiting event contracts involving “gaming,” required the CFTC to “prevent the listing of a contract that’s considered gambling.” Quintenz also believes Congress should make that determination instead of the CFTC commissioners.
Even if the prediction market roundtable happens, Kalshi seems favored to keep its sports and election contracts under Quintenz’s leadership. But those odds could always change.
