Congress grills CFTC Chair Selig on prediction markets, insider trading
Members of the House of Representatives Committee on Agriculture held a stern and occasionally scathing interrogation of Commodity Futures Trading Commission (CFTC) Chair Michael Selig on Thursday.
In a hearing set up for the sole purpose of receiving testimony from Selig, members touched on a range of topics but most prominently quizzed the agency’s leader on how the commission is tackling integrity issues in trading.
CFTC ‘regularly’ rejects contracts, says Selig
Selig stressed numerous times that the CFTC takes “a zero-tolerance policy” on insider trading and market manipulation.
After noting the agency’s regulatory policy that allows licensed market-makers to self-certify contracts unless they are objected to and rejected by the agency within a certain timeframe, he was asked how many self-certified contracts the CFTC has rejected under his leadership.
Selig did not give a number, but stated that “we regularly reject contracts”. When quizzed by Rep. Andrea Salinas (D-Oregon) on how many investigations related to prediction markets are currently ongoing within the commission, Selig again did not offer a specific count, but suggested that the number may be in “the hundreds or thousands”.
Can Selig tell sports betting and prediction markets apart?
Most of the many questions about market integrity were asked in the context of the reports of potential insider trading on platforms such as Polymarket, including on markets related to the Iran conflict.
But the similarity between sports event contracts and sports betting was also a central theme. Committee Chair Rep. GT Thompson (R-Pennsylvania) opened by opining that the growth of prediction markets has spawned “significant confusion and debate” about the CFTC’s role and authority, as well as what falls under the Commodity Exchange Act (CEA) and what does not.
The most striking moment came when Rep. Gabe Vasquez (D-New Mexico) held up a sign comparing prediction markets contracts on a Colorado Rockies vs. Houston Astros game to state-regulated sportsbook odds on the same game. Vasquez asked whether Selig could identify which was which, to which Selig responded that he was not an expert.
“It’s clear to me that you can’t tell, and that’s the problem, because the average consumer also can’t tell,” Vasquez said. “Here, you see that the results from the prediction market and the state-regulated gaming entity in the lines that are put on the sports bets aren’t much of a difference. Yet they are regulated completely differently, although the odds are functionally the same and the outcome for the end user is the same.
“Consumers couldn’t care less if they’re using an official sportsbook or engaging with a prediction market; the purpose of engaging in the activity for monetary gain is the same.”
Vasquez added that the CFTC was not created or intended to regulate sports gambling.
“At the end of the day, this comes down to a simple question: Are we regulating real economic risk, or are we allowing prediction markets to steal billions of dollars in an unregulated free-for-all with no consumer protection as Congress and the CFTC turn a blind eye?” Vasquez said.
And what of tribal gaming in a PM world?
Several committee members in states where federally recognized tribes have gaming compacts voiced concerns about sports prediction markets infringing upon tribal gaming rights.
“When a federal agency like the CFTC allows prediction markets to bypass these established, long-standing legal requirements but under a different label, and uses loopholes to evade regulation and consumer protection standards, it undermines tribal sovereignty and state protection,” said Vasquez.
Rep. Jim Costa (D-California) described prediction markets on categories such as sports as “gambling by just another name”.
“In states like California, voters have already rejected expanded online sports betting,” Costa said. “It’s a serious problem for tribal governments whose gaming rights and revenues depend upon carefully negotiated tribal state compacts … Do you recognize that these platforms offering sports and casino-style gaming contracts undermine that sovereignty?”
Selig did not directly answer the question, instead referring to the fact that the CFTC issued an advanced notice of proposed rulemaking to seek public comments on prediction markets. Selig similarly deflected questions by referring to that rulemaking notice numerous times throughout the hearing.
“I don’t believe Congress intended sports wagering to be repackaged as a financial product to dodge rules that apply to everyone else, including our tribes,” added Costa, who said he is working on legislation to address the issue.
Geofencing an option to safeguard tribes?
Meanwhile, Oregon’s Salinas asked Selig whether the CFTC has considered whether safeguards like geo-fencing could be implemented to limit market trading on tribal lands, and whether not doing so might conflict with the federal Indian Gaming Regulatory Act (IGRA).
Selig again pointed to the notice of rulemaking instead of offering a direct response, but emphasized that he has met with tribes and will continue to do so.
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