CFTC Seeks Comment on Election Futures Contracts
Commentary by Steven Lofchie
The CFTC stayed a request on a rule certification filing by a clearing corporation ("DCM") that would facilitate the offering of election betting contracts. The CFTC requested public comment on the rule certification filing for the proposed contracts.
On September 11, 2024, the DCM notified the CFTC that, effective September 24, 2024, it was amending its rulebook to revise its prohibited transactions rules on pre-execution communications and quote order functionality. On September 24, 2024, the CFTC's Division of Market Oversight stayed the effective date for 90 days until December 23, 2024 to consider whether to certify the rule changes. The CFTC's public comment request will allow for a 30-day comment period within the 90-day stay. The deadline for public comments is October 28, 2024.
The CFTC stated that the DCM's filing presents "novel and complex" issues that require additional time to analyze and is potentially inconsistent with the CEA or the CFTC's regulations. According to the CFTC, the key issues concern: (i) market efficiency (i.e. the quote order functionality proposed by the DCM may not support a competitive, open and efficient market); and (ii) pre-execution communications (i.e. the rule amendments may facilitate pre-execution communications that could lead to pre-arranged trades.)
In 2023, the CFTC issued an Order to prohibit the listing of congressional control political event contracts. The District Court for the District of Columbia rejected the CFTC's Order and the US Court of Appeals for the District of Columbia Circuit granted the CFTC's request for an administrative stay of the District Court's decision.
Commentary
The CFTC has effectively run out the clock by preventing the offering of election-based contracts until after the upcoming elections.
The stated basis of the CFTC's reasons for delay—a worry about market efficiency and worries about pre-execution communications—seems a stretch. It would seem more likely that the majority of the Commissioners disfavor the listing of election contracts and, when a court found that the CFTC's determination to prohibit the listing of such contracts was "not in accordance with the law," the CFTC found a way to accomplish its end, at least for this election. Is that an appropriate way for a regulator to get its way?
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