DC Circuit Court Denies CFTC's Request for Stay on Election Betting Decision
Commentary by Steven Lofchie
The US Court of Appeals for the District of Columbia Circuit denied the CFTC's emergency motion for a stay that would have, at least temporarily, prevented the offering on a commodities exchange (the "Exchange") of "event contracts" based on which political party would obtain control of the US House of Representatives or US Senate (such contracts, "Congressional Control Contracts").
The CFTC's initial decision to prohibit the offering of the Congressional Control Contracts was based on the CFTC's statutory authority under the Commodity Exchange Act to prohibit the listing of contracts that are based on illegal activity or that involve "gaming" (i.e. betting or wagering on events). The Exchange challenged the CFTC's order prohibiting such contracts, arguing that the contracts were not based on an illegal activity (as elections are not an illegal activity) and did not resemble gaming. The District Court for the District of Columbia ruled in favor of the Exchange, finding that the CFTC's "order exceeded its statutory authority ... as the relevant contracts do not involve unlawful authority or gaming." The Court went on to say that the "case is not about whether Court likes [the] product or thinks trading it is a good idea. The Court's only task is to determine what Congress did, not what it could do or should do. And Congress did not authorize the CFTC to conduct the public interest review it conducted here." (See previous coverage.)
The CFTC then sought a stay on the decision. The Court of Appeals for the DC Circuit granted the CFTC an emergency stay to allow the CFTC time to challenge the district court's decision. Following the grant of that stay, the CFTC sought public comment on certain issues raised by Congressional Control Contracts, in effect staying the Exchange's request on a rule certification filing that would facilitate the offering of Congressional Control Contracts on the Exchange.
The US Court of Appeals for the District of Columbia Circuit has now dissolved its emergency stay, finding that the CFTC failed to demonstrate that it, or the public, will suffer irreparable harm that would justify halting the implementation of the district court's decision. The DC Circuit Court of Appeals concluded that while the CFTC's concerns about potential risks to election integrity were "understandable given the uncertain effects that Congressional Control Contracts will have on our elections," the CFTC did not substantiate the risks to election integrity that are likely to materialize if the Exchange is allowed to operate and list Congressional Control Contracts during the pendency of the appeal.
Commentary
As the District Court stated, its decision was not about whether election contracts should be permitted. Rather, its decision was about whether the CFTC had the legal authority under the CEA to prohibit the listing of such contracts. The District Court determined that, on a plain reading of the words of the CEA, the CFTC did not have such authority, and thus the District Court ruled against the CFTC.
No doubt that the CFTC majority believes that it is inappropriate, as a public policy matter, for regulated futures exchanges to offer election contracts, and that such contracts should be illegal. Perhaps they should be. One may reasonably take the position that such contracts just don't "feel" right, and that their prohibition makes the country a better place.
If the CFTC disfavors election contracts, it can and should seek legislative change. The end of Chevron was a step in the right direction in limiting the exercise of unauthorized power by regulators. For the rejection of Chevron to be truly meaningful and effective, it is the responsibility of the regulators to acknowledge that it is not their place to impose public policy decisions through regulatory action where there is no authority for such regulatory action granted in the relevant statute.
Related Articles
-
The CFTC stayed a request on a rule certification filing by a clearing corporation that would facilitate the offering of election betting contracts. The CFTC requested public comment on the rule certification filing for the proposed contracts.
-
The US Court of Appeals for the District of Columbia Circuit ordered an administrative stay of a District Court decision to vacate a CFTC Order prohibiting a DCM from listing its congressional control contracts for trading.
-
The CFTC filed an "Emergency Motion" to block a DCM from offering election betting contracts. The Motion follows a US District Court ruling which lifted a CFTC Order prohibiting the DCM from offering users of its platform the opportunity to place bets on the outcome of elections.
-
The CFTC approved an application for registration filed by a trading startup that will let users bet on the outcome of future events (including elections).
-
The CFTC proposed a rule to ban the listing and clearing of "events contracts" and "gaming" derivatives.
-
The CFTC initiated a review of a DCM offering related to which political party will control each chamber of the U.S. Congress.
-
The CFTC initiated a review of a CFTC Designated Contract Market offering related to "which political party will be in control of each chamber of the U.S. Congress."