CFTC Initiates Review of Sporting Event Swap Contracts
Commentary by Steven Lofchie
The CFTC initiated a review of two event contracts (see here and here) related to the outcome of sports title events.
In the Notification letter to the North American Derivatives Exchange, Inc. ("Nadex"), the CFTC requested Nadex "suspend any listing and trading of the Contracts during the pendency of the Commission's 90-day review period" as of January 14, 2025. Nadex submitted the contract certifications on December 19, 2024.
The CFTC said that the event swap contracts under review—the Hometown Celebration Event Contract and the Economic and Commercial Event Contract—may involve activities (i.e. gaming), regulated under CEA Section 5c(c)(5)(C) ("Special rule for review and approval of event contracts and swaps contracts").
Commentary
Contracts based on sports events raise a variety of difficult policy questions. From a very big picture standpoint, if sports gambling is legal, then one might reasonably argue that doing so through the medium of commodity option contracts is more economically efficient. On the other hand, do we really want the financial regulators to be spending their own resources policing whether games are being thrown?