CFTC Urges Court to Reinforce Federal Authority Over Event Contracts

In an amicus brief filed by the CFTC in an appeal before the Ninth Circuit, the agency urged the Court to reverse a lower court decision that would allow Nevada to apply state gambling laws to "event contracts" traded on federally regulated exchanges.

In North American Derivatives Exchange, Inc. v. The State of Nevada, the CFTC argued that the lower court’s decision undermines the Commodity Exchange Act’s exclusive jurisdiction over commodity derivatives markets. The CFTC said that Congress granted the CFTC exclusive jurisdiction over "swaps," a definition broadly written to include contracts based on the occurrence of events—such as sporting outcomes—with potential financial consequences.

The CFTC contended that allowing states to re-characterize these federally regulated financial instruments as illegal gambling would create a regulatory "patchwork," subjecting national markets to fifty different state legal regimes. The CFTC asserted that the Commodity Exchange Act expressly preempts state laws that would interfere with the operation of Designated Contract Markets, and that a failure to recognize this preemption would erode the uniform framework "Congress established to reduce risk [and] promote transparency."

The CFTC urged the Court to reverse the judgment of the District Court in order to preserve the uniform national system for regulating futures and swaps trading.