New York Federal Judge to Decide Whether CFTC Has Exclusive Jurisdiction Over Prediction Markets

A federal judge on Monday (Sept. 14) heard oral arguments from the Commodity Futures Trading Commission (CFTC) on why the prediction markets it regulates should not be subject to New York state gaming laws. The headquarters of the Commodity Futures Trading Commission in Washington, DC. The independent federal financial regulator says it has the exclusive jurisdiction over prediction markets. (Image: Shutterstock) In April, New York Attorney General Letitia James sued Coinbase and Gemini on allegations that the prediction markets run illegal gambling platforms. James is seeking the recovery of $3.4 billion in alleged illegal profits, civil penalties, and treble customer restitution. The CFTC filed a motion to dismiss the state’s claims against its licensed prediction markets. New York’s attempt to shut down federally regulated markets intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets. Prompted by the evolution of national financial markets and repeated conflicts with state law, Congress enacted the Commodity Exchange Act (CEA), granting the CFTC exclusive jurisdiction to regulate those markets and enacting a comprehensive federal regulatory framework that preempts state laws that attempt to regulate the operation of, or transactions on, CFTC-regulated exchanges,” read the CFTC’s petition for injunctive and declaratory relief. Coinbase and Gemini are prediction markets that allow users to buy and sell shares of future outcomes. They operate with Designated Contract Market licenses from the CFTC. Monday Debate During Monday’s oral arguments, Judge Lorna Schofield in New York’s Southern District Court pressed CFTC counsel as to why an injunction is warranted when several other courts have ruled against similar CFTC petitions. CFTC attorneys argued that event contracts are derivative instruments structured as swaps and futures, and the CEA provides the CFTC with the exclusive jurisdiction over their regulation. State attorneys countered by arguing that many swaps offered on Coinbase and Gemini aren’t derivatives but gambling. They believe event contracts involving sports are wagers, rather than swaps, and therefore can only be offered by sportsbooks licensed by the New York State Gaming Commission. The CFTC counsel told Schofield that unless the court intervenes, the state is likely to continue its “attempts to subvert federal law” and the federal agency’s “exclusive jurisdiction to regulate event contract swaps conferred on the CFTC by Congress.” Schofield did not rule on the petition during the Monday hearing. AGA Memorandum Schofield allowed the American Gaming Association (AGA) to submit a memorandum in opposition to the CFTC’s request for an injunction. The trade group opposes sports prediction markets on claims that they constitute unregulated sports betting. “According to the CFTC, sports event contracts on prediction markets are derivatives contracts governed exclusively by the CEA. But as is obvious to ‘everyone’ who visits a prediction market, these contracts are hardly novel financial instruments—they are sports bets,” the AGA argued in its Sept. 7 filing. The post New York Federal Judge to Decide Whether CFTC Has Exclusive Jurisdiction Over Prediction Markets appeared first on Casino.org.