ANALYSIS: Event contract debate dominates Selig confirmation hearing

Democratic members of the Senate Committee on Agriculture, Nutrition and Forestry grilled Selig on the issue as part of his confirmation process. The CFTC has been central to allowing the growth of regulated prediction markets through its ”self-certification” progress, and further loosening is being debated as part of a wider package to foster innovation. The issue, currently being fought in a series of State and Tribal law court actions, is whether contracts listed through the CFTC contravene local prohibitions against gambling.

Senator Tina Smith pressed Selig on whether the CFTC would enforce what she described as a clear prohibition against event contracts related to gaming under the agency’s current regulations.

“These are complex issues as to interpretation of what it means to constitute gaming and of course I have the utmost respect for our judges that are working on these issues in the court system and I intend to always adhere to the law and follow what judicial decisions tell me to follow,” Selig said in response to the question. “I also believe that these types of issues are ones that we can work through together, some of them are congressional issues as to whether we change statutes in certain areas… these are just very challenging interpretative questions that I will look to the courts on.”

Smith, a Democratic party senator, said she expected a more robust role from the agency on the issue.

“It seems to me that the CFTC’s prohibition is pretty unambiguous and also Congress has made this clear, that when it gave the CFTC authority to prohibit certain gaming contracts that it intended to prevent gambling through these futures contracts,” she said. “It seems to me that this is a semantic difference and we should count on the CFTC to enforce the law.”

Fellow Democratic senator Cory Booker added to the criticism of the agency’s approach.

“It is very important to me… that these sports contracts have an enforcement mechanism – with over half of the country’s chief law enforcement officers saying that these contracts break state laws that we are seeing – I’m just frustrated that the CFTC hasn’t acted,” Booker said.

CME Group announced this month it plans to list sports contracts as part of a platform launch in December stemming from a partnership with FanDuel, as well as events in traditional asset classes. Use of the app is restricted depending on local state and tribal laws, the firms said in the announcement at the time.

“To the extent that any of these event contracts constitute gaming of course that is a question for the courts,” Selig said. “But if they are trading in our markets, if these products are self-certified and the CFTC is allowing them to trade in the markets, of course it is vital that the CFTC ensures that those contracts are not being manipulated, that they are not readily susceptible to manipulation – that is a core principle.”

Senator Adam Schiff asked a series of questions to gauge Selig’s own view on the contracts, but he refused to be drawn.

“It sounds a lot like gambling to me, these prediction markets are trying I think to have it both ways simultaneously – marking themselves as financial products and marking themselves as sports betting,” he said. “But there is no economic utility to these contracts, there is no price discovery being facilitated. They are offering gaming products with no regulation and I think that is in violation of State law and tribal sovereignty.”

Craig Donohue, chief executive of Cboe Global Markets this week raised the question of whether some of these contracts, referencing equity indexes for example, should be viewed as binary options and therefore overseen by the Securities and Exchange Commission.

The issue of resources was also prevalent in the hearing, with the smaller CFTC taking a leading role in the Trump administration’s market reform push. On event contract oversight, Selig said he would take a close look at the agency’s resources, which have been cut by 20% this year in an efficiency push.

“This is a critical aspect of the jurisdiction of the agency to the extent it is added through the legislation and the CFTC needs to take that seriously,” Selig said. “It has an important mission of making sure that there is investor protection and that these markets are sound and safe.

“So I take that mission very seriously and if confirmed we will take a close look at our resources and make sure that we have everything we need to fulfil our mission.”

If confirmed, Selig would become the sole member of the CFTC, after interim chair Caroline Pham announced her imminent departure. Selig was repeatedly asked whether he would support the appointment of two Democratic commissioners to restore the balance of the five-person Commission.

“I would certainly respect the President’s decision on these issues, my role – my job if confirmed as Chairman is to fulfil the agency’s mission and I believe that mission is best fulfilled when we have a diversity of viewpoints,” he said.