[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
CFTC REAUTHORIZATION: STAKEHOLDER
PERSPECTIVES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 11, 2025
__________
Serial No. 119-18
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Agriculture
agriculture.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
63-346 PDF WASHINGTON : 2026
COMMITTEE ON AGRICULTURE
GLENN THOMPSON, Pennsylvania, Chairman
FRANK D. LUCAS, Oklahoma ANGIE CRAIG, Minnesota, Ranking
AUSTIN SCOTT, Georgia, Vice Minority Member
Chairman DAVID SCOTT, Georgia
ERIC A. ``RICK'' CRAWFORD, Arkansas JIM COSTA, California
SCOTT DesJARLAIS, Tennessee JAMES P. McGOVERN, Massachusetts
DOUG LaMALFA, California ALMA S. ADAMS, North Carolina
DAVID ROUZER, North Carolina JAHANA HAYES, Connecticut
TRENT KELLY, Mississippi SHONTEL M. BROWN, Ohio, Vice
DON BACON, Nebraska Ranking Minority Member
MIKE BOST, Illinois SHARICE DAVIDS, Kansas
DUSTY JOHNSON, South Dakota ANDREA SALINAS, Oregon
JAMES R. BAIRD, Indiana DONALD G. DAVIS, North Carolina
TRACEY MANN, Kansas JILL N. TOKUDA, Hawaii
RANDY FEENSTRA, Iowa NIKKI BUDZINSKI, Illinois
MARY E. MILLER, Illinois ERIC SORENSEN, Illinois
BARRY MOORE, Alabama GABE VASQUEZ, New Mexico
KAT CAMMACK, Florida JONATHAN L. JACKSON, Illinois
BRAD FINSTAD, Minnesota SHRI THANEDAR, Michigan
JOHN W. ROSE, Tennessee ADAM GRAY, California
RONNY JACKSON, Texas KRISTEN McDONALD RIVET, Michigan
MONICA De La CRUZ, Texas SHOMARI FIGURES, Alabama
ZACHARY NUNN, Iowa EUGENE SIMON VINDMAN, Virginia
DERRICK VAN ORDEN, Wisconsin JOSH RILEY, New York
DAN NEWHOUSE, Washington JOHN W. MANNION, New York
TONY WIED, Wisconsin APRIL McCLAIN DELANEY, Maryland
ROBERT P. BRESNAHAN, Jr., CHELLIE PINGREE, Maine
Pennsylvania SALUD O. CARBAJAL, California
MARK B. MESSMER, Indiana
MARK HARRIS, North Carolina
DAVID J. TAYLOR, Ohio
______
Parish Braden, Staff Director
Brian Sowyrda, Minority Staff Director
(ii)
C O N T E N T S
----------
Page
Craig, Hon. Angie, a Representative in Congress from Minnesota,
opening statement.............................................. 3
Prepared statement........................................... 4
Davids, Hon. Sharice, a Representative in Congress from Kansas:
Submitted letter............................................. 92
Submitted opinion............................................ 94
Hon. Donald G. Davis, a Representative in Congress from North
Carolina:
Submitted Indian Gaming Association briefs................... 96
Submitted letter on behalf of Bill Miller, President and
Chief Executive Officer, American Gaming Association....... 100
Submitted statements on behalf of:
Miller, Jeff, Executive Vice President, Communications,
Public Affairs and Policy, Player Health and Safety,
National Football League............................... 103
Coalition for Prediction Markets......................... 103
Jackson, Hon. Jonathan L., a Representative in Congress from
Illinois; submitted letter on behalf of James B. ``JB''
Mackenzie, President, Robinhood Derivatives, LLC; Vice
President and General Manager, Futures and International,
Robinhood Markets, Inc......................................... 120
Johnson, Hon. Dusty, a Representative in Congress from South
Dakota:
Submitted letter............................................. 88
Submitted statement on behalf of National Grain and Feed
Association................................................ 90
LaMalfa, Hon. Doug, a Representative in Congress from California:
Submitted letter on behalf of Hon. Kenneth Kahn, Chairman,
Santa Ynez Band of Chumash Indians......................... 73
Submitted statements on behalf of:
Butler, Hon. Rodney A., Chairman, Mashantucket Pequot
Tribal Nation.......................................... 74
Lowes, Hon. Austin, Chairman, Sault Ste. Marie Tribe of
Chippewa Indians....................................... 76
Macarro, Hon. Mark, Chairman, Pechanga Band of Indians... 76
Martin, Hon. Charles, Tribal Chairman, Morongo Band of
Mission Indians........................................ 78
Siva, James, Chairman, California Nations Indian Gaming
Association............................................ 79
Sprague, Hon. Lucas, Chief, Saginaw Chippewa Indian Tribe 83
Wesaw, Hon. Matthew J., Chairman, Pokagon Band of
Potawatomi Indians..................................... 84
Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians..... 86
Mohegan Tribe of Indians of Connecticut.................. 87
Pingree, Hon. Chellie, a Representative in Congress from Maine:
Submitted letter............................................. 123
Submitted letters on behalf of:
Francis, Sr., Hon. Kirk, Chief, Penobscot Nation......... 124
George, Rebecca, Executive Director, Washington Indian
Gaming Association..................................... 126
Gobin, Hon. Teri, Chair, Tulalip Tribes.................. 128
Thompson, Hon. Glenn, a Representative in Congress from
Pennsylvania, opening statement................................ 1
Prepared statement........................................... 2
Vasquez, Hon. Gabe, a Representative in Congress from New Mexico:
Submitted Indian Gaming Association brief.................... 105
Submitted letter on behalf of Hon. Leonard Forsman, Chairman,
Suquamish Indian Tribe..................................... 107
Submitted statements on behalf of:
Bean, David, Chairman, Indian Gaming Association......... 108
Choke, Hon. Kenneth, Chairman, Nisqually Indian Tribe.... 115
Nenema, Hon. Glen D., Chairman and Chief Executive
Officer, Kalispel Tribe................................ 116
Padilla, Thora W., President, Mescalero Apache Tribe..... 118
Witnesses
Stump, Hon. Dawn D., Principal, Stump Strategic LLC; former
Commissioner, Commodity Futures Trading Commission, Washington,
D.C............................................................ 5
Prepared statement........................................... 6
Submitted questions.......................................... 129
Prosser, Edward F., Senior Vice President, Special Projects,
Scoular Company; Member, Board of Directors, Commodity Markets
Council, Omaha, NE............................................. 8
Prepared statement........................................... 9
Submitted questions.......................................... 131
Crighton, Alicia, Global Co-Head of Futures, Head of OTC and
Prime Clearing, Goldman Sachs & Co. LLC; Chair, Board of
Directors, Futures Industry Association, New York, NY.......... 12
Prepared statement........................................... 14
Submitted questions.......................................... 133
Schwartz, J.D., Robert A., Partner, Morgan, Lewis & Bockius;
former General Counsel, Commodity Futures Trading Commission,
Washington, D.C................................................ 16
Prepared statement........................................... 18
Submitted questions.......................................... 135
Schiffrin, J.D., Benjamin L., Director of Securities Policy,
Better Markets, Inc., Washington, D.C.......................... 20
Prepared statement........................................... 21
Submitted questions.......................................... 136
CFTC REAUTHORIZATION: STAKEHOLDER PERSPECTIVES
----------
THURSDAY, DECEMBER 11, 2025
House of Representatives,
Committee on Agriculture,
Washington, D.C.
The Committee met, pursuant to call, at 10:01 a.m., in Room
1300, Longworth House Office Building, Hon. Glenn Thompson
[Chairman of the Committee] presiding.
Members present: Representatives Thompson, Lucas, Austin
Scott of Georgia, LaMalfa, Johnson, Mann, Moore, Rose, Messmer,
Harris, Taylor, Craig, Costa, Brown, Salinas, Davis of North
Carolina, Budzinski, Vasquez, Jackson of Illinois, McDonald
Rivet, Figures, Vindman, and Carbajal.
Staff present: Paul Balzano, Josh Beale, Austin DeBerry,
Wick Dudley, Sofia Jones, Kyle Upton, John Konya, Joshua
Lobert, Clark Ogilvie, Olivia Olson, Emma Simon, and Jackson
Blodgett.
OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN
CONGRESS FROM PENNSYLVANIA
The Chairman. The Committee will come to order.
Welcome, and thank you for joining today's hearing
entitled, CFTC Reauthorization: Stakeholder Perspectives. After
brief opening remarks, Members will receive testimony from our
witnesses today, and then the hearing will be open to
questions.
So, good morning again, everyone, and welcome to our full
Committee hearing on reauthorizing the Commodity Futures
Trading Commission. Thank you to our panel of witnesses for
making time to be with us today. Before we start, I want to
thank Acting Chairman Pham for serving as acting Chairman and
congratulate Mike Selig on his nomination as Chairman of the
Commission, and I am looking forward to the Senate's
confirmation vote. He is taking over the reins of the agency at
a transformative time for the Commission and for financial
markets broadly. He and the Commission staff will have their
work cut out for them, but I know that they are up to the
challenge. I look forward to inviting him to the Committee
early next year to talk about his agenda and goals.
As many of you know, the Commission's authorization for
appropriations lapsed a dozen years ago in 2013. Now, this is
unacceptable, and it is long past time for Congress to fulfill
its responsibility and reauthorize the Commission, especially
as we consider providing new authorities to the agency. I want
to thank Ranking Member Craig for being not only a strong
leader, but also a partner on this Committee. The Committee's
years-long process on digital assets culminated in the House
passage of the CLARITY Act of 2025 (H.R. 3633, Digital Asset
Market Clarity Act of 2025) due, in no small part, to the
Ranking Member's strong support. The legislation received
overwhelming bipartisan support, garnering 294 votes, and over
80 percent of the Members of the Agriculture Committee voted
for it.
In March, our Committee held another bipartisan event: a
hearing commemorating the 50th anniversary of the Commission.
We looked back at the storied history of the CFTC and the
markets that it oversees, learning about the important and
unique role it holds as a regulator, and how important
derivative markets are to everyday Americans. These markets
allow American businesses, including farmers, ranchers, and
producers, to manage the risks of modern business. It was clear
in March that as markets have evolved, so has the Commission.
From legacy financial futures to novel new perpetual
derivatives, the CFTC has applied its principles-based mandate
and subject matter expertise to regulating new products and the
novel issues they present.
Today, we build off of what we learned in March and examine
the importance of the Commission and the derivatives market
today. We will hear from a cross-section of stakeholders who
know the Commission and its markets well. This is an important
opportunity to consider their suggestions for improvement and
refinement and set the CFTC on solid footing for the next 50
years. Again, thank you to each of our witnesses for their
willingness to participate in today's hearing, and I look
forward to our conversation.
[The prepared statement of Mr. Thompson follows:]
Prepared Statement of Hon. Glenn Thompson, a Representative in Congress
from Pennsylvania
Good morning, and welcome to our full Committee hearing on
reauthorizing the Commodity Futures Trading Commission (CFTC).
Thank you to our panel of witnesses for making the time to be with
us today.
Before we start, I want to thank acting Chairman Pham for serving
as acting Chairman and congratulate Mike Selig on his nomination as
Chairman of the Commission. I am looking forward to the Senate's
confirmation vote [, maybe as soon as this afternoon!]
He is taking over the reins of the agency at a transformative time
for the Commission and for financial markets broadly. He and the
Commission staff have their work cut out for them, but I know that they
are up to the challenge.
I look forward to inviting him to the Committee early next year to
talk about his agenda and goals.
As many of you know, the Commission's authorization for
appropriations lapsed a dozen years ago, in 2013.
This is unacceptable, and it is long past time for Congress to
fulfill its responsibility and reauthorize the Commission, especially
as we consider providing new authorities to the agency.
I want to thank Ranking Member Craig for being not only a strong
leader but also a partner on this Committee.
The Committee's years-long process on digital assets culminated in
the House passage of the CLARITY Act, due in no small part to the
Ranking Member's strong support.
The legislation received overwhelming bipartisan support, garnering
294 votes, and over 80% of the Members of the Agriculture Committee
voted for it.
In March, our Committee held another bipartisan event: a hearing
commemorating the 50th anniversary of the Commission.
We looked back at the storied history of the CFTC and the markets
it oversees, learning about the important and unique role it holds as a
regulator and how important derivatives markets are to everyday
Americans.
These markets allow American businesses--including farmers,
ranchers, and producers--to manage the risks of modern business.
It was clear in March that as markets have evolved, so has the
Commission.
From legacy financial futures to novel new perpetual derivatives,
the CFTC has applied its principles-based mandate and subject-matter
expertise to regulating new products and the novel issues they present.
Today, we build off of what we learned in March and examine the
importance of the Commission and derivatives markets, today.
We will hear from a cross-section of stakeholders who know the
Commission and its markets well.
This is an important opportunity to consider their suggestions for
improvement and refinement and set the CFTC on solid footing for the
next 50 years.
Again, thank you to each of our witnesses for their willingness to
participate in today's hearing. I look forward to our conversation.
The Chairman. And with that, I would like to welcome the
distinguished Ranking Member, the gentlewoman from Minnesota,
Ms. Craig, for any opening remarks she would like to make.
OPENING STATEMENT OF HON. ANGIE CRAIG, A REPRESENTATIVE IN
CONGRESS FROM MINNESOTA
Ms. Craig. Thank you, Mr. Chairman, and I would like to
start simply by thanking our witnesses for being here today and
for the opportunity to hold this very important hearing as we
look to reauthorize the Commodity Futures Trading Commission.
As we all know, for the past 12 years, the CFTC has been
operating without formal Congressional authorization since it
last lapsed in 2013. A lot has happened since that time. As the
industry and markets change, we need to make sure the CFTC has
the necessary tools to handle these changes while maintaining
its core function of ensuring the integrity, resilience, and
vibrancy of the markets it currently oversees. We all know that
a well-regulated financial system keeps our country strong and
prosperous while protecting Americans.
For 50 years, the CFTC has been the cop on the beat for
U.S. derivative markets and making sure these markets work, not
just for Wall Street, not just for the exchanges and
clearinghouses themselves, but for main street Americans and
commercial businesses whose livelihoods are impacted by these
markets every day. But it takes resources to have effective
oversight over these markets and protect the consumers,
customers who use them. At previous hearings on reauthorizing
the CFTC, we heard from commercial end-users of these markets
about the agency's stagnant funding and how the agency needs
sufficient resources. Otherwise, its ability to ensure the
integrity of the more traditional commodity markets for risk
management purposes will be diminished. If the users of these
markets get it, we should, too. The recent gutting of staff at
the agency, the last-minute withdrawal of a CFTC chair nominee
because a friend of the President didn't like him, and the lack
of nominees for other Commissioner positions demonstrates the
Trump Administration's lack of respect for the agency, its
staff, and its mission. I don't envy the challenge that the new
CFTC chair nominee, Mr. Selig, faces to turn around all of this
once he gets confirmed.
I want to thank our witnesses for coming in today, and for
your testimony and for sharing your perspectives. It is
certainly a critical time for the CFTC. We may not agree on
everything, but we can all agree that a well-resourced and
appropriately staffed CFTC is critical to a healthy financial
system, and to accomplish these goals, it is critical we work
together and across the aisle. Thank you, Mr. Chairman, for
holding this hearing, and with that, I yield back.
[The prepared statement of Ms. Craig follows:]
Prepared Statement of Hon. Angie Craig, a Representative in Congress
from Minnesota
Thank you to our witnesses for being here today, and for the
opportunity to hold this very important hearing as we look at
reauthorizing the Commodity Futures Trading Commission.
As we all know, for the past 12 years, the CFTC has been operating
without formal Congressional authorization since it lapsed in 2013. A
lot has happened since that time.
As industry and markets change, we need to make sure the CFTC has
the necessary tools to handle these changes while maintaining its core
function of ensuring the integrity, resilience and vibrancy of the
markets it currently oversees.
We all know that a well-regulated financial system keeps our
country strong and prosperous while protecting Americans. For 50 years,
the CFTC has been the cop on the beat for U.S. derivative markets and
making sure these markets work, not just for Wall Street, not just for
the exchanges and clearinghouses themselves, but for main street
Americans and commercial businesses whose livelihoods are impacted by
these markets every day.
But it takes resources to have effective oversight over these
markets and protect the customers who use them. At previous hearings on
reauthorizing the CFTC, we heard from commercial end-users of these
markets about the agency's ``stagnant funding'' and how the agency
needs sufficient resources; otherwise, its ability to ensure the
integrity of the more traditional commodity markets for risk management
purposes will be diminished. If the users of these markets get it, we
should too.
The recent gutting of staff at the agency, the last-minute
withdrawal of a CFTC Chair nominee because a friend of the President
didn't like him and the lack of nominees for other Commissioner
positions demonstrate the Trump Administration's lack of respect for
the agency, its staff and its mission. I don't envy the challenge that
the new CFTC Chair nominee, Mr. Selig, faces to turn all this around
once he gets confirmed.
I want to thank our witnesses for coming in today and for your
testimony and sharing your perspectives. We may not agree on
everything, but we can all agree that a well-resourced and
appropriately staffed CFTC is critical to a healthy financial system,
and to accomplish these goals, it's critical that we work together and
across the aisle.
Thank you, Mr. Chairman, for holding this hearing, and with that, I
yield back.
The Chairman. I thank the gentlelady. The chair would
request that other Members submit their opening statements for
the record so the witnesses may begin their testimony and to
ensure that there is ample time for questions.
Our first witness today is the Honorable Dawn D. Stump, a
former Commissioner at the CFTC. Our next witness is Mr. Edward
Prosser, the Senior Vice President for Special Projects at the
Scoular Company. He is also a Member of the Board of the
Commodity Markets Council and is testifying on their behalf.
Our third witness today is Ms. Alicia Crighton. Ms. Crighton is
the Managing Director and Global Co-Head of Futures, and the
Head of OTC and Prime Clearing at Goldman Sachs, as well as the
Chair of the Futures Industry Association. She is testifying on
behalf of the Futures Industry Association today. Our next
witness today is Mr. Rob Schwartz, former General Counsel at
CFTC. He is currently a partner at Morgan Lewis and Bockius,
and our final witness today is Mr. Benjamin Schiffrin, the
Director of Securities Policy at Better Markets.
Thank you all for joining us today, and we will now proceed
to your testimony. You will each have 5 minutes. The timer in
front of you will count down to zero, at which time your time
has expired. Commissioner Stump, please begin when you are
ready.
STATEMENT OF HON. DAWN D. STUMP, PRINCIPAL, STUMP STRATEGIC
LLC; FORMER COMMISSIONER, COMMODITY
FUTURES TRADING COMMISSION, WASHINGTON, D.C.
Ms. Stump. Thank you. I would like to begin by thanking
Chairman Thompson and Ranking Member Craig for inviting me to
be here today, and I would like to applaud all of the Members
for your attention to reauthorizing the CFTC. As a former
staffer, I would also be remiss if I didn't acknowledge the
tremendous amount of work the staff has put in to making this
hearing a possibility today.
Since it began operating 50 years ago, the CFTC has
fostered tremendous growth and integrity in the U.S.
derivatives markets. While this success is driven by the market
itself, it is sustained by the unique regulatory purpose
Congress designed for the CFTC, a purpose that needs to be
reaffirmed from time to time lest it be misunderstood or
undervalued. While the CFTC's mission remains timeless,
sweeping and substantial changes in the derivatives markets
have taken the agency on quite a transformative journey.
I am proud to have been part of this progression, first, as
a legislative staffer at both the House and the Senate
Agriculture Committee where I worked on the last CFTC
reauthorization in 2008 and the Dodd-Frank Act (Pub. L. 111-
203) during the financial crisis. I have also had the
opportunity to work within the industry for a variety of CFTC-
regulated entities, and I count among my greatest honors
serving as a CFTC Commissioner. In each of these roles--
advancing legislation, conducting oversight, implementing
regulation, enforcing rules, and developing compliant business
operations in the real world--I have confronted many complex
questions, often stemming from the competing and sometimes very
creative interpretations of the objectives Congress has
outlined for the CFTC. Time and time again, I find that the
best compass in navigating these difficult and subjective
debates is simply rereading the actual words in the Commodity
Exchange Act (Pub. L. 74-675).
To be clear, there have been many times when I wish the
words said something different, but the CEA, the Commodity
Exchange Act, is the ultimate directive to which we all must
subscribe. And the reauthorization process has traditionally
served as a recurring opportunity for Congress to ensure that
those all-important words in the Commodity Exchange Act remain
absolutely fit for purpose, such that market developers,
regulators, and, where necessary, the courts can apply the
statute in a current context. While the sensible flexibility of
the Commodity Exchange Act largely enables the CFTC to adapt as
the markets develop new products and business practices,
reauthorization provides an opportunity for this Committee to
address ambiguities that inevitably arise with such changes.
Beyond this periodic review of the Commodity Exchange Act and
ensuring that it remains up to date, I would like to briefly
discuss two additional reasons reauthorization is prudent. One
is a technical budgetary matter and the other an important
validation of the agency itself.
Beginning with the technical issue, it is worth briefly
clarifying what we are talking about when we use the phrase,
CFTC reauthorization. Importantly, the duties and authorities
assigned to the agency do not lapse at the end of an
authorization period. Rather, the authorization for
appropriations expires. This is not unique to the CFTC, and in
a much broader debate, there is a great deal of scrutiny
surrounding such unauthorized appropriations. In my opinion,
the best course of action to avoid the CFTC being inadvertently
caught up in this broader procedural debate is simply to
authorize the appropriation. This is CFTC reauthorization in
its simplest form: changing the end date to extend the time
frame for which appropriations are authorized for the agency.
In addition to updating the Commodity Exchange Act and
addressing this technical budgetary matter, Congress has
historically taken the opportunity to demonstrate and renew its
support for the CFTC by way of reauthorization. This is not, as
some have suggested, merely a symbolic gesture, but rather, an
important affirmation of the agency's distinct relevance.
Though small in size, the CFTC performs a critical regulatory
function, overseeing markets with enormous range of underlying
products: agricultural commodities, energy resources, interest
rates, foreign currency, metals, credit tools, and equity
indexes, just to name a few. Its remit impacts grain elevators,
hedge funds, financial institutions, manufacturers, supply
chains, and retail participants in both existing and newly
developed derivatives markets. CFTC's regulated markets have an
enormous impact on the U.S. economy, yet its identity is often
misunderstood as ``the little sister to the Securities and
Exchange Commission.'' It is important that Congress endorses
the unique objectives it set out for the CFTC to avoid these
sorts of misconceptions, especially now during the current
period of transition.
In closing, I would, again, just like to thank you all for
your attention to reauthorizing the CFTC. I think it is an
important endeavor, and I would be happy to answer any
questions.
[The prepared statement of Ms. Stump follows:]
Prepared Statement of Hon. Dawn D. Stump, Principal, Stump Strategic
LLC; Former Commissioner, Commodity Futures Trading Commission,
Washington, D.C.
I would like to begin by thanking Chairman Thompson and Ranking
Member Craig for inviting me to be here today, and I applaud all
Members of the Committee for your attention to the task of
reauthorizing the Commodity Futures Trading Commission (CFTC). Since it
began operating 50 years ago, the CFTC has fostered tremendous growth
and integrity in the U.S. derivatives markets. While this success is
driven by the markets themselves, it is sustained by the unique
regulatory purpose Congress designed for the CFTC--a purpose that needs
to be reaffirmed from time to time, lest it be misunderstood or
undervalued.
While the CFTC's mission remains timeless, sweeping and substantial
changes in the derivatives markets have taken the CFTC on a
transformative journey. I am proud to have been involved in this
evolution, even as some progress came with tremendous growing pains.
During my career I have had the privilege to serve as a legislative
staffer at both the House and Senate Agriculture Committees where I
worked on the last CFTC reauthorization in 2008 and the Dodd-Frank Act
during the financial crisis. I have also had the opportunity to work
within the industry for a CFTC-regulated exchange and clearinghouse, a
foreign board of trade, and on behalf of customer-facing
intermediaries. And finally, I count among my greatest honors serving
as a CFTC Commissioner during President Trump's first term and the
early years of President Biden's Administration.
In each of these roles--advancing legislation, conducting
oversight, implementing regulations, enforcing rules, and developing
compliant business operations in the real world--I have confronted many
complex questions, often stemming from competing, and sometimes
creative, interpretations of the objectives Congress has outlined for
the CFTC. Time and again I find the best compass in navigating these
subjective debates is simply re-reading the actual words used in the
Commodity Exchange Act (CEA). To be clear, there have been instances in
which I would have personally preferred different words, but the CEA is
the ultimate directive to which we all must subscribe.
The reauthorization process has traditionally served as a recurring
opportunity for Congress to ensure those all-important words in the CEA
remain absolutely fit for purpose such that market developers,
regulators, and, where necessary, the courts can apply the statute in a
current context. While the sensible flexibility of the CEA largely
enables the CFTC to adapt as the market develops new products and
business practices, reauthorization provides an opportunity for the
people's elected representatives to address ambiguities that inevitably
arise with such changes.
Beyond this periodic review to ensure the CEA remains up to date, I
would like to briefly discuss two additional reasons reauthorization is
prudent--one is a technical budgetary matter and the other an important
validation of the agency itself.
Beginning with the technical issue, it is worth briefly clarifying
what we are talking about when we refer to ``CFTC reauthorization''.
Importantly, the duties and authorities assigned to the agency do not
lapse at the end of the authorization period. Rather, the authorization
for appropriations expires. This is not unique to the CFTC, and in a
much broader debate there is a great deal of scrutiny surrounding
``unauthorized appropriations''. Some believe the receipt of funds
without an updated authorization has enabled agencies to operate beyond
their usefulness, while others have suggested that neglecting these
routine authorizations results in agencies not receiving proper
oversight.
I hope we would all agree that such concerns do not apply to the
CFTC--it was never envisioned to sunset, and Congressional oversight is
constantly occurring through an ongoing dialogue between this Committee
and the agency. Nonetheless, we cannot ignore the possibility that
these ongoing considerations potentially put a target on an agency that
was last authorized for appropriations in fiscal year 2013 at the
conclusion of a routine 5 year authorization approved in 2008. In my
opinion, the best course of action to avoid the CFTC being
inadvertently caught up in this broader procedural debate is to simply
authorize the appropriations. This is ``CFTC reauthorization'' in its
simplest form--changing the end date to extend the timeframe for which
appropriations are authorized for the agency.
In addition to updating the CEA and addressing this technical
budgetary matter, Congress has historically taken the opportunity to
demonstrate and renew its support for the CFTC by way of
reauthorization. This is not, as some have suggested, merely a symbolic
gesture but rather an important affirmation of the agency's relevance.
Though small in size, the CFTC performs a critical regulatory function
overseeing markets with an enormous range of underlying products--
agricultural commodities, energy resources, interest rates, foreign
currency, metals, credit tools, and equity indexes just to name a few.
Its remit impacts grain elevators, hedge funds, financial institutions,
manufacturer supply chains, and retail participants in both established
and new derivatives markets. CFTC-regulated markets have an enormous
impact on the U.S. economy. Yet, its identity is often misunderstood as
``the little sister to the Securities and Exchange Commission''. It is
important that Congress endorses the unique objectives it set out for
the CFTC to avoid these sorts of misconceptions, especially during this
period of transition.
In closing, I again want to thank the Committee Members for your
attention to reauthorizing the CFTC. The importance of the agency's
mission warrants validation by Congress. Reauthorization serves to
provide that support while also addressing technical matters and
prudent review of the authorities entrusted to the Commission.
The Chairman. Commissioner Stump, thank you so much for
your testimony and your service. Mr. Prosser, please begin when
you are ready.
STATEMENT OF EDWARD F. PROSSER, SENIOR VICE
PRESIDENT, SPECIAL PROJECTS, SCOULAR COMPANY;
MEMBER, BOARD OF DIRECTORS, COMMODITY MARKETS COUNCIL, OMAHA,
NE
Mr. Prosser. Chairman Thompson, Ranking Member Craig, and
Members of the Committee, thank you for inviting me here today
to testify about the importance of the CFTC and this
Committee's oversight and reauthorization of the agency. I am
Ed Prosser, Senior Vice President of Special Projects at
Scoular. Scoular is an employee-owned, $7.3 billion
agribusiness and supply chain company with headquarters in
Omaha, Nebraska. Founded over 130 years ago, our company buys,
sells, stores, handles, and processes grain and ingredients
through our global networks and expertise in trade and
transportation. Our U.S. grain facility networks include
locations in Illinois, Iowa, Nebraska, Kansas, and Missouri. We
employ over 1,200 people in more than 100 offices and
facilities worldwide.
I have been an active participant in physical and
derivative markets and agriculture and energy for 40 years. I
serve on the board of the Commodity Markets Council, the
National Oil Seed Processors Association, and as a member of
the CFTC's Agricultural Advisory Committee. I also formerly
served on the Risk Management Committee of the National Grain
and Feed Association and was a member of the Minneapolis,
Chicago, and Kansas City Board of Trade. Today, I am testifying
on behalf of the Commodity Markets Council founded over 90
years ago and originally called the National Grain Trade
Council.
CMC is the leading Washington, D.C.-based trade association
that brings agriculture and energy traders together with
commodity exchanges. Its members include end-users that utilize
futures and swap markets for agriculture, energy, metal, and
soft commodities, as well as designated contract markets,
futures commission merchants, and swap execution facilities.
CMC advocates for open, transparent, and competitive markets.
For decades, we have supported both the principled regulation
of, and responsible innovation in, derivatives markets.
I firmly believe my testimony today reflects the views of
thousands of end-users--farmers, merchants, utilities, energy
suppliers, biofuel producers, and manufacturers--who rely on
U.S. derivatives markets as critical risk management tools, not
for speculation, but as a central part of their everyday
business operations. The derivatives markets are just that:
derivatives of cash markets that trade every workday to provide
the food, fiber, and energy we rely on. The derivatives markets
provide liquidity to ensure efficient price discovery, which
allows participants around the world to signal which
commodities are scarce and which are oversupplied.
Specifically, these markets enable commercial users to hedge
exposures to volatile price movements driven by weather events,
global economic shifts, supply chain disruptions, and
geopolitical instability.
U.S. agriculture futures contracts, corn, soybeans, wheat,
livestock, cotton, and more serve as global price benchmarks
used in risk management by businesses here and around the
world. These functions are not just theoretical. They are vital
to the real-world business of producing and transporting
agricultural goods to the consumers that depend on them. From
the price of milk and bread, to the cost of gasoline and
electricity, derivative markets shape our economy, ensuring
that commercial participants can manage risk, avoid
catastrophic losses, and deliver reliable value to consumers.
The role of price discovery, risk transfer, and market
liquidity are the pillars of healthy, resilient markets.
With this in mind, I would like to provide six
recommendations for Congressional action and refer you to my
written testimony which further explains each of these and why
they are critical. One, support the appropriate funding and
staffing for the CFTC, enabling the agency to keep pace with
market growth, technological complexity, and global
competitiveness. Two, ensure that regulatory standards
prioritize the needs of commercial users, end-users, and
consumers, not just financial intermediaries, new market
entrants, or speculative interests. Three, safeguard the
principle-based regulatory model that has enabled responsible
innovation and reasonable flexibility in responding to new
market challenges. Four, maintain bipartisan commitment to
transparency, public participation, and open debate in
regulatory decision-making. Five, encouraging ongoing review of
market structure proposals, such as event contracts, clearing
organization changes, and customer bankruptcy protections to
ensure that any market structure changes do not undermine our
agriculture and energy markets. And six, anchor global
benchmarks in U.S. markets, subject to U.S. oversight and
rules, strengthening America's competitive position for the
benefit of American producers, consumers, and communities.
Thank you again for the opportunity to represent and
comment on behalf of the Commodity Markets Council and all
commercial users of these agricultural and energy contracts. We
hope you will submit a fully funded--excuse me--I hope you will
support a fully funded and fully functional CFTC to ensure that
our producers, merchants, and end-users can continue to fuel,
feed, and clothe America in a growing market. Thank you.
[The prepared statement of Mr. Prosser follows:]
Prepared Statement of Edward F. Prosser, Senior Vice President, Special
Projects, Scoular Company; Member, Board of Directors, Commodity
Markets Council, Omaha, NE
Regarding the Reauthorization and Oversight of the Commodity Futures
Trading Commission
Introduction
Chairman Thompson, Ranking Member Craig, and Members of the
Committee, thank you for inviting me here today to testify about the
importance of the Commodity Futures Trading Commission and this
Committee's oversight and reauthorization of the agency.
I am Ed Prosser, Senior Vice President of Special Projects at
Scoular. Scoular is an employee-owned $7.3 billion agribusiness and
supply chain company with headquarters in Omaha, Nebraska. Founded over
130 years ago, our company buys, sells, stores, handles, and processes
grain and ingredients through our global networks and expertise in
trade and transportation. Our U.S. grain facility network includes
locations in Illinois, Iowa, Nebraska, Kansas, and Missouri. We employ
over 1,200 people in more than 100 offices and facilities worldwide,
and provide safe and reliable solutions to farmers, grain processors,
biofuel producers, and other customers. I have been an active
participant in physical and derivative markets in agriculture and
energy for 40 years. I serve on the board of the Commodity Markets
Council, the National Oilseed Processors Association, and as a member
of the CFTC's Agriculture Advisory Committee. I also formerly served on
the Risk Management Committee of the National Grain and Feed
Association, and was a member of the Minneapolis Grain Exchange,
Chicago Mercantile Exchange, and the Kansas City Board of Trade
exchanges.
Today, I am testifying on behalf of the Commodity Markets Council,
founded over 90 years ago and originally called the National Grain
Trade Council. Today, CMC is the leading Washington D.C.-based trade
association that brings agriculture and energy traders together with
commodity exchanges, and its members include commercial end-users that
utilize futures and swaps markets for agriculture, energy, metals, and
soft commodities as well as designated contract markets (DCMs), futures
commission merchants (FCMs), and swap execution facilities (SEFs).
While its membership has expanded over the years, its mission has
remained the same: advocating for an open, transparent, competitive
marketplace by combining the expertise, knowledge, and resources of our
members to develop and support market-based policy. For decades, we
have supported both the principled regulation of and responsible
innovation in derivatives markets, which ultimately serve as the most
robust and resilient risk management markets in the world.
I firmly believe my testimony today reflects the views of thousands
of commercial end-users, farmers, merchants, utilities, energy
suppliers, biofuels producers, and manufacturers who rely on U.S.
derivatives markets as critical risk management tools, not for
speculation, but a as central part of their everyday business
operations.
Purpose and Function of Derivatives Markets
The derivatives markets are just that: derivatives of cash markets
that trade every workday to provide the food, fiber, and energy we rely
on. The derivatives markets provide liquidity to ensure efficient price
discovery which allows participants around the world to signal which
commodities are scarce and which are oversupplied. Specifically, these
markets enable commercial end-users to hedge exposures to volatile
price movements driven by weather events, global economic shifts,
supply chain disruptions, and geopolitical instability. U.S.
agricultural futures contracts--corn, soybeans, wheat, livestock,
cotton, and more--serve as global price benchmarks used in risk
management by businesses here and around the world.
The fast, fair, and efficient price discovery enabled through
derivatives trading sends vital economic signals, informing producers,
processors, and end-users about market scarcity or surplus. When
farmers lock in crop prices with grain merchandisers, or fuel suppliers
hedge energy costs, it is derivatives markets that empower their
decisions and stabilize supply chains from farm to table and field to
fuel tank. Commercial end-users depend on these markets, not only to
offset risk, but also to secure business financing, manage uncertainty,
and fuel ongoing investment in American agriculture and energy.
These functions are not just theoretical--they are vital to the
real-world business of producing and transporting agricultural goods to
the consumers that depend on them. From the price of milk and bread to
the cost of gasoline and electricity, derivatives markets shape our
economy, ensuring that commercial participants can manage risk, avoid
catastrophic losses, and deliver reliable value to consumers. The roles
of price discovery, risk transfer, and market liquidity are the pillars
of healthy, resilient markets.
The Importance of a Robust, Well-Resourced CFTC
The Commodity Futures Trading Commission (CFTC or Commission) is
the cornerstone and referee of fair, transparent, and resilient markets
in the U.S. The Commission's mandate is not only to supervise
exchanges, clearinghouses, and intermediaries, but also to ensure that
regulatory processes remain responsive, transparent, and open to public
debate.
Since its inception fifty years ago, the CFTC has evolved alongside
the markets it governs--expanding from agricultural contracts to
oversight of financial, energy, metals, and now, digital assets. Its
principles-based regulatory regime has become a global model, allowing
flexibility for innovation while maintaining rigorous standards for
customer protection, market integrity, and risk management. As I see
new exchanges and instruments enter the trading space, there seems to
be pressure to change how clearinghouses work, how FCMs interact with
the exchanges, and even how many hours derivatives markets are open. I
am not here to comment on the needs of market participants in digital
assets, event contracts, or other relatively new asset classes.
However, like many others, I am concerned with their potential
influence on our traditional markets.
The trading rules for agriculture and energy markets have evolved
over decades of experience and are in place for good reasons. They have
been tested by crisis, black swan market events, and periods of
inactivity, and they have always continued to function. We do not
oppose innovation in our markets--innovation has been the reason for
the tremendous success of traditional markets in the U.S.--but if
market rules need to adjust for new entrants, let's not lump everyone
together. Certain market features like 24/7 trading and perpetual
futures might make sense in the context of digital asset commodities or
event contract markets, but they could be extremely problematic when
applied to traditional futures markets.
Having a Commission that is thoughtful and well-resourced, and that
understands both the importance of innovation and the importance of
maintaining our status as a global leader in risk management is
imperative. Our agriculture and energy markets should not change just
to accommodate potential innovations in other markets.
CFTC oversight ensures trustworthy price discovery, effective risk
transfer, and resilient liquidity, while safeguarding the interests of
commercial end-users. Its role in facilitating the convergence between
cash and derivatives markets, especially for physically delivered
contracts, provides critical market data such as the ``Commitment of
Traders'' report, and enables market participants to petition for rule
changes, ensuring that all voices are heard. Ultimately, this is what
ties the crops that are physically grown on a farm or raised on a ranch
to the financial derivatives we depend on to manage our risk.
During historic periods of stress, such as the financial crisis of
2008 and the aftermath of 9/11, the CFTC played a vital leadership
role, ensuring markets remained open and orderly, restoring confidence,
and working in close partnership with industry and policymakers. While
dramatic market events and the changes they bring to the markets might
be the biggest news, the most impactful role of the CFTC might be in
what many would consider the mundane. The reliable data it provides to
participants helps regulate the market by providing insight to market
participants. The Commission also plays an important role in monitoring
the convergence of the derivatives and physical markets. This highly
specialized process is particularly important to our traditional
agricultural contracts. The agency's responsiveness, expertise, and
judgment have kept the U.S. markets at the forefront of innovation and
stability amidst global competition.
There are often differences of opinion between different players in
derivatives markets. When this happens, it is vital to have a strong
CFTC that can hear both sides and find reasonable solutions. These
qualities depend on continued Congressional support for a robust, fully
staffed, fully funded, and well-resourced CFTC.
The Case for CFTC Reauthorization
Reauthorizing the CFTC is more than a procedural step; it is the
foundation for American economic leadership in the global commodities
markets. Periodic reauthorization ensures that the agency keeps pace
with technological change, the rapid growth of novel products, and the
ongoing globalization of commodity trading. The process offers Congress
vital oversight, enabling lawmakers to demand accountability, review
evolving risks, and assess the effectiveness of regulatory pathways.
The Commodity Exchange Act's core mandate is to foster innovation,
encourage public debate, and ensure regulation keeps pace with ever-
changing market needs. Passage of reauthorization legislation
demonstrates bipartisan determination to strengthen market safeguards
and address emerging challenges including cybersecurity, customer
property protection, and conflicts of interest.
Reauthorization also enables the CFTC to confront challenges posed
by financial market regulation, such as the Basel III Endgame and
Global Systemically Important Bank (GSIB) rules, international
competition, market structure reforms, and new asset classes. For
commercial end-users, keeping global benchmarks anchored in U.S.
markets is crucial for price stability and market access. For
consumers, robust reauthorization helps ensure that markets continue to
function as intended even in times of stress, volatility, or crisis.
Markets and businesses crave certainty. When there is uncertainty
in government policy, we see unnecessary and unproductive volatility in
the markets as market participants react to every rumor and news
article because they do not have solid guidance. We see this in the
soybean oil market today where market participants, awaiting
significant guidance from the Environmental Protection Agency (EPA) and
the Treasury Department on biofuels policy, see rumors of various
outcomes shooting prices up or down. While we recognize that Congress
has continued to fund the agency on a yearly basis, the lack of
reauthorization for the CFTC creates that same uncertainty when market
participants do not know what to expect from the government on a number
of key policies, such as how derivatives markets are or are not going
to integrate things like 24/7 trading. In short, CFTC reauthorization
upholds regulatory confidence, fosters forward-looking innovation, and
ensures that American farmers, merchants, utilities, processors, and
consumers are protected from market failures, systemic risks, and
global competition. Congress should go through the reauthorization
process to affirm its steadfast support for the vital work of the CFTC.
Recommendations for Congressional Action
As Congress considers its role in overseeing, supporting, and
reauthorizing the CFTC, I urge the Committee to:
1. Support appropriate funding and staffing for the CFTC, enabling
the agency to keep pace with market growth, technological
complexity, and global competitiveness.
2. Ensure that regulatory standards prioritize the needs of
commercial end-users and consumers--not just financial
intermediaries, new market entrants, or speculative
interests.
3. Safeguard the principles-based regulatory model that has enabled
responsible innovation and reasonable flexibility in
responding to new market challenges.
4. Maintain bipartisan commitment to transparency, public
participation, and open debate in regulatory decision-
making.
5. Encourage ongoing review of market structure proposals--such as
event contracts, clearing organization changes, and
customer bankruptcy protections--to ensure that any market
structure changes do not undermine our agriculture and
energy markets.
6. Anchor global price benchmarks in U.S. markets subject to U.S.
oversight and rules, strengthening America's competitive
position for the benefit of American producers, consumers,
and communities.
Thank you again for the opportunity to represent and comment on
behalf of the Commodity Markets Council, and all commercial end-users
of these agriculture and energy contracts. We hope you will support a
fully funded, fully functional CFTC to ensure that our producers,
merchants, and end-users can continue to fuel, feed, and clothe America
and a growing market.
The Chairman. Mr. Prosser, thank you so much for your
testimony. Ms. Crighton, please begin when you are ready.
STATEMENT OF ALICIA CRIGHTON, GLOBAL CO-HEAD OF
FUTURES, HEAD OF OTC AND PRIME CLEARING, GOLDMAN SACHS & CO.
LLC; CHAIR, BOARD OF DIRECTORS, FUTURES INDUSTRY ASSOCIATION,
NEW YORK, NY
Ms. Crighton. Thank you. Good morning, Chairman Thompson,
Ranking Member Craig, and Members of the Committee. Thank you
for the opportunity to testify. I am the Head of the Global
Clearing Businesses for Goldman Sachs and the Co-Head of its
global futures business. I am testifying today as Chair of the
Futures Industry Association, the leading global trade
organization for the futures options and centrally cleared
derivatives markets.
There is tremendous change facing the cleared derivatives
markets today, especially when compared to 2008 when the CFTC
was last reauthorized. FIA strongly supports the
reauthorization of the CFTC as it reinforces the agency's
mission in safeguarding markets critical to the global economy.
I have had the privilege of interacting extensively with the
Commission over many years through FIA, on behalf of Goldman
Sachs, and as the Chair of the CFTC's Market Risk Advisory
Committee, and believe that with adequate resources, it is well
suited for the challenges ahead.
FIA supports innovation and believes there is tremendous
potential for technology to benefit all market participants. We
also believe there are valuable and time-tested risk management
traits of our current market structure that can play an
important role in the integration of traditional and novel
products and platforms. When risk management goes hand in hand
with innovation, it helps to ensure the broadest participation
across both retail, end-users, and institutional investors. It
is to this end that I would like to highlight important
recommendations we hope the Committee and the Commission will
consider.
First, many of the safeguards that exist in the markets
today are behind the scenes, but critical to customer
protections and market stability. Futures commission merchants,
or FCMs, are risk managers that act as the first and last line
of defense in the clearing system and prevent losses from
triggering a domino effect that can threaten the stability of
markets. FCMs are CFTC-regulated intermediaries that stand
between end-users and the clearinghouses, safeguarding customer
assets, monitoring for money laundering, and providing
substantially all of the financial resources in the default
funds that backstop these clearinghouses. To the degree trading
platforms offer direct access models, the CFTC should consider
whether the regulatory environment may also need to evolve to
safeguard markets and market participants, particularly as
retail investors are provided direct clearing access on a
leveraged basis.
In 2023, I testified before this Committee regarding
volatility in the commodity derivatives markets and how end-
users can be better prepared to weather market turbulence. I
also highlighted how they are finding it harder to secure and
sustain capacity from their FCMs to clear. I suggested two
solutions that remain necessary today: adequate clearinghouse
margin levels and a well-calibrated bank capital regime. I
elaborate on these points in my written testimony and would be
happy to discuss them further today.
Perhaps one of the most notable changes in the CFTC's
mission over the last 20 years is that it may now oversee
significantly more leveraged retail investor trading volumes
than ever before. FIA supports efforts underway by Congress to
clarify and strengthen the CFTC's authority over digital
commodities to help ensure retail investors are protected, but
FIA also recommends that Congress authorize the CFTC to issue
rules or guidance to require that financial resources used to
manage the default involving leveraged retail transactions be
segregated from other default resources in the clearinghouse.
Such separation could mitigate systemic risk concerns.
Next, FIA supports provisions in the CLARITY Act intended
to ensure risk offsets are recognized across both traditional
and digital asset products that span CFTC and SEC jurisdiction.
Recognizing such offsets will incentivize hedging activity
while promoting harmonization between both agencies. Similarly,
FIA supports provisions in the CLARITY Act to authorize the
CFTC to carry out a rulemaking to mitigate potential conflicts
of interest for vertically integrated market participants and
ensure retail investors remain protected. Rulemaking should
establish requirements for the identification, mitigation, and
resolution of these conflicts as they may arise in the context
of vertically integrated market structures. Finally, FIA
supports inclusion of the Griffin fix (FR Doc. 2020-28300) as
it is designed to strengthen customer protections in bankruptcy
proceedings involving FCMs by ensuring customers have priority
if there is a shortfall in segregated funds. FIA believes there
is broad stakeholder support for this provision.
FIA greatly appreciates the Committee's interest in these
topics that affect global derivatives markets. It is an honor
to be with you today, and I look forward to answering your
questions. Thank you.
[The prepared statement of Ms. Crighton follows:]
Prepared Statement of Alicia Crighton, Global Co-Head of Futures, Head
of OTC and Prime Clearing, Goldman Sachs & Co. LLC; Chair, Board of
Directors, Futures Industry Association, New York, NY
Chairman Thompson, Ranking Member Craig, and Members of the
Committee, thank you for the opportunity to testify. I am the head of
the global clearing business for Goldman Sachs and the co-head of its
global futures business. I am testifying as Chair of the Futures
Industry Association (FIA), the leading global trade organization for
the futures, options and centrally cleared derivatives markets.
There is tremendous change facing the cleared derivatives markets
today, especially when compared to 2008 when the CFTC was last
reauthorized. FIA strongly supports the reauthorization of the CFTC, as
it reinforces the agency's mission and central role in safeguarding
markets critical to the global economy. I've had the privilege of
interacting extensively with the Commission over many years, through
FIA, on behalf of Goldman Sachs and as Chair of the CFTC's Market Risk
Advisory Committee and believe that with adequate resources it is well
suited for the challenges ahead.
As the Committee undertakes this process, I appreciate the
opportunity to highlight important recommendations that we hope the
Committee and the Commission will consider.
The Role of Futures Commission Merchants (FCMs)
First, I will provide the Committee with an overview of the
important role clearing members, or Futures Commission Merchants
(FCMs), play in global derivatives markets. Through their connectivity
to exchanges and clearinghouses around the world, clearing members
provide customers, including agricultural and energy end-users, with
access to global markets to manage the risks of their operations. For
example, many FIA members participate in clearinghouses across dozens
of jurisdictions to ensure their clients can transact in any region in
which they do business.
Clearing members are intermediaries, which means they stand between
an end-user and the clearinghouse, and act as the first and the last
line of defense in fostering stability in cleared derivatives markets.
These intermediaries act as a first line of defense by underwriting the
risk of a client's portfolio before it ever reaches the clearinghouse
and monitoring that risk on an ongoing basis. This includes determining
the appropriateness and suitability of leveraged products, monitoring
clients for money laundering and other risks to market integrity,
collecting and safeguarding customer margin, and guaranteeing the
performance of clients to the clearinghouse.
Perhaps less known is that clearing members are also the last line
of defense, in the sense that they contribute substantially all the
financial resources in the default funds that backstop the
clearinghouses. These default funds are rarely used, but they are
essential for absorbing losses in the event of a major market
disruption or a default by a market participant and preventing those
losses from cascading into a financial crisis.
Looking at just the five derivatives clearinghouses that operate in
the U.S., we can see that clearing members contributed $35.7 billion to
their default funds as of June 2025, the most recent data available.
That was equivalent to 98.5% of all the money in those default funds.
If we include three other major international clearinghouses that are
highly important to end-users in the U.S., namely Eurex, ICE Clear
Europe and LCH Ltd, we see the same picture. As of June 2025, clearing
members contributed $61 billion in total to this group of eight
clearinghouses, equivalent to 98.4% of the total amounts in those
default funds.
Clearing members also hold a significant amount of regulatory
capital, which serves as an additional layer of protection to the
system that helps ensure clearing members themselves can withstand a
severe market disruption. The total amount of capital held by the
clearing members regulated by the CFTC was $169 billion as of September
2025.
Together, these financial resources reduce the risk that a major
market event or default creates wider market contagion, which can put
financial markets and customer assets at risk.
Source: FIA CCP Tracker. Data as of June 2025.
We support innovation and believe there is tremendous potential in
technology to benefit all market participants. We also believe there
are valuable and time-tested risk management traits of our current
market structure that can play an important role in the integration of
traditional and novel products and platforms. Ensuring risk management
goes hand in hand with innovation will ensure the broadest
participation across both retail, end-users and institutional
investors, and the issues I'd like to raise today are to that end.
Regulated and Well Capitalized Intermediaries Play an Essential Role in
Protecting Customers and the Stability of the Market Ecosystem
First, many of the safeguards that exist in the markets today are
``behind the scenes'' but critical to customer protections and market
stability. Futures Commission Merchants (FCMs) are risk managers that
play a central role in ensuring the resiliency of the clearing system
and preventing losses from triggering a domino effect that can threaten
the stability of the markets. Like regulated exchanges and
clearinghouses, well capitalized FCMs are a key component of the
regulatory architecture that have served the derivatives markets well.
FCMs are CFTC regulated intermediaries that stand between end-users and
the clearinghouses by guaranteeing the performance of clients to the
clearinghouse. In addition, FCMs safeguard customer assets, monitor for
money laundering and other risks to market integrity and provide
substantially all the financial resources in the default funds that
backstop the clearinghouses.
To the degree trading platforms offer direct access models where
participants can access the exchange or clearinghouse directly, the
CFTC should consider whether the regulatory environment may also need
to evolve to sufficiently safeguard markets and market participants.
This will be especially important as retail investors are provided
direct clearing access on a leveraged basis.
Stable, Robust Margin Levels and a Well-Calibrated Capital Regime Will
Support Access to Global Markets for End-Users and Investors
In 2023, following the Russian invasion of Ukraine, I testified
before this Committee regarding volatility in the commodity derivative
markets and how end-users can be better prepared to weather market
turbulence. I also spoke to the fact that end-users are finding it
harder to secure and sustain capacity from their FCMs to clear the full
extent of their trading volume. I suggested two solutions at that time
that remain necessary today: adequate clearinghouse margin levels and a
well-calibrated bank capital regime.
Clearinghouses collect ``margin'' for the futures contracts that
energy and agricultural producers use to hedge against fluctuations in
energy and food prices. Margin is the capital collected in conjunction
with those contracts to protect against default. In 2023, I highlighted
how important it is to ensure margin levels are robust and stable over
time so that end-users, such as ranchers and farmers, are not exposed
to dramatic spikes in their margin payments during market volatility,
which in turn helps ensure consumer prices remain stable. Additionally,
inadequate margin level requirements present risks that are absorbed by
FCMs--both because of the immense financial resources that FCMs bring
to bear in supporting the resilience of the clearing system and because
FCMs often cover margin shortfalls through margin add-ons that
clearinghouses call from them. Margin adequacy is therefore closely
tied to the amount of clearing capacity that clearing members can make
available for end-users. Despite the consensus that emerged in
recommendations to address margin adequacy by the CFTC's Market Risk
Advisory Committee in 2021, there has been little progress. We believe
the CFTC can do more to ensure the adequacy of clearinghouse margin
models to reduce the negative effects of market volatility on end-users
and increase their access to clearing.
Last, bank capital rules dictate the amount of capital clearing
members must hold. Despite an intentional regulatory push towards
clearing, the previously proposed Basel III Endgame capital rule took a
punitive approach that would further limit clearing members' ability to
provide capacity to the markets. The proposed approach was also
punitive relative to the international standards, placing U.S. banks at
a competitive disadvantage in providing clearing services. A re-
proposal of Basel III Endgame is expected early next year and provides
an opportunity to ensure that the bank capital regime is appropriately
calibrated to help support the expansion of clearing, rather than to
constrain capacity as we see today.
As More Retail Leveraged Transactions Enter CFTC Markets, Congress
Should Consider Safeguards for Institutional Investors and
Hedgers
Perhaps one of the most notable changes in the CFTC's mission over
the last 20 years is that it may now oversee significantly more
leveraged retail investor trading volumes than ever before. FIA
supports efforts underway by Congress to clarify and strengthen the
CFTC's authority over digital commodities to help ensure retail
investors are protected.
A unique aspect of the derivatives ecosystem is that in the event a
clearing member defaults, losses are mutually shared by the remaining
clearing members in what is known as default fund loss mutualization.
With the increase in leveraged retail transactions, clearing members
representing institutional end-users will now participate in the same
default fund as retail investors. FIA recommends that Congress consider
authorizing the CFTC to issue rules or guidance to require that
financial resources that would be used to manage the default involving
leveraged retail transactions be segregated from other default
resources in the clearinghouse. Such separation could mitigate systemic
risk concerns and prevent contagion from spreading between retail
investors trading novel products and end-users and other traditional
market participants accessing the markets for hedging purposes.
Portfolio Margining Incentivizes Hedging, Promotes Market Liquidity and
Fosters Greater Coordination Between CFTC and SEC
Next, FIA supports provisions in the CLARITY Act intended to ensure
risk offsets are recognized across both traditional and digital asset
products that span CFTC and SEC jurisdiction in both the margin and
bank capital framework. Recognizing such offsets will incentivize
hedging activity while promoting harmonization between the CFTC and
SEC.
Addressing Conflicts of Interest in Vertically Integrated Models Is
Important To Uphold Market Integrity, Protect Market Stability
and Instill Confidence in U.S. Markets
Similarly, FIA supports provisions in the CLARITY Act to authorize
the CFTC to carry out a rulemaking to mitigate potential conflicts of
interest for vertically integrated market participants and ensure
retail investors remain protected. In recent years, there has been a
distinct trend in derivatives and spot digital asset markets toward
vertically integrated business models. For example, while the futures
markets are accustomed to exchanges and clearinghouses under common
ownership, many new models are structured to extend the ``vertical'' to
include FCMs and other intermediaries. Further, as envisioned by the
CLARITY Act, these verticals may grow with the addition of ``digital
commodity'' exchanges and intermediaries that will be registered with
the CFTC to provide services in spot cryptocurrency markets.
These new models may increase the potential--both in practice and
perception--of substantial conflicts of interest across the mix of
commercial objectives, regulatory responsibilities and risk management
processes under one roof. Rulemaking should establish requirements for
the identification, mitigation, and resolution of conflicts of interest
as they may arise in the context of vertically integrated market
structures.
The ``Griffin Fix'' Will Strengthen Customer Protections in Bankruptcy
A key measure that has been consistently considered in previous
reauthorization bills and passed out of both the House and Senate
Agriculture Committees with bipartisan support is the ``Griffin fix.''
FIA supports inclusion of the Griffin fix as it is designed to
strengthen customer protections in bankruptcy proceedings involving
FCMs by providing legislative certainty for the CFTC's rulemaking
authority to ensure customers have priority if there is a shortfall in
segregated funds. FIA believes there is broad stakeholder support for
this provision, which benefits FCM customers including farmers,
ranchers, energy producers, and other end-users.
Conclusion
FIA greatly appreciates the Committee's interest in these topics
that affect global derivatives markets. It is an honor to be with you
today and I look forward to answering your questions.
The Chairman. Ms. Crighton, thank you so much for your
testimony. Mr. Schwartz, please begin when you are ready.
STATEMENT OF ROBERT A. SCHWARTZ, J.D., PARTNER,
MORGAN, LEWIS & BOCKIUS; FORMER GENERAL COUNSEL, COMMODITY
FUTURES TRADING COMMISSION,
WASHINGTON, D.C.
Mr. Schwartz. Thank you. Excuse me. Good morning, Chairman
Thompson, Ranking Member Craig, Members of the Committee. I am
Rob Schwartz, a partner in the Futures and Derivatives Practice
at Morgan, Lewis & Bockius, but more importantly for today's
purposes, I spent 13 years at the CFTC, including most recently
as its General Counsel. I had the privilege of being involved
in some capacity on most major issues before the Commission for
over a decade.
I am also the grandson of a farm girl. Years ago, my family
owned a dairy farm with about five cows in southeast Brooklyn,
if you can believe it, just a few minutes from what is now
Kennedy Airport. I looked this up with the state's Department
of Agriculture and Markets, and there is now just one farm in
all of New York City, and it grows salad greens and wheatgrass
in shipping containers, my point being that things change, and
things are changing for the CFTC, too: new products, new
technologies, new market participants, and soon, new
leadership. It is the right time to take a fresh look at the
statute, the Commodity Exchange Act, and so I thank you for
your work and the opportunity to appear before you.
Okay. Now the disclaimer: the views I share are my own and
do not represent those of Morgan Lewis, my colleagues or
clients, or any other person or organization. Okay, onward.
The CFTC is a special agency, and I want to highlight three
aspects of that. First, the CFTC is a deliberative, bipartisan
body in the truest sense. Of all the experiences I had during
my service at the agency, some of the most interesting were the
times I got to sit behind closed doors with generations of
Commissioners while they deliberated on critical issues.
Democrats and Republicans of good faith would debate, sharpen
their thinking, compromise, and sometimes even change their
minds. I think if the American people had visibility into that
like I did, they would be pleased with what Washington is
capable of. This is a technical field, and partisanship should
not and typically does not dictate how the CFTC executes its
mission, and I can tell you that most people who work at the
CFTC do not care if it is led by Democrats or Republicans. They
look for leadership, expertise, and problem solving, and they
do their work with the same dedication no matter what.
Second, the Commission, when it is at full strength,
possesses a wealth of knowledge. Congress designed it that way.
The CEA directs the President to nominate individuals with
``demonstrated knowledge in futures trading or regulation of
one or more of the commodities covered by the statute, and seek
to ensure balance in those areas.'' It is tall order. The CEA
definition of commodity, as you probably know, covers anything
that underlies a futures contract, which means it covers assets
from cotton and grain to oil and gas, raw materials, precious
metals, interest rates, credit indices, exchange rates, and now
cryptocurrency.
But while achieving that balance is hard, Presidents of
both parties have succeeded. Commissions I served under
included experts on agriculture, energy, financial products,
international business, digital assets, and on and on. The same
is true of the agency staff. CFTC economists, technical
experts, lawyers, and others have degrees in everything from
law and government, to math and hard sciences. They include
experts in fintech. They come from rural and urban backgrounds.
Many have served in the military. Together, they have a level
of skill, knowledge, and discipline worthy of the agency's
mandate. That matters because there may be no other agency that
touches so many areas of the economy. As former Chairman
Tarbert put it, the CFTC is the most important regulator most
Americans have never heard of.
Third, and I think because of points one and two, the
agency is very effective. The Commission's oversight has helped
to ensure that our derivatives markets have functioned smoothly
in good times and bad. I am thinking of the collapse of MF
Global, the disruptions of COVID-19, the War in Ukraine, and
the fraud at FTX, where the CFTC-regulated subsidiary continued
to function as normal and the Division of Enforcement held the
wrongdoers to account. Americans should feel confident that the
most important little agency they have probably never heard of
is on the job.
I will end by saying that as impressive as it is, the CFTC
can only be as strong, not only as its members and staff, but
as the Commodity Exchange Act itself, which has made the U.S.
the global gold standard for derivatives regulation, but old
statutes are like old friends: you should visit them from time
to time. It is important that Congress periodically inspect the
machinery to ensure that it is equal to the task today and
adaptable for the future. These are times of change, and as we
sit here, there are probably lurking in labs and laptops around
the world the seeds of new products and technologies we can't
imagine, but that the Commission will someday contend with.
Reauthorization is an important part of making sure the agency
is always equipped to carry out the mission. So, again, I thank
the Committee for its work and for the opportunity to assist in
any way I can.
[The prepared statement of Mr. Schwartz follows:]
Prepared Statement of Robert A. Schwartz, J.D., Partner, Morgan, Lewis
& Bockius; Former General Counsel, Commodity Futures Trading
Commission, Washington, D.C.
Good morning, Chairman Thompson, Ranking Member Craig, and Members
of the Committee. I am Rob Schwartz, a Partner in the Futures &
Derivatives Practice at Morgan, Lewis & Bockius. More importantly for
today's purposes, however, I served at the Commodity Futures Trading
Commission (CFTC) for thirteen years, including as its General Counsel
under Chairman Rostin Behnam, and as Acting General Counsel under
Chairmen Christopher Giancarlo and Heath Tarbert. During the time I
spent at the agency, I had the privilege of being involved in most
major issues to come before the Commission, from Dodd-Frank
implementation and the MF Global bankruptcy to event contracts and the
agency's first forays into digital assets. And as a longtime staff
member, I also know how the CFTC functions internally. I hope that I
can assist you today on either front--on the substance of the Commodity
Exchange Act (CEA) and the CFTC's regulations, or on the agency's inner
workings. Thank you for the opportunity to appear before you to support
your work on CFTC Reauthorization.
The views I share are my own and do not represent those of Morgan
Lewis, my colleagues, our clients, or any other person or organization.
The CFTC is a special agency, and I want to highlight three aspects
of that.
First, the CFTC is a deliberative and bipartisan body in the truest
sense. One of the many priceless sets of experiences I had at the
agency was to sit many times behind closed doors with generations of
Commissioners while they debated and deliberated on important questions
before the agency.\1\ Democrats and Republicans of good faith would
debate, sharpen their own thinking, compromise, and sometimes even
convince one another to change their minds.
---------------------------------------------------------------------------
\1\ All such deliberations met the requirements to close a meeting
under the Government in the Sunshine Act. See 5 U.S.C. 552b.
---------------------------------------------------------------------------
I believe that if the American people had visibility into that,
they would be pleased to know what Washington is capable of. This is a
highly technical field, and partisanship should not, and typically does
not, dictate how the CFTC executes its mission. And from the
perspective of a former staff member, I can tell you that the people
who work at the CFTC overwhelmingly do not care if the agency is led by
Democrats or Republicans. They look for leadership, expertise, and
skilled problem solving, and they approach their work in the same
dedicated way no matter what. I was personally fortunate to serve under
high-quality leaders from both parties.
Second, I want to highlight the depth and breadth of knowledge that
the Commission at full strength possesses. Congress designed it that
way. The CEA directs the President to nominate individuals with
``demonstrated knowledge in futures trading or its regulation, or the
production, merchandising, processing or distribution of one or more of
the commodities or other goods and articles, services, rights, and
interests covered by'' the statute and ``seek to ensure that the
demonstrated knowledge of the Commissioners is balanced'' in those
areas.\2\
---------------------------------------------------------------------------
\2\ 7 U.S.C. 2(a)(2).
---------------------------------------------------------------------------
That is a tall order. As you know, the CEA contains a sweeping
definition of ``commodity'' that includes anything that underlies a
futures contract.\3\ As a result, it covers assets ranging from the
first seven agricultural commodities that Congress listed in the
statute, to oil and gas; raw materials; precious metals; interest
rates; credit indices; and exchange rates. Ten years ago, crypto joined
the list.\4\
---------------------------------------------------------------------------
\3\ Id. 1a(9).
\4\ CFTC Rel. No. 7231-15, CFTC Orders Bitcoin Options Trading
Platform Operator and its CEO to Cease Illegally Offering Bitcoin
Options and to Cease Operating a Facility for Trading or Processing of
Swaps without Registering (Sept. 17, 2015).
---------------------------------------------------------------------------
But despite the difficulty of achieving balance in those areas,
during my tenure, Presidents of both parties achieved the goal. The
Commissions under which I served included experts on agriculture,
energy, financial products, international business, digital assets, and
a great deal more. That matters, because there may be no other agency
that touches so many areas of the economy. As former Chairman Tarbert
put it, the CFTC is ``the most important regulator most Americans have
never heard of.'' \5\
---------------------------------------------------------------------------
\5\ Statement of Chairman Heath P. Tarbert Before the December 10,
2019 Open Meeting (December 10, 2019), https://www.cftc.gov/PressRoom/
SpeechesTestimony/tarbertstatement121019.
---------------------------------------------------------------------------
That is all before I get to the agency's staff. CFTC economists,
technical experts, lawyers, and others come from rural and urban
backgrounds; have degrees that run the gamut from government and law to
mathematics and hard sciences; include experts in digital assets; and
in many cases have served in the military. Collectively, they bring a
level and diversity of skill, expertise, and discipline worthy of the
agency's mandate. As General Counsel, I relied on them heavily, and now
as a member of the private bar, my clients are glad they are there.
Third, and I believe as a result of points one and two, the agency
is extremely effective. The Commodity Exchange Act and the people who
administer it have ensured that this country's derivatives markets have
continued to function smoothly through good times and bad. I mentioned
the collapse of MF Global, where $1.6 billion in customer assets went
temporarily missing but eventually were repaid; \6\ there was also the
massive disruption to our economy from COVID-19, including when the
price of oil dipped below zero; \7\ Russia's invasion of Ukraine; and
the fraud at FTX, where the CFTC-regulated subsidiary was untouched and
continued to function as normal, and the Division of Enforcement held
the wrongdoers to account.\8\ Americans can feel confident that the
most important little agency they probably have never heard of is on
the job.
---------------------------------------------------------------------------
\6\ Congressional Research Service, The MF Global Bankruptcy,
Missing Customer Funds, and Proposals for Reform, at 2 (Aug. 1, 2013).
\7\ Congressional Research Service, Crude Oil Futures Prices Turn
Negative, at 1 (Apr. 22, 2020).
\8\ CFTC Rel. No. 8638-22, CFTC Charges Sam Bankman-Fried, FTX
Trading and Alameda with Fraud and Material Misrepresentations (Dec.
13, 2022).
---------------------------------------------------------------------------
* * * * *
I will conclude by saying that as impressive as it is, the CFTC can
only be as strong as, not only its members and its staff, but the
Commodity Exchange Act itself. With the benefit of the CEA, the United
States has become the gold standard for derivatives regulation
worldwide. But old statutes are like old friends--you should visit them
from time to time. It is critical that Congress periodically inspect
the machinery to ensure that it is equal to the task today and
adaptable to the challenges waiting over the horizon. As we sit here,
there probably are lurking in labs and laptops around the world the
seeds of new products and technologies that we cannot imagine, but that
the Commission someday will contend with. Reauthorization is a part of
making sure the agency is always equipped to carry out the mission.
I thank the Committee for its work and for the opportunity to
assist in any way that I can.
The Chairman. Mr. Schwartz, thank you so much for your
testimony. Mr. Schiffrin, please proceed when you are ready.
STATEMENT OF BENJAMIN L. SCHIFFRIN, J.D., DIRECTOR OF
SECURITIES POLICY, BETTER MARKETS, INC., WASHINGTON, D.C.
Mr. Schiffrin. Good morning, Chairman Thompson, Ranking
Member Craig, and Members of the Committee. Thank you for the
invitation to testify today. My name is Ben Schiffrin, and I am
the Director of Securities Policy at Better Markets. Better
Markets is a nonprofit, nonpartisan, and independent
organization founded in the wake of the 2008 financial crisis
to promote the public interest in the financial markets,
support the financial reforms of Wall Street, and make the
financial system work for all Americans again.
This year marks the 50th anniversary of the creation of the
CFTC. Its 50 year history demonstrates that the agency is
deeply rooted in and skilled at supporting producers in our
agricultural markets, but also capable of responding to new and
emerging issues in the financial marketplace, but only if given
the appropriate authorities and resources by Congress. When
Congress fails to provide the proper support for market
oversight, novel products emerge and gaps develop, and even a
willing and able CFTC is unable to meet the moment. When this
happens, it leads to disastrous consequences for investors,
customers, producers, and the wider economy.
A CFTC that has the appropriate regulatory authority and
resources is critical because the CFTC's core mission is of
vital importance. The agency polices the integrity of
derivatives markets in order to help producers, like farmers,
ranchers, and manufacturers, hedge risk and develop accurate
prices for their products. The CFTC is responsible for the
essential functions of providing relevant information to the
public, preventing fraud in trading, and curbing financial
speculation unrelated to natural supply and demand. These
functions matter to every American because they impact the
price of everything, from the cereal they eat for breakfast, to
the bread they need for school lunches, to the gas in their
cars to get to work, and the oil that heats their homes.
At a time when all Americans are fighting to make ends meet
and suffering from an affordability crisis, it is critical that
the CFTC focus on its primary mission to ensure that those
everyday commodities are available to the American people in
the right amounts, at the right time, at the right and fair
prices. Unfortunately, the CFTC has strayed from its core
mission. The agency now seems to be spending all of its time on
the crypto markets. From a sheer market size perspective, this
focus represents a mismatched use of resources. While the
global crypto market is estimated to be just over $3 trillion,
the CFTC separately is responsible for overseeing $380 trillion
in notional U.S. swaps and futures contracts. Being the leading
promoter of crypto is a distraction for the CFTC that the
American people simply cannot afford.
The CFTC is also taking on significant new responsibilities
it is ill-equipped to handle with prediction markets. Better
Markets has been warning for years that prediction market
platforms are trying to thwart state and Tribal laws by
asserting that the event contracts they offer on politics and
sports are not, in fact, gambling, despite the fact that they
let people bet on elections and sporting events. These efforts
have accelerated in recent months and threaten everything, from
the CFTC having the bandwidth to police traditional markets, to
consumers losing the protections they deserve.
The CFTC's focus on crypto and prediction markets is
especially problematic for its ability to fulfill its core
mission because the agency is already under-funded and
understaffed. The agency has only been funded by Congress at
its requested level twice--once in Fiscal Year 2021 and once in
Fiscal Year 2023--and it is forced to oversee the $380 trillion
in notional U.S. swaps and futures contracts with a budget of
just $365 million. Reporting from Bloomberg also indicates that
at least 15 percent of staff has been shed since the beginning
of the Trump Administration, yet new areas of oversight, such
as crypto and prediction markets, will require not only the
addition of new staff, but also new data metrics and
surveillance tools.
The sheer lack of Commissioners serving at the CFTC and its
absence of bipartisan leadership further exacerbate the
agency's difficulties with fulfilling its core mission. The
CFTC has been led by one Commissioner in an acting chair
capacity since September 2025, yet the CFTC was designed to be
a five-member bipartisan Commission. The need for a full,
bipartisan Commission is heightened during a time when
policymakers are considering significantly expanding the
jurisdictional reach of the agency. The agency should not move
forward with future rulemaking or guidance efforts until the
CFTC has both a permanent chair and robust bipartisan
representation amongst the Commissioners.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Schiffrin follows:]
Prepared Statement of Benjamin L. Schiffrin, J.D., Director of
Securities Policy, Better Markets, Inc., Washington, D.C.
Good morning, Chairman Thompson, Ranking Member Craig, and Members
of the Committee. Thank you for the invitation to testify today. My
name is Benjamin Schiffrin, and I am the Director of Securities Policy
at Better Markets, Inc., a nonprofit, nonpartisan, and independent
organization founded in the wake of the 2008 financial crisis to
promote the public interest in the financial markets, support financial
reforms of Wall Street, and make the financial system work for all
Americans.
I. Introduction
This year, 2025, marks the 50th anniversary of the creation of the
Commodity Futures Trading Commission (``CFTC''). Now is an important
time for the Committee to consider how to build upon the long history
of the agency and work towards reauthorization legislation, the last of
which expired at the end of the fiscal year (``FY'') in 2013.\1\ Today
I will raise a number of issues related to the CFTC worthy of
consideration in your legislative effort.
---------------------------------------------------------------------------
\1\ Congressional Research Service. ``Commodity Futures Trading
Commission: Proposed Reauthorization in the 114th Congress.'' CRS
Report 44231, August 3, 2016. Available at: https://
www.everycrsreport.com/reports/R44231.html.
---------------------------------------------------------------------------
History of the CFTC
Recognizing the growing complexity, importance and volume of the
commodity futures markets, Congress enacted the Commodity Futures
Trading Commission Act in 1974, providing for the agency to be
established the next year. This legislative effort grew out of a long
history of policymakers responding to public demand for more oversight
of the essential markets that help create prices for everyday
essentials like cotton, rice, mill feeds, butter, eggs, potatoes and
grains--and later, metals and energy products. Reflecting the necessity
for a dedicated, independent regulator for these quickly expanding
market areas, Congress shifted oversight out of the U.S. Department of
Agriculture (``USDA'') and into an expert agency with exclusive
jurisdiction over futures trading in a wide range of commodities.
Later, in the 1990s, markets continued to evolve and were met with
increasing complexity and the onset of several market manipulation
scandals.\2\ Then, late in the decade, the use of financial derivatives
grew both in size and complexity. These new financial products,
allowing financial firms to make leveraged bets on the performance of
financial assets like mortgages, were exempted from regulation under a
1993 interpretation of the Commodities Exchange Act (``CEA'') by the
CFTC.\3\ Seeing this market explosion and fearing future financial
instability, in 1998, the CFTC Chair Brooksley Born put out for comment
a Concept Release for feedback that solicited the public's views on
amending the 1993 loophole and applying a regulatory framework to
financial derivatives using existing authorities of the agency.\4\
---------------------------------------------------------------------------
\2\ Dumas, Cantrell. ``Origins of the CFTC: Protecting the
Integrity of Commodity Markets.'' Better Markets, April 21, 2025.
Available at: https://bettermarkets.org/wp-content/uploads/2025/04/
Fact_Sheet_Origins_of_CFTC-4.18.25.pdf.
\3\ Commodity Futures Trading Commission. ``Over-the-Counter
Derivatives: Concept Release.'' Fed. Reg. 26114, May 12, 1998.
Available at: https://www.cftc.gov/sites/default/files/opa/press98/
opamntn.htm.
\4\ Id.
---------------------------------------------------------------------------
Unfortunately, instead of responding to these emerging risks,
Congress instead first passed a 6 month moratorium on the CFTC
exercising oversight of financial derivatives and then enacted the
Commodity Futures Modernization Act of 2000 (``CFMA''). This
legislation foreclosed the CFTC's ability to regulate these ``over-the-
counter'' derivatives by explicitly exempting them from oversight.\5\
---------------------------------------------------------------------------
\5\ For a discussion of the history that led to the passage of the
CFMA, see Fischer, Amanda. ``We've Seen this Movie Before.'' Better
Markets, September 25, 2025. Available at: https://bettermarkets.org/
wp-content/uploads/2025/09/Weve-Seen-This-Movie-Before-Crypto-Fact-
Sheet-9.25.25.pdf.
---------------------------------------------------------------------------
New Authorities After the Global Financial Crisis
The regulatory gaps created by this forbearance ultimately
culminated in the 2008 global financial crisis, when financial
derivatives operating in the shadows amplified the risks associated
with predatory, subprime mortgage lending and threatened global
economic stability. Congress then responded by passing the Dodd-Frank
Wall Street Reform Act of 2010 (``Wall Street Reform''), which provided
the CFTC with the responsibility to oversee these previously opaque
financial instruments.\6\ This included new mandates for trading
transparency, trade reporting, business conduct standards, registration
of swap dealers and major swap participants and central clearing.\7\
---------------------------------------------------------------------------
\6\ P.L. 111-203.
\7\ Id., Title VII.
---------------------------------------------------------------------------
In short, the 50 year history of the CFTC demonstrates that the
agency is both deeply rooted in, and skilled at, supporting producers
in our agricultural markets, but also capable of responding to new and
emerging issues in the financial marketplace--but only if given the
appropriate authorities and resources by Congress. When Congress fails
to provide the proper support for market oversight, novel products
emerge and gaps develop, and even a willing and able CFTC is unable to
meet the moment. When this happens, it leads to disastrous consequences
for investors, customers, producers and the wider economy.
II. A Critical Moment for the CFTC
A Volatile Moment for Producers and Consumers
Now is a critical moment for the core mission of the CFTC.
Agricultural markets are facing significant strain due to a multitude
of factors, including the imposition of tariffs, a trade war that makes
the export market more difficult and Administration immigration policy,
which has created labor disruptions in some parts of the industry.\8\
For example, according to the American Soybean Association, ``growers
find themselves in a precarious position as the 2025 harvest season
wraps up . . . November futures prices were between 25 percent to 30
percent lower than at the same point in 2022.'' \9\ The Association
likewise reports that the affordability crisis facing so many Americans
is also being felt by farmers, with ``elevated prices for land,
machinery, seeds, pesticides and fertilizers.'' \10\ A September 2025
survey from the National Corn Growers Association (``NCGA)'' reveals
that 46 percent of U.S. farmers believe the nation is nearing a farm
crisis and 65 percent are more concerned about finances than they were
a year ago.\11\ And while the cattle market is experiencing generally
strong performance, the cattle futures market has experienced
significant volatility, with record highs soon followed by markets
hitting ``limit down'' thresholds--or fail safes designed to mitigate
market panics--on news of the Administration potentially opening up
[Argentinean] beef imports.\12\
---------------------------------------------------------------------------
\8\ Schulz, Bailey. ``American farmers warn this year feels
especially dire. What happens next?'' USA Today, September 15, 2025.
Available at: https://www.usatoday.com/story/money/2025/09/15/farmers-
corn-soybean-economic-pressures-profits/86091737007/.
\9\ Holland, Jacquie and Scott Gerlt, Ph.D. ``The Rising Cost
Squeeze: Soybean Farmers Face a Third Year of Losses.'' American
Soybean Association, December 3, 2025. Available at: https://
soygrowers.com/news-releases/the-rising-cost-squeeze-soybean-farmers-
face-a-third-year-of-losses/.
\10\ Id.
\11\ Eckelkamp, Margy. ``Farmers Alarmed: U.S. Nearing Agricultural
Economic Crisis--Steps to Reverse Course.'' AgWeb.com, September 18,
2025. Available at: https://www.agweb.com/news/business/farmers-
alarmed-u-s-nearing-agricultural-economic-crisis-steps-reverse-course.
\12\ Rook, Michelle. ``Did the Administration's Plan to Lower Beef
Prices Wreck the Bull Run in the Cattle Market?'' Drovers, November 17,
2025. Available at: https://www.drovers.com/news/industry/did-
presidents-plan-lower-beef-prices-wreck-bull-run-cattle-prices.
---------------------------------------------------------------------------
These financial strains are starting to have a downstream impact.
In the second quarter of 2025, the Federal Reserve Bank of Minneapolis
reported that 93 farm operations filed for bankruptcy, up from 88 in
the first quarter of 2025 and nearly double the 47 at the end of
2024.\13\ Separate data from Bloomberg found that when counting small
farms and fisheries, bankruptcies were at a 5 year high as of the
summer of 2025, with producers citing ``higher interest rates, Trump's
trade war and dramatically reduced demand from China.'' \14\
---------------------------------------------------------------------------
\13\ Mahon, Joe. ``Farm bankruptcies have increased in the Ninth
District, keeping some farmers afloat.'' Federal Reserve Bank of
Minneapolis, September 25, 2025. Available at: https://
www.minneapolisfed.org/article/2025/farm-bankruptcies-have-increased-
in-the-ninth-district-keeping-some-farmers-afloat.
\14\ Church, Steven and Ilena Peng. ``Trade Wars, Rates Push U.S.
Small Farm Bankruptcies to 5-Year High.'' Bloomberg, July 23, 2025.
Available at: https://www.bloomberg.com/news/articles/2025-07-23/
america-small-farmers-are-hurting-with-trump-policies-loan-
woes?sref=mQv
UqJZj.
---------------------------------------------------------------------------
Likewise, American consumers continue to feel the pinch in grocery
stores, with prices continuing to rise with both tariffs and the
Administration's immigration policies at least in part driving the
increases.\15\ Increases in prices in some grocery items have been
particularly high and exceeded the general rate of inflation--including
certain cuts of beef, (20 percent year-over-year rise), chicken breast
and bacon (five percent), iceberg lettuce (21 percent), bananas (nine
percent), orange juice (12 percent) and coffee (41 percent).\16\
---------------------------------------------------------------------------
\15\ Dale, Daniel. ``Fact check: Grocery prices are up, not `way
down' as Trump claimed.'' CNN, October 24, 2025. Available at : https:/
/www.cnn.com/2025/10/24/politics/fact-check-grocery-prices-trump.
\16\ Martichoux, Alix. ``These 9 grocery staples have seen the
biggest price spikes this year.'' The Hill, November 19 2025. Available
at: https://thehill.com/homenews/nexstar_media_wire/5613092-these-9-
grocery-staples-have-seen-the-biggest-price-spikes-this-year/.
---------------------------------------------------------------------------
Producers and traders alike are further hamstrung by other recent
policies. The government shutdown left producers without critical
market data produced by the USDA and CFTC.\17\ This was in addition to
pre-existing fragilities in USDA data, with DOGE-driven cuts shrinking
the ranks of USDA staff by 15 percent and cutting off critical
statistics useful to farmers and traders.\18\
---------------------------------------------------------------------------
\17\ Polansek, Tom, P.J. Huffstutter and Karl Plume. ``Farmers,
Traders `Flying Blind' As U.S. Shutdown Blocks Key Crop Data.''
Reuters, October 9, 2025. Available at: https://www.reuters.com/world/
china/farmers-traders-flying-blind-us-shutdown-blocks-key-crop-data-
2025-10-09/.
\18\ Huffstutter, P.J. ``Corn, debt and doubt: A record harvest
rattles Trump's farm economy.'' Reuters, October 25, 2025. Available
at: https://www.reuters.com/investigations/corn-debt-doubt-record-
harvest-rattles-trumps-farm-economy-2025-10-25/.
---------------------------------------------------------------------------
The Role of the CFTC
Recognizing the strain caused by increasing grocery prices, just
this week, President Trump signed an Executive Order to ``stop price
fixing, anti-competitive behavior, and foreign influence that drives up
grocery prices and threatens the security of America's food supply.''
\19\ The Executive Order established a Food Supply Chain Task Force and
called for the Department of Justice and the Federal Trade Commission
to investigate price fixing and anti-competitive across the food
sector.\20\
---------------------------------------------------------------------------
\19\ Executive Order. ``Addressing Security Risks from Price Fixing
and Anti-Competitive Behavior in the Food Supply Chain.'' December 6,
2025. Available at: https://www.whitehouse.gov/presidential-actions/
2025/12/addressing-security-risks-from-price-fixing-and-anti-
competitive-behavior-in-the-food-supply-chain/.
\20\ Id.
---------------------------------------------------------------------------
While the CFTC does not directly regulate commodity prices, the
agency does have a crucial role in policing the integrity of
derivatives markets in order to help producers like farmers, ranchers
and manufacturers hedge risk and develop accurate prices for their
products. The Commission is responsible for the essential functions of
providing relevant information to the public, preventing and policing
fraud in trading, and curbing financial speculation unrelated to
natural supply and demand forces in the economy.
On this last point, Better Markets has long urged the CFTC to use
its authority to surveil excessive speculation in commodity futures
markets. Though the Commission enacted an updated ``position limits''
rule, effective in 2021, to ensure that commodity futures prices
reflected true supply and demand, rather than excess speculation,
many--including Better Markets and two CFTC Commissioners at the time--
argued that the rule set limits too high or were too narrowly applied
to effectively police markets.\21\ Since then, Better Markets has
argued for the CFTC to publicly disclosed the impact of the limits set
in the 2021 rule, on a commodity-by-commodity basis, to determine
whether the rule was functioning as intended.\22\
---------------------------------------------------------------------------
\21\ Hall, Stephen. ``Leadership on Position Limits for Physical
Commodities.'' Letter to CFTC Chair Rostin Behnam, November 10, 2021.
Available at: https://bettermarkets.org/wp-content/uploads/2022/07/Ltr-
CFTC-Re-Position-Limits-11-10-2021.pdf; see also dissents on the 2020
final position limits rule including those by Behnam, Rostin.
``Statement of Dissent of Commissioner Rostin Behnam Regarding Position
Limits for Derivatives.'' Commodity Futures Trading Commission, October
15, 2020. Available at: https://www.cftc.gov/PressRoom/
SpeechesTestimony/behnamstatement101520c; and Berkovitz, Dan.
``Dissenting Statement of Commissioner Dan M. Berkovitz Regarding Final
Rule on Position Limits for Derivatives.'' Commodity Futures Trading
Commission, October 15, 2020. Available at: https://www.cftc.gov/
PressRoom/SpeechesTestimony/berkovitzstatementb101520b.
\22\ Cantrell, Dumas. ``How Wall Street Excessive Speculation
Impacts Your Grocery Bill.'' The Public Interest by Better Markets, May
15, 2025. Available at: https://bettermarkets.substack.com/p/how-wall-
street-excessive-speculation.
---------------------------------------------------------------------------
The CFTC using its authority to ensure the sound functioning of
core agricultural markets is not a partisan endeavor. During the first
Trump Administration, in fact, the CFTC recognized this imperative
during a time of volatile commodity prices and launched a special
effort to combat market manipulation in agricultural markets.\23\
During the onset of the COVID-19 pandemic, CFTC leadership under
President Trump announced that it was their number one duty to
``monitor closely and prioritize agricultural and energy markets.''
\24\ A renewed and reinvigorated focus on these issues would be
welcomed in the current moment and consistent with the President's
recent Executive Order.
---------------------------------------------------------------------------
\23\ Zuckerman, Jason and Matthew Stock. ``Agricultural Price
Manipulation and the CFTC Whistleblower Program.'' National Law Review,
May 27, 2020. Available at: https://natlawreview.com/article/
agricultural-price-manipulation-and-cftc-whistleblower-program.
\24\ Tarbert, Heath. ``Opening Statement of Chairman Heath P.
Tarbert Regarding the CFTC's Further Response to the Coronavirus
Pandemic.'' Commodity Futures Trading Commission, May 28, 2020.
Available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/
tarbertstate
ment052820.
---------------------------------------------------------------------------
III. Priorities, Leadership, Staffing and Budget of the CFTC
Misplaced Priorities
As described above, the core constituencies that the CFTC is meant
to serve are facing a time of anxiety. Unfortunately, at the same time,
CFTC leadership has strayed from serving the needs of agricultural and
commercial producers and consumers in favor of spending nearly all of
the agency's time on crypto markets. From a sheer market size
perspective, this focus represents a mismatched use of resources. While
the global crypto market is estimated to be just over $3.1
trillion,\25\ the CFTC separately is responsible for overseeing $380
trillion in notional U.S. swaps and futures contracts.\26\
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\25\ ``Global Cryptocurrency Market Cap Charts.'' CoinGecko,
accessed December 6, 2025. Available at: https://www.coingecko.com/en/
charts.
\26\ [S]ee page 33, Commodity Futures Trading Commission.
``President's Budget: FY2026.'' Available at: https://www.cftc.gov/
sites/default/files/CFTC_FY2026_Presidents_Budget.pdf.
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The best way to gauge an agency's priorities is to examine how its
leaders spend their time. Acting Chair Caroline Pham has not published
her external schedule since December 2023.\27\ This deviates from past
practice under both Republican and Democratic Administrations and makes
it difficult to state with precision how much time she's spent on core
agricultural and manufacturing constituencies versus the crypto
industry. However, a look at the ``Events'' page on the CFTC website
indicates that while Acting Chair, Pham has participated in 34 speaking
events, 19 of which were exclusively devoted to the topic of
crypto.\28\ The 15 other events appear to have at least partially
covered crypto, though it is difficult to tell given the limited
information on the CFTC's website.\29\ Acting Chair Pham in the last 11
months has also engaged in speaking events in Seoul, South Korea;
Riyadh, Saudi Arabia; London, United Kingdom (twice); Tokyo, Japan
(twice); Netherlands; Qatar; and Frankfurt, Germany. Domestically, her
schedule indicates travel to New York City, Chicago, Beverly Hills and
Ft. Lauderdale, Boca Raton, and Naples, Florida.\30\
---------------------------------------------------------------------------
\27\ Commodity Futures Trading Commission. ``Commissioner Pham
Public External Calendar.'' Accessed December 6, 2025. Available at:
https://www.cftc.gov/About/Commissioners/CarolineDPham/
PublicExternalCalendar; this is contrasted with both previous CFTC
leadership and Acting Chair Mark Uyeda of the Securities and Exchange
Commission, who published his external calendar for the duration of his
service as the acting leader of the Commission. See: ``Chairman's
Calendar for Acting Chairman Mark T. Uyeda.'' Securities and Exchange
Commission, accessed December 6, 2025. Available at: https://
www.sec.gov/foia-services/frequently-requested-documents/sec-chair-
calendar.
\28\ This is based on an assessment of events on the CFTC's events
public webpage, available at: https://www.cftc.gov/PressRoom/Events.
\29\ Id.
\30\ Id., examining the location of the events attended by Acting
Chair Pham on the CFTC's public webpage.
---------------------------------------------------------------------------
While there is nothing wrong, per se, about an American financial
regulator traveling domestically or abroad to share the CFTC's
perspective on market competitiveness and oversight, the travel
scheduled described above--in terms of both the topics represented and
the places traveled--is a useful indicator of the Acting Chair's
priorities. Absent from this list of travel are locations where
American farmers and ranchers live and work, which provides a notable
lack of perspective to inform the CFTC's priorities.
Bipartisan Leadership
The CFTC is also impaired by both the sheer lack of Commissioners
serving at the agency and its absence of bipartisan leadership.
Notably, the CFTC has been led by one Commissioner, in an Acting
Chair capacity, since September 2025. While a nominee for Chair of the
Commission has been considered by the U.S. Senate Committee on
Agriculture, he is not yet confirmed by the full Senate.\31\ Further,
the current Acting Chair has announced her intention to leave the
agency upon the permanent Chair's confirmation,\32\ meaning the agency
is likely to have one and only one Commissioner, at least in the near-
term.
---------------------------------------------------------------------------
\31\ Sittu, Hassan. ``Trump's CFTC Pick Clears Senate Hurdle--
Caroline Pham's Exit Imminent?'' Yahoo! Finance, November 21, 2025.
Available at: https://finance.yahoo.com/news/trump-cftc-pick-clears-
senate-113944928.html.
\32\ Id.
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The CFTC was designed by Congress to be a five-member, bipartisan
Commission. The need for a full Commission with genuine bipartisan
representation consistent with tradition, history, practice, and
precedent is heightened during a time when the White House and some in
Congress are considering significantly expanding the jurisdictional
reach of the agency. The agency should not move forward with future
rulemaking or guidance efforts until the CFTC has both a confirmed
Chair and robust bipartisan representation amongst Commissioners.
Budget
Though the CFTC's mission is vital to every American, the agency's
budget demonstrates that it is small, poorly funded and likely
overwhelmed by the remit of markets it is supposed to regulate and
police. The agency has only been funded by Congress at its requested
level twice since FY06--once in FY21 and in FY23.\33\ And as stated
previously, the CFTC is responsible for overseeing $380 trillion in
U.S. notional swaps and futures contracts with just a $365 million
budget.\34\ This does not even include potentially new areas of
oversight such as crypto \35\ and prediction markets,\36\ which will
require not only the addition of new staff but also new data metrics
and surveillance tools.
---------------------------------------------------------------------------
\33\ U.S. Senate Committee on Agriculture. ``Oversight of the
Commodity Futures Trading Commission.'' Questions from Senator Dick
Durbin to CFTC Chair Rostin [Behnam,] March 8, 2023. Available at:
https://www.agriculture.senate.gov/hearings/oversight-of-the-commodity-
futures-trading-commission-03-08-2023.
\34\ Supra note 26, page 4.
\35\ Supra note 25.
\36\ See one estimate of nearly $28 billion in prediction market
contract volume from January to October 2025. Crypto.com. ``Prediction
Markets: The Rise of Event-Driven Finance.'' November 10, 2025.
Available at: https://crypto.com/us/research/prediction-markets-oct-
2025.
---------------------------------------------------------------------------
The 2008 global financial crisis likely cost Americans $20 trillion
in lost Gross Domestic Product output as well as lost wages due to
unemployment and underemployment, foreclosures, homelessness,
underwater mortgages, bankrupt businesses large and small, lost
savings, deferred or denied retirements, and educations cut short.\37\
Given that staggering economic and personal harm to American families,
an investment in preventing the next crash by adequately funding the
CFTC seems like a sensible downpayment. While CFTC funding has
increased modestly over the years, it still pales in comparison to the
vast markets the agency oversees. In terms of full-time equivalents
(FTEs), 50 years ago in 1975 the CFTC had 502 employees.\38\ The
President's budget request in FY26 asked for only 650 FTEs \39\--a
minimal increase given the passage of time, increasing complexity of
markets, and expanded remit of the agency. Below is a table tracking
CFTC appropriations over time, taken from Presidential budget requests.
---------------------------------------------------------------------------
\37\ Better Markets. ``Cost of the Crisis Report.'' July 2015.
Available at: https://bettermarkets.org/wp-content/uploads/2021/07/
Better-Markets-Cost-of-the-Crisis_1.pdf.
\38\ See Commodity Futures Trading Commission. ``Significant Dates
in CFTC History.'' Available at: https://www.cftc.gov/sites/default/
files/reports/strategicplan/2012/2012strategicplan
app0201.html.
\39\ Supra note 26, page 3.
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CFTC Budget Authority
2012-2025
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Various legislative efforts related to crypto have proposed an
increase in funding for the agency, but legislative text has not been
specific about the exact increase in appropriations.\40\ And while
legislation allows for the collection of fees on market participants to
fund the agency's new crypto work, those provisions may sunset after
only a few years. Policymakers must adequately fund the Commission with
robust, fee-funded and new appropriations--in perpetuity--if they are
shifting significant market oversight for a retail-heavy asset class to
the agency. One previous estimate from the CFTC projected that this
would cost approximately $127 million annually.\41\ This additional
funding must come in addition to halting the staffing cuts described in
the next section.
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\40\ See H.R. 3633, the Digital Asset Market Clarity Act and the
Senate-introduced legislation released by Senators Boozman and Booker
on November 10, 2025. Available at:https://www.agriculture.senate.gov/
newsroom/rep/press/release/boozman-booker-release-bipartisan-market-
structure-discussion-draft.
\41\ Supra note 33.
---------------------------------------------------------------------------
Staff Cuts
At a time when producers are feeling keenly anxious about the
health and longevity of their businesses, and American households
continue to be squeezed by the prices of everyday staples, it is not
the time for the agency to shed its staff or shift its focus to market
areas that are relevant but tangential to their core mission.
Reporting from Bloomberg indicates that at least 15 percent of
staff has been shed since the beginning of the Trump
Administration.\42\ Current and former staff interviewed for the report
indicate a ``regulator in disarray''--a troubling sentiment given the
increased staff responsibilities accruing to the agency through
Administration actions related to crypto and prediction markets.\43\
---------------------------------------------------------------------------
\42\ Beyoud, Lydia, Nicola M. White and Liam Vaughn. ``Staff Cuts
and Turmoil Hit the CFTC While the Crypto It Oversees Booms.''
Bloomberg, August 21, 2025. Available at: https://www.bloomberg.com/
news/features/2025-08-21/as-crypto-duties-loom-cftc-is-hit-by-staff-
cuts-and-turmoil.
\43\ Id.
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Further, the Acting Chair removed both the head of human resources
and the chief financial officer of the agencies, with reporting
asserting that individuals were investigating employee complaints
regarding a hostile work environment created by Pham and disagreements
about agency reimbursement for travel, respectively.\44\ A spokesperson
for the Acting Chair asserts that the dismissals were due to unrelated
factors.\45\ In any case, this staff attrition and turbulence surely
does not serve the agency during this complex and busy time.
---------------------------------------------------------------------------
\44\ Beyoud, Lydia. ``CFTC Acting Chair Pham Removes the HR Head
Investigating Her.'' Bloomberg, February 6, 2025. Available at: https:/
/www.bloomberg.com/news/articles/2025-02-06/cftc-acting-chair-pham-
removes-the-hr-head-investigating-her?sref=mQvUqJZj.
\45\ See statement attributable to a CFTC spokesperson in response
to Bloomberg reporting, ``CFTC Statement on False Allegations Targeting
Acting Chairman.'' Commodity Futures Trading Commission, February 6,
2025. Available at: https://www.cftc.gov/PressRoom/PressReleases/9048-
25.
---------------------------------------------------------------------------
IV. Enforcement
A combination of data, anecdotal reports and policy changes
announced at the CFTC make clear that the law enforcement mission of
the agency has been subordinated to concerns about creating a more
solicitous relationship with market participants. A look at both data
and reporting indicates that the judgement of the enforcement staff has
been largely silenced, cases are not being brought, whistleblowers are
not being rewarded for raising relevant noncompliance information and
policy changes are seeking to tilt the law enforcement process in favor
of the industry.
To wit, the CFTC has not released its annual report for enforcement
results for FY25. This deviates from past practice. For example, in
FY24, the agency's annual report was released on December 4, 2024 \46\
in FY 2023 on November 7, 2023 \47\ and in FY 2022 on October 22,
2022.\48\ The lack of a comprehensive report on the Commission's latest
enforcement activity makes it difficult to evaluate the efficacy of the
enforcement program compared to other years.
---------------------------------------------------------------------------
\46\ Commodity Futures Trading Commission. ``CFTC Releases FY 2024
Enforcement Results.'' CFTC Release Number 9011-24, December 4, 2024.
Available at: https://www.cftc.gov/PressRoom/PressReleases/9011-24.
\47\ Commodity Futures Trading Commission. ``CFTC Releases FY 2023
Enforcement Results.'' CFTC Release Number 8822-23, November 7, 2023.
Available at: https://www.cftc.gov/PressRoom/PressReleases/8822-23.
\48\ Commodity Futures Trading Commission. ``CFTC Releases FY 2022
Enforcement Results.'' CFTC Release Number 8613-22, October 20, 2022.
Available at: https://www.cftc.gov/PressRoom/PressReleases/8613-22.
---------------------------------------------------------------------------
However, a look at the CFTC's enforcement action repository on its
website offers some telling data about the slowdown in law enforcement
at the agency. An analysis of releases contained on the website cites
only four actions brought since the onset of the new
Administration.\49\ Two of those actions involve approved settlements,
and two involve the CFTC filing charges in a District Court; one of the
latter instances is for an alleged recidivist accused of violating a
past CFTC enforcement order brought during the previous
Administration.\50\ The contrast between previous enforcement activity
is sharp: FY24 saw the CFTC bring 58 new enforcement actions,\51\ FY23
saw 47 new enforcement actions \52\ and FY22 saw 82 new enforcement
actions.\53\ The CFTC appears to also have only compensated one
whistleblower for bringing forward material information related to an
enforcement matter during 2025.\54\
---------------------------------------------------------------------------
\49\ Commodity Futures Trading Commission. ``Enforcement Actions.''
Accessed December 6, 2025. Available at: https://www.cftc.gov/
LawRegulation/EnforcementActions/index.htm.
\50\ Id., searching individual enforcement action releases on the
CFTC's public webpage.
\51\ Supra note 46. Note that this testimony compares 2025 from the
period of President Trump's inauguration through December 6, 2025. In
contrast, data for 2024, 2023 and 2022 covers the fiscal year.
\52\ Supra note 47.
\53\ Supra note 48.
\54\ Commodity Futures Trading Commission. ``CFTC Whistleblower
Award Determination No. 25-WB-07.'' May 29, 2025. Available at: https:/
/www.whistleblower.gov/sites/whistleblower/files/2025-05/No.25-WB-
07.pdf; note that redactions to the whistleblower award, to protect the
privacy of the individual, make it impossible to determine the case in
which the award is related.
---------------------------------------------------------------------------
The numbers don't lie and they are also supported by the agency's
changed priorities as evidenced in other areas. The CFTC requested a 30
percent reduction in enforcement staff in its latest fiscal year budget
request when compared to the budget of FY24.\55\ The budget request and
lackluster enforcement statistics also contradict the stated priorities
of the Acting Chair. Announcing an ``enforcement sprint,'' Pham noted
that the agency would move to quickly settle compliance-related
violations for CFTC-regulated firms to both clear a backlog of
enforcement actions and to position Department of Enforcement staff
``to refocus on fighting fraud and helping victims.'' \56\ And while
the sprint was completed--with substantially lower fines against firms
for self-reporting \57\--the agency has not used the commensurate
freeing of staff resources to investigation or charge market
participants that are defrauding everyday Americans or otherwise
undermining market integrity.
---------------------------------------------------------------------------
\55\ Supra note 26, page 5.
\56\ Commodity Futures Trading Commission. ``Acting Chairman Pham
Announces Successful Completion of Enforcement Sprint.'' CFTC Release
Number 9114-25, October 4, 2025. Available at: https://www.cftc.gov/
PressRoom/PressReleases/9114-25.
\57\ Katten. ``Reaching the Finish Line: The CFTC Concludes Its
Enforcement Sprint by Offering Lower Fines for Self-Reporting and
Cooperation.'' Client Advisory, September 22, 2025. Available at:
https://katten.com/reaching-the-finish-line-the-cftc-concludes-its-
enforcement-sprint-by-offering-lower-fines-for-self-reporting-and-
cooperation.
---------------------------------------------------------------------------
The statistics are also supported by anecdotal evidence. Reporting
from August from Bloomberg, informed by reporters speaking to two dozen
current and former CFTC insiders and industry players, indicates that
``enforcement [has] slowed to a crawl.'' \58\ According to one attorney
interviewed for the story, they report that their work has been totally
impeded. ``I can't obtain bank records, I can't get evidence. I can't
do anything,'' the staff person says.\59\
---------------------------------------------------------------------------
\58\ Supra note 42.
\59\ Id.
---------------------------------------------------------------------------
Statistics and anecdotal reporting are also supported by numerous
changes to the CFTC's rules of practice that favor market participants
over robust law enforcement. On December 1, 2025, for example, Acting
Chair Pham announced changes to the CFTC's process for informing firms
that they may be subject to an enforcement action, giving firms more
than double the time to respond to CFTC allegations, requiring CFTC
staff to inform firms of potentially unfavorable facts or legal
precedent in the agency's own claims against the firm, and limiting the
length of the submission that CFTC staff can provide to firms when
describing a potential enforcement action.\60\
---------------------------------------------------------------------------
\60\ Commodity Futures Trading Commission. ``Acting Chairman Pham
Announces Reforms to Wells Process, Amends Rules of Practice and Rules
Relating to Investigations.'' CFTC Release Number 9144-25, December 1,
2025. Available at: https://www.cftc.gov/PressRoom/PressReleases/9144-
25.
---------------------------------------------------------------------------
Additionally, in response to the President's Executive Order on
``Fighting Overcriminalization in Federal Regulations,'' \61\ the CFTC
narrowed and made more favorable to market participants the
circumstances in which investigative information would be passed along
to criminal law enforcement authorities.\62\ Specifically, the policy
requires enforcement staff to consider a host of mitigating reasons why
a criminal referral should not be made in an effort to reserve criminal
sanctions for cases involving difficult to prove willful wrongdoing
(with the CFTC needing to impute the specialized expertise and
knowledge of the law by the alleged perpetrator) and public harm.\63\
---------------------------------------------------------------------------
\61\ Executive Order 14294. ``Fighting Overcriminalization in
Federal Regulations.'' 90 Fed. Reg. 20363, May 29, 2025. Available at:
https://www.federalregister.gov/documents/2025/05/14/2025-08681/
fighting-overcriminalization-in-federal-regulations. Notably, the
Executive Order explicitly exempts immigration matters.
\62\ Commodity Futures Trading Commission. ``CFTC Issues Advisory
on Referrals for Potential Criminal Enforcement.'' CFTC Release Number
9094-25, July 9, 2025. Available at: https://www.cftc.gov/PressRoom/
PressReleases/9094-25.
\63\ Id.
---------------------------------------------------------------------------
V. Prediction Markets
While the CFTC sheds staff and narrows its enforcement mission, it
is also--through forbearance and inaction--taking on significant new
responsibilities it is ill-equipped to handle with prediction markets.
Better Markets has been sounding the alarm on prediction market
platforms increasingly trying to thwart state and Tribal law and the
greater public interest to assert that their ``event contracts'' are
not in fact gambling, but are somehow swaps that facilitate price
discovery and hedging.\64\ This has accelerated in recent months and
threatens everything from the CFTC having the bandwidth to police
traditional markets, retail traders being exposed to fraud and
manipulation, and the usurpation of state and Tribal law.
---------------------------------------------------------------------------
\64\ Better Markets. ``Frequently Asked Questions: Kalshi's Attempt
to get the CFTC to Unleash Gambling on U.S. Elections via Prediction
Markets.'' March 21, 2024. Available at: https://bettermarkets.org/wp-
content/uploads/2024/03/FactSheet_Kalshi-FAQ-3.21.24.pdf.
---------------------------------------------------------------------------
History of Prediction Markets & the CFTC
This started first with the platform KalshiEx, LLC (``Kalshi'') in
2023 endeavoring to launch ``event contracts'' on political elections--
namely, a contract on which U.S. political party would control either
chamber of Congress in the coming year.\65\ Allowable wagers extended
to $100 million.\66\
---------------------------------------------------------------------------
\65\ Harty, Declan. ``Political bettors hit the jackpot as court
clears election markets for comeback.'' Politico, October 2, 2024.
Available at: https://www.politico.com/news/2024/10/02/election-
betting-markets-00182165.
\66\ Id.
---------------------------------------------------------------------------
Recognizing the harm in this attempted self-certification, the CFTC
in 2023 extending into 2024, sought to reject Kalshi's bid and to amend
a 2010 rule implementing a provision of the CEA to further clarify the
scope of contracts the Commission would not permit. The CEA, as further
clarified by rule, provides that the Commission has the authority to
determine whether an event contract listed on a Designated Contract
Market (``DCM'') or swap exchange facility is ``contrary to the public
interest'' if such contracts involve: (1) unlawful activity under
Federal or state law; (2) terrorism; (3) assassination; (4) war; (5)
gaming; or (6) other similar activity determined by the CFTC, by rule
or regulation, to be contrary to the public interest.\67\ In its order
rejecting Kalshi's self-certification, the CFTC noted that the
contracts violated the statutory construction of the CEA, and posed
potential threats to election integrity, investors, and the CFTC's
ability to fulfill its core mission.\68\
---------------------------------------------------------------------------
\67\ Section 5c(c)(5)(C) of the CEA and CFTC Regulation 40.11.
\68\ Hall, Stephen. ``To Protect Democracy, Investors, and
Commodity Markets, D.C. Circuit Should Uphold CFTC's Decision to
Prohibit Gambling on Elections.'' Better Markets, January 9, 2025.
Available at: https://bettermarkets.org/analysis/to-protect-democracy-
investors-and-commodity-markets-d-c-circuit-should-uphold-cftcs-
decision-to-prohibit-gambling-on-elections/.
---------------------------------------------------------------------------
Kalshi sought to litigate the issue in the U.S. District Court for
the District of Columbia.\69\ The court in that case sided with Kalshi
narrowly on the question of election-related event contracts, and the
CFTC later in 2024 appealed to the U.S. Court of Appeals for the D.C.
Circuit.\70\ In May of 2025, the new leadership at the CFTC elected to
voluntarily surrender its appeal, thereby allowing election betting on
CFTC-regulated DCMs to move forward.\71\
---------------------------------------------------------------------------
\69\ Matthews, Laura. ``Predictions market Kalshi sues CFTC for
blocking election contracts.'' Reuters, November 1, 2025. Available at:
https://www.reuters.com/world/us/predictions-market-kalshi-sues-cftc-
blocking-election-contracts-2023-11-01/.
\70\ For a description of the timeline of KalshiEx v. CFTC, see
Hall, Stephen. ``By Dismissing Its Appeal in the Kalshi Case, the CFTC
Turns Its Back on Election Integrity, Investor Protection, and
Effective Oversight of the Commodities Markets.'' Better Markets, May
5, 2025. Available at: https://bettermarkets.org/newsroom/by-
dismissing-its-appeal-in-the-kalshi-case-the-cftc-turns-its-back-on-
election-integrity-investor-protection-and-effective-oversight-of-the-
commodities-markets/.
\71\ Id.
---------------------------------------------------------------------------
Gamification & the Explosion of Sports Betting
The CFTC's reversal of position on the Kalshi litigation was a
predicate to a total abdication on enforcing limits on allowable event
contracts under the CEA. As a result, the Commission, along with market
participants, have unleashed a wave of new wagering opportunities--with
little connection to risk mitigation, hedging or price discovery--over
the last year.\72\
---------------------------------------------------------------------------
\72\ See for example an explosion in DCMs offering wagering
opportunities on event contracts, including Kalshi, ForecastEx,
Robinhood, Crypto.com, Underdog, PrizePicks, Polymarket and Fanatics
approved as DCMs and many others with forthcoming plans including
FanDuel, DraftKings, Coinbase, Aristotle, RSBIX, Truth Predict,
Hollywood.com, MyPrize, Kraken, Gemini, ProphetX, eToro, Cboe, Clearing
Co and Metavesco. This accounting is only a rough estimate and taken
from a prediction market analyst X.com post. @MickBransfield, December
3, 2025. Available at: https://x.com/mickbransfield/status/
1996392174947295542?s=46.
---------------------------------------------------------------------------
In the above-described court case against the CFTC related to
political event contracts, Kalshi--in an attempt to explain how
election gambling was fundamentally different from sports wagers--
conceded that event contracts related to sporting events fell under the
``gaming'' category expressly prohibited under the CEA.\73\ In fact,
the company in its court filing argued that such contracts had no
economic value and were not appropriate to list on a DCM.\74\ And yet,
upon the change in Administration in early 2025, Kalshi moved forward
with a contract allowing users to bet on the outcome of Super Bowl LIX
in 2025 (Kansas City Chiefs v. Philadelphia Eagles).\75\
---------------------------------------------------------------------------
\73\ Dumas, Cantrell. ``Stop the Spread: Why the CFTC Must Shut the
Door on Gambling in Derivatives Markets.'' Better Markets, May 8, 2025.
Available at: https://bettermarkets.org/wp-content/uploads/2025/05/
Better-Markets-Event-Contracts-Fact-Sheet-5.8.25.pdf; specifically,
Better Markets notes that Kalshi in the D.C. District Court litigation
``conceded that `contracts on sporting events such as the Super Bowl,
the Kentucky Derby, and Masters Golf Tournament' [consistent with the
Congressional record at the time] were precisely the types of contracts
Congress empowered the Commission to block. It admitted that the
`gaming' category `reaches contracts contingent on games,' including
`whether a certain team will win the Super Bowl,' and stated that the
law was designed to `check on attempts to launder . . . sports gambling
through the derivatives markets.' Kalshi even went so far as to state
that such contracts `are probably not the type of contracts we
want . . . listed on an exchange because they don't have any real economic
value to them.' ''
\74\ Id.
\75\ Id.
---------------------------------------------------------------------------
The only thing that changed between Kalshi's arguments to the court
in 2024 and Super Bowl LIX was the CFTC's newfound unwillingness to
enforce the law. Since the CFTC's capitulation, there has been an
explosion in sports-related wagers listed on CFTC-regulated DCMs. For
example, on Kalshi, users can wager on everything from the NFL, to the
NHL, NBA, a host of college sports, a range of domestic and
international soccer games, tennis, golf, chess and e-sports. One
analysis found that more than \3/4\ of Kalshi's trading volume now
comes from sports, with millions of trades exceeding over a billion
dollars volume over just a nearly 3 month period.\76\ In addition to
binary contracts on the winners or losers of various sports matches,
Kalshi subsequently launched NFL same-game parlays, allowing users to
bet not only on the winners of games, but combine bets on touchdown
scorers, moneylines (or spreads) and the point total for the individual
games.\77\
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\76\ O'Boyle, Daniel. ``Kalshi More Reliant On Sports Than
DraftKings Or FanDuel, Data Shows.'' InGame, October31, 2025. Available
at: https://www.ingame.com/kalshi-sports-data-trading-volume/.
\77\ Gouker, Dustin. ``Kalshi Rolls Out Same-Game Parlays For
Monday Night Football Games.'' Event Horizon,September 30, 2025.
Available at: https://nexteventhorizon.substack.com/p/kalshi-rolls-out-
same-game-parlays.
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Contrary to the Law & Public Interest
Beyond sports, prediction market platforms have exploded in the
last year, offering betting opportunities on all manner of events of
dubious fidelity to the true purpose of derivatives markets overseen by
the CFTC: risk management, capital formation, and price discovery.
For example, a user can now bet on topics such as: \78\
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\78\ Examples taken from https://kalshi.com/.
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Will President Trump release the Epstein files?
Will President Trump ``punish'' SpaceX?
Will the United Nations' IPC classify Gaza as experiencing
famine this year?
Will Representative Marjorie Taylor Greene say the words
``traitor,'' ``Israel,'' or ``corrupt/corruption'' on CBS 60
Minutes?
This list of wagering opportunities raises numerous concerns.
First, it is contrary to both Congress's intent with the CEA and
state and Tribal law to allow this gambling-like activity to
proliferate while claiming that the activity is within the purview of
the CFTC. This is a problem that was foreseen by policymakers. When the
Wall Street Reform Act amended the CEA in 2010, lawmakers were clear
that absent legal limits, sports bettering and other gambling-style
activity could evade state and Tribal law by claiming jurisdiction
under the CEA.\79\ Indeed, it was not the intent of Congress for the
CFTC to take on this responsibility. Moreover, in many states, betting
on elections and even sports is not legal (or is only legal for
professional sports and not collegiate sports).\80\ In other states
where such betting is legal, state gaming commissions routinely enforce
safeguards such as age restrictions, identity verification, wagering
limits, self-exclusion programs, and addiction treatment resources.\81\
States also impose special taxes on gambling activity. Many Tribes have
likewise argued that prediction market platforms interfere with Tribes'
rights to conduct and regulate gambling activity on sovereign land.\82\
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\79\ U.S. Senate Committee on Agriculture [Chair] Blanche Lincoln
in a colloquy noted, ``The Commission needs the power to, and should,
prevent derivatives contracts that are contrary to the public interest
because they exist predominantly to enable gambling through supposed
`event contracts.' It would be quite easy to construct an `event
contract' around sporting events such as the Super Bowl, the Kentucky
Derby, and Masters Golf Tournament. These types of contracts would not
serve any real commercial purpose. Rather, they would be solely used
for gambling.'' 156 Cong. Rec. S5907 (daily ed. July 15, 2010).
Available at: https://www.congress.gov/111/crec/2010/07/15/CREC-2010-
07-15-senate.pdf.
\80\ See the CFTC's Order originally denying Kalshi's self-
certification of election event contracts; ``CFTC Disapproves KalshiEX
LLC's Congressional Control Contracts.'' September 22, 2023, https://
www.cftc.gov/PressRoom/PressReleases/8780-23; see also National
Conference of State Legislatures. ``Sports Betting on the Rise as
States Let Gamblers Wager Online.'' Available at: https://www.ncsl.org/
events/details/sports-betting-on-the-rise-as-states-let-gamblers-wager-
online.
\81\ Supra note 73.
\82\ O'Boyle, Daniel. ``Tribes Aim To Join Kalshi-Maryland Lawsuit
With Amicus Brief.'' InGame, June 24, 2025. Available at: https://
www.ingame.com/tribes-join-kalshi-maryland-lawsuit/.
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Second, even if policymakers sought to have this activity overseen
at the Federal level, the CFTC's budget for FY25 funded 127 full-time
equivalents for the Division of Enforcement,\83\ though more departures
amongst the staff have occurred since then. It is unfathomable that
this level of staffing could adequately police the market for fraud and
manipulation at the scale and size necessary to prevent malfeasance in
prediction markets. In just the last few months, we have seen an NBA
sports betting scandal; \84\ a financial industry executive propose to
a New York City mayoral candidate that he abandon his bid for office
and monetize it through prediction markets; \85\ aberrant prediction
market trading ahead of the Nobel Peace Prize announcement; \86\ and a
crypto CEO using his company's earnings announcement to ``troll''
bettors in prediction markets.\87\ Each one of these examples could
hypothetically consume one or more enforcement attorneys for a
considerable amount of time.
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\83\ Supra note 26, page 8.
\84\ Vardon, Joe and Mike Vorkunov. ``The NBA players, coaches and
gamblers at the center of a Federal betting investigation.'' The New
York Times, November 25, 2025. Available at: https://www.nytimes.com/
athletic/6788069/2025/11/25/nba-players-coaches-gamblers-betting-
investigation/.
\85\ Levine, Matt. ``Bill Ackman Has a Trade for Eric Adams.''
Bloomberg, September 8, 2025. Available at: https://www.bloomberg.com/
opinion/newsletters/2025-09-08/bill-ackman-has-a-trade-for-eric-adams.
\86\ Kochkodin, Brandon. ``Did The Nobel Peace Prize Expose Insider
Trading On Prediction Market Polymarket?'' Forbes, October 10, 2025.
Available at: https://www.forbes.com/sites/brandonkochkodin/2025/10/10/
did-the-nobel-peace-prize-expose-insider-trading-on-prediction-market-
polymarket/.
\87\ Griffiths, Brent D. ``Coinbase CEO was having 'a little fun'
when he trolled prediction markets by rattling off 5 words on an
earnings call.'' Business Insider, December 3, 2025. Available at:
https://www.businessinsider.com/coinbase-ceo-earnings-call-words-
prediction-markets-bets-2025-12.
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Finally, is such gamified wagering on every aspect of humanity in
the public interest? The co-founder of Kalshi recently noted that the
``long-term'' vision of the company ``is to financialize everything and
create a tradeable asset out of any difference of opinion.'' \88\
Another prediction markets enthusiast recently offered that the
potential economic displacement faced by truck drivers ``at risk of
being automated into obsolescence'' can be solved by merely hedging
their risk on prediction markets.\89\ Such a vision of the future is
bleak, and is already yielding harmful results for the public. Gambling
addiction is on the rise, with more and more, and younger and younger,
individuals seeking out treatment.\90\ Prediction markets are also
blurring the lines between real investing and wild speculation, with
growing nihilism about the ability to work hard and get ahead in the
American economy, combined with a gamified user interface, driving
increasingly casino-like activity.\91\ And troublingly, the growth of
opportunities for constant wagering may be, according to analysts at
Bank of America, even impairing younger Americans' creditworthiness for
real wealth creation via loans to fund education or homeownership.\92\
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\88\ Dellinger, A.J. ``Kalshi CEO Says He Wants to Monetize `Any
Difference in Opinion.' '' Gizmodo, December 4, 2025. Available at:
https://gizmodo.com/kalshi-ceo-says-he-wants-to-monetize-any-
difference-in-opinion-2000695320.
\89\ X.com post by @TenreiroDaniel, December 4, 2025. Available at:
https://x.com/tenreirodaniel/status/1996634259973722181?s=12.
\90\ See Schiffrin, Ben. ``The U.S. already has a gambling
epidemic--24 hour stock trading would only make it worse.'' Fortune,
December 13, 2024. Available at: https://bettermarkets.org/newsroom/op-
ed-in-fortune-the-u-s-already-has-a-gambling-epidemic-24-hour-stock-
trading-would-only-make-it-worse/.
\91\ Stewart, Emily. ``Everything's Casino.'' Business Insider,
November 6, 2025. Available at: https://www.businessinsider.com/kalshi-
polymarket-fanduel-draftkings-sports-betting-gambling-2025-11[.]
\92\ Tsekova, Denitsa. ``Gambling, Prediction Markets Create New
Credit Risks, BofA Warns.'' Bloomberg, November 25, 2025. Available at:
https://www.bloomberg.com/news/articles/2025-11-25/bank-of-america-
warns-of-mounting-credit-risks-as-gambling-booms; citing the
``behavioral risk'' associated with the accessibility of prediction
market betting and warning that borrower creditworthiness is
deteriorating due to increasing expenditures and debt in these markets.
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Stopping the Spread
In the face of forbearance from the CFTC, many states, Tribes and
consumers are taking action via litigation, seeking to stop the
proliferation of various forms of event contracts. By one count,
litigation or cease-and-desist proceedings related to the legality of
sports-based event contracts are pending in some shape or form in
Nevada, New Jersey, Maryland, Ohio, New York, Connecticut,
Massachusetts, California, Wisconsin, Illinois, Kentucky, South
Carolina, Georgia, Montana, and Arizona.\93\ In other states like
Tennessee, more attention is being paid in local media to how
prediction markets are disrupting the local gaming industry and may
have downstream impacts on school funding.\94\
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\93\ X.com post by @MickBransfield, December 3, 2025. Available at:
https://x.com/MickBransfield/status/1996383073949331472.
\94\ Rayner, Ruby. ``Predictions market could threaten Tennessee
gambling, which has provided some school funding.'' Chattanooga Times
Free Press, November 28, 2025. Available at: https://
www.timesfreepress.com/news/2025/nov/28/predictions-market-could-
threaten-tennessee/.
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Moving forward, the proliferation of state, Tribal and consumer
lawsuits will create a patchwork of legal decisions and tremendous
market uncertainty. Instead of waiting for litigation to play out, the
CFTC should instead reassert its authority under the CEA. Lawmakers
should likewise conduct oversight of the Commission to ask difficult
questions about why they are letting self-certification of these
contracts proliferate, and push for answers on how the CFTC is squaring
its recent inaction with existing law and regulation.\95\
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\95\ See for example a bipartisan letter from Senators Cortez
Masto, Curtis, Gallego, Slotkin, Schiff, Padilla and Rosen to Acting
Chair Pham on September 30, 2025. Available at: https://
www.cortezmasto.senate.gov/wp-content/uploads/2025/10/2025-September-
30-Cortez-Masto-Curtis-CFTC-Letter-Sports-Gaming-FINAL-SIGNED.pdf.
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VI. Lack of Transparency and Public Input
Perpetual Futures and 24/7 Trading
As the prediction markets example demonstrates, the CFTC has
developed a troubling recent track of allowing new products to be
introduced to the market without meaningful consideration. As another
example, the CFTC put out a request for comment on perpetual futures
(or derivatives contracts without an expiration date) in April 2025,
seeking perspectives from the public.\96\ But just 2 days after the
publication of that request, crypto exchanges began self-certifying the
introduction of these contracts, with the exchanges advertising
allowable leverage up to 10-to-1.\97\ The CFTC likewise sought comment
on 24/7 trading in April 2025, with a comment deadline of May 21,
2025.\98\ On May 9, 2025, before the comment deadline on this proposal
was reached, Coinbase launched 24/7 trading for margined futures
contracts.\99\ The CFTC allowed this to go forward without responding
to public commenters, including those in the traditional agriculture
futures market that opposed such a change.\100\
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\96\ Commodity Futures Trading Commission. ``CFTC Staff Seek Public
Comment Regarding Perpetual Contracts in Derivatives Markets.'' CFTC
Release 9069-25, April 21, 2025. Available at: https://www.cftc.gov/
PressRoom/PressReleases/9069-25.
\97\ ``Bitnomial Exchange Self-Certifies First Ever U.S. Perpetual
Futures Contracts.'' Press Release, April 23, 2025. Available at:
https://www.prnewswire.com/news-releases/bitnomial-exchange-self-
certifies-first-ever-us-perpetual-futures-contracts-302435713.html.
\98\ Commodity Futures Trading Commission. ``CFTC Staff Seek Public
Comment on 24/7 Trading.'' CFTC Release 9068-25, April 21, 2025.
Available at: https://www.cftc.gov/PressRoom/PressReleases/9068-25.
\99\ Coinbase. ``24/7 futures trading has arrived.'' Coinbase Blog,
May 9, 2025. Available at: https://www.coinbase.com/blog/24-7-futures-
trading-has-arrived.
\100\ National Grain and Feed Association. ``NGFA urges CFTC to
reject 24/7 agricultural futures trading proposal.'' Press Release, May
21, 2025. Available at: https://www.ngfa.org/ngfa-urges-cftc-to-reject-
24-7-agricultural-futures-trading-proposal/.
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Spot Crypto Trading on Designated Contract Markets
Meanwhile, the Acting Chair announced on December 4, 2025 that the
agency would now allow spot crypto trading on DCMs.\101\ The Acting
Chair did this even though the agency solicited comment on this very
issue with a comment deadline of August 18, 2025 \102\ and again, in
the context of providing comments on the recommendations in the
President's Working Group Report, with a comment deadline of November
28, 2025.\103\ While the Acting Chair in November noted to the media
that she was ``personally guiding exchanges'' \104\ on the launch of
spot crypto trading on DCMs, the agency has not been deliberately and
comprehensively assessing the merits of various proposals or the public
comment file.
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\101\ Commodity Futures Trading Commission. ``Acting Chairman Pham
Announces First-Ever Listed Spot Crypto Trading on U.S. Regulated
Exchanges.'' CFTC Release 9145-25, December 4, 2025. Available at:
https://www.cftc.gov/PressRoom/PressReleases/9145-25.
\102\ Commodity Futures Trading Commission. ``Acting Chairman Pham
Launches Listed Spot Crypto Trading Initiative.'' CFTC Release Number
9105-25, August 4, 2025. Available at: https://www.cftc.gov/PressRoom/
PressReleases/9105-25.
\103\ White House. ``President's Working Group on Digital Assets,
Strengthening American Leadership in Digital Financial Technology.''
July 30, 2025, Available at: https://www.whitehouse.gov/crypto/; the
CFTC's website indicated a deadline to comment on this report of
November 28, 2025. Available at: https://comments.cftc.gov/
PublicComments/ReleasesWithComments.aspx?Type=ListAll&Year=2025.
\104\ Hamilton, Jesse. ``U.S. Regulator That May Rule Over Digital
Assets Pushing Towards Crypto Spot Trading.'' CoinDesk, November 9,
2025. Available at: https://www.coindesk.com/policy/2025/11/07/u-s-
regulator-that-may-rule-over-digital-assets-pushing-toward-crypto-spot-
trading.
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A review of the comment files on spot crypto trading indicates a
range of stakeholder perspectives that were not considered ahead of the
December 4, 2025 spot crypto trading announcement. For example, the
Futures Industry Association advised that the CFTC should wait for
Congress to pass comprehensive spot crypto market trading legislation
before moving forward with transactions outside the scope of those
covered by section 2(c)(2)(D) of the CEA.\105\ Another commenter noted
that with allowable transactions under 2(c)(2)(D) there remains ``a
lack of clarity regarding the [applicable] requirements and how DCMs or
other market participants may comply with them.'' \106\ Another crypto
industry market participant called for the CFTC to impose strict
leverage limits to the extent DCMs wanted to offer financed crypto
transactions.\107\ Another firm called on the CFTC to issue new
regulations before allowing spot crypto trading to move forward, citing
that ``extensive customer protection rules should be put in place to
minimize risks to retail market participants from the trading of these
contracts, especially if platforms seek to use auto-liquidating and
fully collateralized retail accounts to bypass Futures Commission
Merchant (`FCM') registration.'' \108\ They also noted that
clarifications to customer segregation rules would be needed.\109\
Finally, Better Markets issued a comment letter citing a host of issues
that needed to be worked through before the agency moved forward on
spot crypto trading on DCMs, including clarifying leverage limits,
explaining whether auto-liquidation mechanisms would be put in place,
addressing the distinct roles of DCMs, FCMs and Derivatives Clearing
Organizations (``DCO'') given the vertical integration in the existing
crypto market, and clarifying the scope of eligible depositories for
accounts holding crypto.\110\
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\105\ Lurton, Allison. ``Listed Spot Crypto Trading Initiative.''
Futures Industry Association Comment Letter to the CFTC, August 18,
2025. Available at: https://www.fia.org/sites/default/files/2025-08/
FIA%20Letter%20-%20CFTC%20Spot%20Crypto%20Initiative%20--%20Final
%208.18.25.pdf. Specifically, the letter contends that this provision
of the CEA only permits the CFTC to oversee spot crypto transactions
for a person that enters into, or offers to enter into (even if not
entered into), ``any agreement, contract or transaction in any
commodity'' with a retail participant, i.e., a person that is not an
eligible contract participant, as defined in the Act, ``on a leveraged
or margined basis, or financed by the offeror, the counterparty, or a
person acting in concert with the offeror or counterparty on a similar
basis.''
\106\ Dutta, Karen. ``Comment for General CFTC Request Input on All
Recommendations for the CFTC in the President's Working Group on
Digital Assets.'' Intercontinental Exchange, Inc. [Comment] Letter to
the CFTC, November 28, 2025. Available at: https://comments.cftc.gov/
PublicComments/ViewComment.aspx?id=113942&SearchText=.
\107\ Lasko, Daniel. ``Comment for General CFTC Request Input on
All Recommendations for the CFTC in the President's Working Group on
Digital Assets.'' dYdX Trading Inc. dba dYdX Labs Comment Letter to the
CFTC, September 24, 2025. Available at: https://comments.cftc.gov/
PublicComments/ViewComment.aspx?id=113721&SearchText=.
\108\ Maratea, Andrew. ``Comment for General CFTC Request Input on
All Recommendations for the CFTC in the President's Working Group on
Digital Assets.'' Topstep LLC Comment Letter to the CFTC, November 26,
2025. Available at: https://comments.cftc.gov/PublicComments/
ViewComment.aspx?id=113935&SearchText=topstep.
\109\ Id.
\110\ Fischer, Amanda. ``Comment for General CFTC Request Input on
All Recommendations for the CFTC in the President's Working Group on
Digital Assets.'' Better Markets Comment Letter to the CFTC, November
28, 2025. Available at: https://comments.cftc.gov/PublicComments/
ViewComment.aspx?id=113957&SearchText=.
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As the range of issues raised in these comment letters demonstrate,
the CFTC has abandoned a traditional process around notice and comment
rulemaking under the Administrative Procedure Act. Instead, when Acting
Chair Pham made the spot crypto trading announcement on December 4,
2025 it was made via a press release with no relevant documents linked
to understand the parameters of the products allowed. Instead, the only
thing the public knows is that the DCM Bitnomial was granted permission
to launch spot crypto trading on December 8, 2025. One has to go to an
arcane page on the CFTC's website to review Bitnomial's filings, which
suggest the exchange wants to offer trading in assets including
Bitcoin, Ethereum, XRP and Solana.\111\ Market observers are left with
key questions, including just how much retail leverage will be
permitted, how the DCM is managing those leverage exposures, whether
auto-liquidation mechanisms will be used, and why one DCM was permitted
to move forward with these products as a first-mover before any other
DCM. Rather than a piecemeal approach established through ad hoc
discussions with DCMs, it would make much more sense for the CFTC to
either promulgate a rulemaking on the topic or wait for Congress to
pass comprehensive legislation.
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\111\ Commodity Futures Trading Commission. ``Designated Contract
Market Products.'' Accessed December 6, 2025. Available at: https://
www.cftc.gov/IndustryOversight/IndustryFilings/
TradingOrganizationProducts.
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Tokenized Collateral
In yet another example, earlier this week Acting Chair Pham moved
forward with a pilot program without responding to the comment file the
CFTC had solicited on the topic. Specifically, less than 2 weeks after
the comment period closed on the CFTC's request for feedback on using
crypto assets as collateral in derivatives markets, Acting Chair Pham
announced a pilot program allow this activity.\112\ Even more
disturbing than the timing of the launch of the program is the fact
that the CFTC's press release announcing it quotes numerous crypto
companies applauding the action--an odd action for an agency tasked
with serving the public interest and not specific market participants.
---------------------------------------------------------------------------
\112\ Commodity Futures Trading Commission. ``Acting Chairman Pham
Announces Launch of Digital Assets Pilot Program for Tokenized
Collateral in Derivatives Markets.'' CFTC Release 9146-25, December 8,
2025. Available at: https://www.cftc.gov/PressRoom/PressReleases/9146-
25.
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Withdrawals and Delays
The CFTC has also engaged in a number of troubling withdrawals of
guidance and delays of rules without explaining the rationale of such
actions or appropriately abiding by public transparency requirements.
For example, earlier this year, the Commission withdrew previous
guidance on voluntary carbon credits.\113\ This guidance was originally
issued to enhance transparency and standardization in the market,
including establishing clear standards for physical delivery and other
considerations for DCMs to support accurate pricing and enhance
liquidity, helping to address concerns over the susceptibility of these
contracts to manipulation.\114\ Withdrawing the guidance simply means
that market participants are operating with less clarity. The
Commission likewise withdrew guidance on DCO recovery plans,\115\
creating a vacuum where market participants say a ``replacement may be
needed'' because the previous guidance letter ``gave clarity to central
counterparty clearinghouses.'' \116\ Finally, the agency, along with
the SEC, extended the compliance deadline for a hedge fund transparency
rule three separate times--from March to June 2025, then to October
2025, then another full year to October 2026 \117\--raising questions
from one SEC Commissioner as to whether this was just a backdoor way to
ensure the rule never becomes effective.\118\
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\113\ Commodity Futures Trading Commission. ``CFTC Withdraws
Guidance Regarding Listing Voluntary Carbon Credit Derivative
Contracts.'' CFTC Release 9119-25, September 10, 2025. Available at:
https://www.cftc.gov/PressRoom/PressReleases/9119-25.
\114\ Dumas, Cantrell. ``Can the CFTC Tame Carbon Fraud and Create
Trust in a Broken System?'' Better Markets, October 10, 2025. Available
at: https://bettermarkets.org/wp-content/uploads/2024/10/
Better_Markets_Fact_Sheet_Carbon_Markets-10.10.24.pdf.
\115\ Commodity Futures Trading Commission. ``CFTC Staff Withdraws
Guidance on DCO Recovery Plans and Winddown Plans.'' CFTC Release 9120-
25, September 11, 2025. Available at: https://www.cftc.gov/PressRoom/
PressReleases/9120-25.
\116\ Kirkel, Janice. ``Reluctant farewell to CFTC's clearing house
recovery guidance.'' Risk.net, October 15, 2025. Available at: https://
www.risk.net/regulation/7962328/reluctant-farewell-to-cftc%E2%80%99s-
clearing-house-recovery-guidance.
\117\ Commodity Futures Trading Commission. ``CFTC and SEC Extend
Form PF Compliance Date to Oct. 1, 2026.'' CFTC Release 9126-25,
September 17, 2025. Available at: https://www.cftc.gov/PressRoom/
PressReleases/9126-25.
\118\ Securities and Exchange Commission. ``Repeal By Extension:
Statement on Yet Another Extension of the Form PF Compliance Date.''
Statement by SEC Commissioner Caroline Crenshaw, September 17, 2025.
Available at: https://www.sec.gov/newsroom/speeches-statements/
crenshaw-091725-repeal-extension-statement-yet-another-extension-form-
pf-compliance-date.
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CEO Innovation Council
Last month, Acting Chair Pham announced the creation of a ``CEO
Innovation Council,'' \119\ with reporting indicating that the Council
will advise the agency on crypto and prediction market policy.\120\
From the press release, it is unclear if this Council will abide by
Federal Advisory Committee Act conditions that require balanced
membership across stakeholders,\121\ and not just another mechanism for
crypto industry insiders to influence policy at the expense of
traditional CFTC constituencies and public interest organizations.
Again, we suggest a return to regular order for stakeholder input on
these emerging topics.
---------------------------------------------------------------------------
\119\ Commodity Futures Trading Commission. ``Acting Chairman
Caroline D. Pham Seeks Nominations for CFTC CEO Innovation Council by
December 8.'' CFTC Release 9142-25, November 25, 2025. Available at:
https://www.cftc.gov/PressRoom/PressReleases/9142-25.
\120\ Hamilton, Jesse. ``U.S. Crypto Regulator, CFTC, Seeking Names
for New `CEO Innovation Council.' '' Coindesk, November 25, 2025.
Available at: https://www.coindesk.com/policy/2025/11/25/u-s-crypto-
regulator-cftc-seeking-names-for-new-ceo-innovation-council.
\121\ Marchsteiner, Kathleen E. and Meghan M. Stuessy. ``The
Federal Advisory Committee Act (FACA): Overview and Considerations for
Congress.'' Congressional Research Service Report R47984, March 26,
2025. Available at: https://www.congress.gov/crs-product/R47984.
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VII. Conclusion
The CFTC touches nearly every part of our economy. It affects the
daily lives of producers like farmers, ranchers and manufacturers, and
has a crucial role to play in ensuring that prices for everyday staples
reflect true supply and demand in the economy. The Committee is right
to focus on reauthorization of the agency at this important time. As
this testimony demonstrates, the agency has in many ways strayed from
its traditional mission, while also deviating from bipartisan history
and downsizing staff in ways that may likely harm the public. Agency
leadership should shift the Commission's focus back to core issues,
return to regular order, seriously consider public input and
reinvigorate the bipartisan track-record that has categorized the CFTC
for the last 50 years.
The Chairman. Mr. Schiffrin, thank you so much for your
testimony. At this time, Members will be recognized for
questions in order of seniority, alternating between Majority
and Minority Members and in order of arrival for those who
joined us after the hearing convened. You will be recognized
for 5 minutes, each in order, to allow us to get to as many
questions as possible, and I recognize myself for 5 minutes.
Ms. Crighton and Mr. Prosser, as I mentioned in my opening
statement, this is a time for transformation in financial
markets. As market professionals, what big derivatives public
policy issues do you see coming down the road in the coming
years?
Ms. Crighton. Thank you for the question. As I mentioned in
my opening comments, there are a few areas that we are focused
on. One is I think the possibilities that this transformational
technology provides to the industry at large, and we think the
appropriate balance of that technology, along with a good
strong policy framework, is incredibly important to pave the
way for a strong, safe, and healthy ecosystem. In terms of
areas that we focus on, both in our current markets as well as
the possibilities on the forward areas that we are particularly
worried about continue to be margin that acts as the first line
of defense. Whether it is existing markets and traditional
markets or what kind of the new and digital markets present,
the adequacy of margin levels is incredibly important.
We worry about the amount of clearing capacity in the
ecosystem. At the moment, capacity is quite strained, and with
new products coming to market, whether it is the Treasury
clearing mandate, the repo clearing mandate, there is
significant demand for additional clearing capacity. And when
we think about kind of the nature of bank capital regulation on
us providing that capacity and continuing to intermediate in
these markets, the impact of that on end-users is incredibly
significant. I will hand it over to Mr. Prosser.
Mr. Prosser. Thank you. In the 40 years that I have been
involved in these derivative markets, I don't know that there
is any time that we have had the pace and scope of innovation
happening as fast as it is today. In that environment, having a
regulator that sits in the middle and acts like a referee, not
only for the very new and novel, but for the mundane, making
sure the clearinghouse is taken care of. And if you look at the
trade routes, the way that even the traditional commodities are
moving, who is the new producer in the world and who has new
surpluses, it is most critical at this point that I think that
the CFTC sits in the middle of that and makes sure that these
markets continue to be transparent, open, and act as functional
as they have.
The Chairman. Well, thank you both. Ms. Stump and Mr.
Schwartz, this is also a time of transformation at the
Commission. With new leadership and potentially new
jurisdiction, how can the Commission meet the moment and tackle
the issues that Ms. Crighton and Mr. Prosser has raised, and
what does the Commission need to continue to be a premier
financial regulator, even as the markets continue to grow and
change?
Ms. Stump. As you have rightfully pointed out, there is a
lot to do and there needs--in my opinion, the agency is
devoting time and attention to these matters, but during a
period of transition, it is more challenged. So, I do look
forward to a Senate-confirmed Chairman, and I look forward to
the agency being able to get back to regular order, and by that
I mean having open meetings with public input, issuing rules
that enable the public to have a say in what, and opinion on
what is occurring in the marketplace.
Specific to some of the things that were raised, margin
adequacy--I will start with margin adequacy and clearing. There
is a real issue with clearing capacity. It was well established
when I was at the agency that it--as we brought in more
products to the clearing environment under Dodd-Frank, which
was a very good response to ensuring that counterparty credit
risk was addressed, we also--at the very same time, we saw the
banking regulators putting restrictions--proposing restrictions
on the ability of those who acted as intermediaries to take on
more clearing. And there seems to always be a little bit of a
misaligned mission with the market regulators and the banking
regulators. The banking regulators are most concerned with
sustaining the banks, where the market regulators are concerned
with functional markets, so we had an ongoing dialogue with the
banking regulators when I was there to try and mitigate some of
that, and I think that that should certainly continue. I hope
that it does continue, and I hope that with more Commissioners,
a Senate-confirmed Chairman, that there will be a greater
coordination with the banking regulators and the CFTC as a
market regulator.
With regard to some of the market structure changes that
Mr. Prosser mentioned in his testimony, there have been an
enormous call--of recent days, there have been a number of
calls for input from the public on a variety of new market
structure changes. I do think that as those are digested by the
new Chairman, that we will see responses in the form of
rulemakings where the public can engage.
The Chairman. Well, thank you very much. My time has
expired, but hopefully we will get a chance to circle back.
Curious to hear your insight on that, Mr. Schwartz. I will
recognize the gentlelady from Minnesota, the Ranking Member,
for 5 minutes.
Ms. Craig. Thank you, Mr. Chairman. This is to Mr. Prosser.
I greatly appreciate your testimony and specific
recommendations for Congressional action in reauthorizing the
CFTC, particularly your call for funding and staff at the
agency to allow it to keep pace with market growth,
technological complexity, and, of course, global
competitiveness. I also noted you are urging the Committee to
ensure that regulatory standards prioritize the needs of
commercial end-users and consumers, not just financial
intermediaries, new market entrants, or speculative interests.
How does the Committee do that? Are there specific changes in
the Commodity Exchange Act that we need to think through in
order to achieve that?
Mr. Prosser. I am not qualified to recommend specific
changes to the Commodity Exchange Act, but I would say that as
we go forward with the new challenges with new entrants in the
marketplace, the traditionals have worked pretty well. The
regulatory environment that we have dealt with the traditional
markets, and you think about the Ukraine War and Chernobyl all
the way back and weather events, and we have navigated those
relatively well. The markets have bent when we needed to, and
we changed regulation as we came out of 2008. So, I would
suggest that they have done pretty well in our traditional
markets.
We are very interested in what the innovations are going to
bring, and we are going to ask that the separation of those
regulatory regimes between the traditional markets and some of
the new--what might be good for the new side might not be good
for the traditional markets. We don't want to squash innovation
because I don't want these markets moving overseas. I don't
want the price of soybeans to be discovered in Monte Grosso
instead of on the Mississippi and Illinois Rivers, and part of
that is making sure that we do continue to innovate, but we
need to do that with an eye towards making sure that the stuff
that is working now continues to work.
Ms. Craig. Well, speaking of somebody who borders the
Mississippi River, thank you for that. This is really to the
whole panel. The Republicans on the House Appropriations
Committee defied the Administration's budget request to
increase the agency's funding for Fiscal Year 2026 and,
instead, proposed cutting the agency's funding from full Fiscal
Year 2025 levels by eight percent. Talk to me a little bit
about, obviously, we have new innovations coming with, really,
additional responsibilities coming to CFTC. So, do any of you
think that the cut is appropriate, necessary, and--particularly
considering the new responsibilities that Congress may give
them? And we will start, I guess, from my right to my left. Mr.
Schiffrin.
Mr. Schiffrin. Thank you for the question. As I said in my
opening statement, I think now is the time to be increasing
funding for the CFTC and not decreasing it, especially if the
CFTC is going to be asked to now oversee things like crypto and
the prediction markets. It seems impossible for it to fulfill
those new responsibilities and also the essential functions
that it already has without additional funding and additional
staffing.
Ms. Craig. Couldn't agree more with you. Mr. Schwartz?
Mr. Schwartz. Thank you. You can tell from Mr. Prosser's
testimony that the private-sector does not want a hobbled CFTC.
It is important. They depend on it, and there has generally
been bipartisan support for making sure the agency is
adequately funded, and it is under-funded now, let alone can we
predict how difficult it would be in the future as its
responsibilities appear very likely to increase.
Ms. Craig. I am going to run out of time. Ms. Crighton?
Ms. Crighton. Thank you. FIA supports an adequately staffed
and resourced CFTC, and we will defer to Congress on what that
means.
Ms. Craig. Mr. Prosser.
Mr. Prosser. I am going to defer----
Ms. Craig. Good. Dawn?
[Laughter.]
Ms. Stump. Well, thank you. Yes, I do believe that the
agency could certainly do well with more resources. Given
budget situations, I know all agencies are being asked to do
more with less, and the CFTC is no different.
Ms. Craig. Thank you, and in my 30 seconds, Mr. Schiffrin,
let's talk just a minute about enforcement at the CFTC. Give me
your thoughts on what needs to happen. It has been pretty
lackadaisical.
Mr. Schiffrin. Thank you for the question. Exactly. I think
we have seen CFTC enforcement ground to a halt, and I think
that is problematic. If you don't have the cop on the beat
acting like a cop on the beat, you are not going to have the
protections that are there to prevent fraud and manipulation do
what they are supposed to do.
Ms. Craig. Thank you all so much, and with that, Mr.
Chairman, my time has expired, and I yield back.
The Chairman. I thank the gentlelady. I now recognize the
gentleman from Oklahoma, former Chairman of this Committee, Mr.
Lucas, for 5 minutes.
Mr. Lucas. There is nothing like being a recovering
Chairman, Mr. Chairman.
[Laughter.]
Mr. Lucas. Thank you, and thank you to our witnesses for
being here today. The subject of today's hearing is, of course,
the reauthorization of the Commodity Futures Trading
Commission, a Commission that has served our ag and energy
markets for over 50 years. The authorization for the CFTC
expired over a decade ago, as we have discussed. Reexamining
the Commission, its functions and its authorities, is a worthy
goal in light of the changes the world has gone through since
the Commission's expiration. Farmers and ranchers use tools
like the derivatives that CFTC regulates to manage price
volatility and mitigate risk, and that is why it is a
particularly relevant time to examine the Commission as
uncertainty in the farm economy has elevated. Keeping
derivatives markets affordable and accessible is essential for
our producers to supply the food, fiber, and energy our world
needs.
Ms. Stump, the CFTC coordinates with the Securities
Exchange Commission as the products and firms they regulate
often interact. Take us back up to the 40,000 level for just a
moment and explain why two separate and distinct regulators for
commodities and securities is valuable to consumers.
Ms. Stump. I think, oftentimes, it is misunderstood. First
of all, thank you for the question. It is very relevant. I
think oftentimes it is misunderstood, even sometimes by the
marketplace, the distinction between the CFTC and the SEC.
Certainly they both regulate some of the same entities. There
have been suggestions that the two should be merged. I have
often scratched my head by this proposition, given that
Congress has given each agency a very distinct how-to in the
way they carry out their missions.
The CFTC has embedded in its purpose to promote innovation.
That is not in the SEC's mandate. They both are responsible for
protecting customers in the case of the CFTC, protecting
investors in the case of the SEC, but this innovation is very
distinct in this purpose of the CFTC. And I think Congress has
done a remarkable job of explaining to the CFTC how they want
them to go about being a regulator that embraces innovation.
The SEC does not have that mandate.
Mr. Lucas. You are exactly right. CFTC is proactive. SEC is
reactive. Beginning with Ms. Crighton, and I want Mr. Prosser's
thoughts on this as well, last week I met with Vice Chairman
Michelle Bowman at the Federal Reserve's Board of Governors,
who is finalizing a new capital framework proposal. I was
disappointed to see that in the original Basel Endgame proposal
significant capital penalties on clearing derivatives for end-
users, reducing the availability of these required services.
Can you speak to the importance of cross-agency collaboration
between CFTC and the banking regulators?
Ms. Crighton. Thank you, and I am happy to do that. As we
think about two of the most significant impacts that have
reduced the amount of clearing capacity available, in
particular, to commodities end-users, one has been the lack of
margin adequacy, and the other has been the punitive nature of
bank capital, and so, we too, were quite disappointed to see
the changes that were proposed previously. And I think, back to
Ms. Stump's comments, part of the benefit of interacting with
the CFTC is, as deep derivatives markets experts, we were able
to articulate the impact of what that proposed regulation would
mean, in particular on the amount of clearing capacity we would
be able to provide. And so, in their partnership, we were able
to work hand in hand with the banking regulators to articulate
what would happen. Clearing businesses over the course of the
last 5 years have seen capital between 2020 and 2022 double,
and then what was proposed 2 years ago with the Basel III
Endgame re-proposal that capital would have been increased by
another 80 percent, which would have served to further decrease
the amount of capacity we provide.
Mr. Lucas. Any thoughts, Ed?
Mr. Prosser. These markets need capacity, not just for a
normal Thursday morning, but for when geopolitical events
happen, for when weather happens. This FCM capacity issue is
real, and it is real in the country. We need regulators to work
together to make sure that we have adequate protections from
the FCMs through bankruptcy and all of the things that that
works on, but we need to make sure that we don't put burdens or
barriers to those that want to participate in those markets.
And I think that Basel III was one of those, the idea that the
capital requirements for those would have been so high, that it
seemed impossible to me. So, we need agencies to work together
to make sure that we have as much capacity for FCMs to clear
these derivative products because that matters to those end-
users in the country, particularly the small end-users in the
country that don't have the market power to find other FCMs.
Mr. Lucas. Thank you. Mr. Chairman, my time has expired. I
will submit a couple questions in writing to the witnesses.
The Chairman. Very good.
I thank the gentleman. I now recognize the gentleman from
California, Mr. Costa, for 5 minutes.
Mr. Costa. Thank you very much. Mr. Chairman, I obviously
concur that we need to deal with the reauthorization, and
Congress needs to do its job. But when we talk about the
Commodity Futures Trading Commission and the traditional areas
in which you provide oversight with regards to derivatives and
others, there is an area that hasn't really been brought up to
the degree that I am concerned about, and that is the red flags
on so-called event contracts. And also, in California where I
come from and a lot of Indian gaming authority, these look a
lot less, to me, like risk management tools that Congress ever
intended the Commission to deal with, and now you are engaged
in unauthorized online gambling for everything from sports
events to even war, and I don't think that was intended. Mr.
Schwartz, are you familiar with the five categories that are
prohibited under the Commodity Exchange? I assume all of you
are.
Mr. Schwartz. I am familiar with the five categories. It is
rather than a flat prohibition, it is----
Mr. Costa. Or terrorism, assassinations, gaming, or any
activity otherwise prohibited under Federal law, right?
Mr. Schwartz. Yes, sir.
Mr. Costa. Okay. Given that framework, why do we allow,
then, folks to go ahead and bet on things like sporting events
or wars?
Mr. Schwartz. Well, it is because the statute gives the
CFTC discretion. It says it may make a determination that a
given contract is contrary to the public interest. The CFTC
hasn't done that, and so that is why----
Mr. Costa. Don't you think the statute expressly prohibits
event contracts based upon war, terrorism, assassination,
gaming, or activities that are otherwise illegal under Federal
law?
Mr. Schwartz. No. It is a yellow light rather than a red
light and delegates to the CFTC to deal with individual cases.
Mr. Costa. What courageous actions are you taking on a
yellow light?
Mr. Schwartz. Well, the CFTC has the authority to take a
look and see if it is contrary to the public interest to have
that trading on an exchange.
Mr. Costa. In that light, do you think Congress did not
intend to allow companies to offer products that led
individuals to bet on sporting events?
Mr. Schwartz. It certainly indicates a concern.
Mr. Costa. It is a concern, but what are we doing about it?
Mr. Schwartz. Well----
Mr. Costa. I mean, let me give you some examples, and I
would ask others to participate in this if you care to. Six
hundred and fourteen million dollars have been bet on who will
win the Super Bowl. I like football, but I don't think that
that is the business that the Commission ought to be engaged
in, $13 million how many tweets Elon Musk will make in the
month of December--I don't give a damn, frankly, but I don't
think it is a part of your jurisdiction--or $34 million whether
the United States will attack or bomb Venezuela. My gosh. I
mean, what is this about? Three million whether Russia will
conquer Ukraine or a city in Ukraine?
I mean, news often makes this sound like what is happening
in that part of the world with regards to the war, gambling on
life and death on Ukrainian or on the battlefield is rife with
conflicts of interest. Where in the hell are we going with
this?
Mr. Schwartz. Well, I will leave the policy questions to
policymakers. I think I won't quibble with anything that you
said.
Mr. Costa. I mean, we are gambling on tragedy and death.
Mr. Schwartz. No, the concern is very, very valid.
Mr. Costa. The industry has gone more than $2 billion. I
find this exasperating. Every single month, and there is no
oversight?
Mr. Schwartz. The CFTC has not taken any action.
Mr. Costa. Well, what about states that are trying to
enforce their own laws?
Mr. Schwartz. That is an important separate issue, I think.
To my mind, I don't have any doubt that these products meet the
definition of swap and are within the CFTC's exclusive Federal
jurisdiction. I don't think Congress intended state gambling
regulators to be having a say on what is allowed to trade on a
designated contract market. That is separate from the policy
question.
Mr. Costa. But by expressly refusing to bless contracts
that, effectively, let people bet on sports or other
jurisdictions, you are either blessing or not those who want to
ban sports betting.
Mr. Schwartz. I won't quibble with that statement either.
Mr. Costa. Well, it just seems to me that we are not doing
our job. My time has expired, Mr. Chairman, and I would like to
get, obviously, other members of the panel to comment on this,
but I think this is a serious issue that we are overlooking at
this point in time. And I will submit other questions in the
future, but I think this is that we need to drill down on.
Thank you very much for the time.
The Chairman. I thank the gentleman.
Mr. Costa. My time has expired.
The Chairman. I thank the gentleman. I now recognize the
gentleman from California, Mr. LaMalfa, for 5 minutes.
Mr. LaMalfa. Thank you, Mr. Chairman. I appreciate it.
Thank you, Mr. Thompson. I just wanted to pick up on that topic
with how is it in the bailiwick of CFTC that we would--farmers
obviously rely on the futures markets in many, many aspects.
So, sports betting is somehow being defined as being in the
bailiwick of CFTC. We are talking about--they are being called
trades when it is just flat-out gambling in this gray market
area. So, with farmers needing this help, needing this ability
to have trades and have CFTC's attention, that with more and
more time being devoted towards, basically, being a Federal
gambling regulator. And anybody on the panel who wants weigh in
on this, maybe especially Mr. Schwartz, Ms. Stump, does CFTC
have the capacity under its current budget staffing and
regulatory authority to be overseeing so-called markets
offering betting on these sports events and other casino-style
games?
Mr. Schwartz. Well, as I have said, I don't think the CFTC
has adequate resources now.
Mr. LaMalfa. Yes.
Mr. Schwartz. So, expanding its remit without expanding its
capacity is not helpful.
Mr. LaMalfa. Ms. Stump?
Ms. Stump. So, this provision was included in the Dodd-
Frank Act. At that time, there was very little interest in
these sorts of event prediction market contracts.
Mr. LaMalfa. How long ago was that?
Ms. Stump. I am sorry?
Mr. LaMalfa. How long ago--how long ago was that?
Ms. Stump. 2010.
Mr. LaMalfa. Yes. Okay. No, it is skyrocketing, of course,
yes.
Ms. Stump. These markets have developed since then, but
nonetheless, the CFTC is tasked to oversee these types of
prediction markets to the extent that they are put on a CFTC
regulated exchange. The CFTC wears so many different hats, and
to Mr. Schwartz's point, they often find themselves switching
gears on a fairly frequent basis, whether it is dealing with
position limits in the ag markets, or wagering, if you will, on
an event contract market energy, disruptions. There is no way
for the CFTC to know when they get to work on any given day
what they are going to deal with.
Mr. LaMalfa. Yes. Look, it is fair to think of energy and,
of course, agriculture as a commodity and a market for it, but,
basically, gaming/gambling within that purview just seems kind
of absurd to me. We have other entities that should be really
having the responsibility, whether it is state-level gambling
commissions or the Indian gaming regulatory, anywhere else
seems like, especially with the workload you would have. And me
being from agriculture and this being the Agriculture
Committee, as important as it is for stability and agriculture
and those options, what--shouldn't this responsibility be
shifted elsewhere where it would be more appropriate?
Ms. Stump. I can only speak to--I will leave the
authorities and their allocation to Congress. I can only speak
to the fact that the statute currently provides the CFTC with a
review of these contracts.
Mr. LaMalfa. Would your workload be easier if it didn't
have this portion, or would CFTC's----
Ms. Stump. The workload?
Mr. LaMalfa. Would CFTC's workload be easier and more
focused if it didn't have this area to oversee, especially not
in 2010, but in 2025?
Ms. Stump. Well, the workload would certainly be less.
Mr. LaMalfa. Yes.
Ms. Stump. That said, I actually think the culprit here is
the fact that when the CFTC wrote this rule in 2011, that it
didn't sufficiently take into account the public interest
determination that is required by the statute.
Mr. LaMalfa. Interesting. Do you want to expound on that a
little bit more?
Ms. Stump. Sure. The way the statute's written, in my
opinion, is that the agency is tasked to make two
determinations. One is a threshold question--are any of these
contracts one of those five enumerated things, including
gaming--and then subsequent to that, they may make a
determination that the contract is not within the public
interest. When the agency wrote the rule----
Mr. LaMalfa. I think that is a key point, the public
interest. What is the public interest in this portion?
Ms. Stump. I completely agree with you.
Mr. LaMalfa. Would it be better off in a completely
different entity that is much more specialized, or experienced
in, basically, online gambling? So, with that, I appreciate it.
Mr. Chairman, thank you for the opportunity, and I will yield
back.
Mr. Johnson [presiding.] Ms. Salinas, you are recognized
for 5 minutes.
Ms. Salinas. Well, thank you, Mr. Chairman, and thank you
to our Ranking Member, and thank you to our panelists for being
here today.
The Trump Administration has nominated a chair for the
CFTC, but has not moved to fill the remaining seats, and even
as industry and consumer advocates warn about emerging risks in
some of these emerging markets: crypto, the growth of
prediction markets, and rapid technological advancements. Given
the President's lack of urgency in filling these remaining
seats, his own personal financial interests related to
cryptocurrency and the increasing complexity of the CFTC's
regulatory responsibilities, I have serious concerns that the
Trump Administration is purposefully handicapping CFTC's
capacity. For the whole panel, how does leaving the CFTC
without a full board in combination with the mass firings the
Administration has undertaken weaken enforcement, and does it
create opportunities for bad actors to slip through the cracks?
Mr. Schiffrin. I think absolutely, as I said in response to
Ranking Member Craig's question. I think if you don't have a
CFTC that not only has the resources that it needs, but that
has a full complement of Commissioners, it is not going to be
able to do its job. It is not going to be able to do the job
that it has traditionally been asked to do, and it is not going
to be able to do the job that it is increasingly asked to do in
new and evolving areas. And so, you need the CFTC not just to
have, as I talked about before, a fully--a fully funded agency,
but you have to have a full complement of Commissioners.
Mr. Schwartz. I will answer by saying that in my experience
at the CFTC when the Commission was at full capacity, when it
had Commissioners with different expertise, balanced expertise
like the statute requires, opposing views, it was a strength
for the Commission to be able to deliberate with perspectives
that come from those places.
Ms. Crighton. FIA believes a full Commission is important,
and it is good for market safety and soundness.
Mr. Prosser. One of the benefits of having a full
Commission is the diversity of viewpoints that all the
Commissioners bring. And obviously, I am a little selfish in
this side; but, as we bring on a full Commission, we would
certainly hope that one of them would be deeply involved in
agriculture and agriculture's issues, and be able to stand out
and support us in those. So, we continue to say that we want a
fully funded, a fully staffed CFTC, and that is certainly one
of the reasons why.
Ms. Salinas. I share your concern, Mr. Prosser. Ms. Stump?
Ms. Stump. I agree with everything that has been said. I
was very fortunate when I was a Commissioner to serve with four
other individuals that were willing to come to the table and
not only negotiate, but listen, and that is the important
point. Many different viewpoints, many different backgrounds is
critical, but also a willingness to work together and deal with
very challenging issues.
Ms. Salinas. Thank you. As we, Members of Congress,
consider reauthorizing the CFTC, it is critical to remember
that the Commission is the only Federal financial regulator
funded solely, as you mentioned, Ms. Stump, through the
appropriations--through annual appropriations because it has
been reauthorized since 2008. This is the case despite massive
market growth in swaps, crypto--we have been talking about this
all morning--prediction markets, as well as emerging
technological risks. Markets are getting more volatile,
financial fraud is getting more sophisticated, and yet the
Trump Administration is pushing a deregulatory agenda while
Congress allows the CFTC to operate without a modern
reauthorization. So, for, again, the whole panel, can you speak
to the risk that is posed by the CFTC continuing to operate in
a rapidly changing financial landscape without a
reauthorization, and how are our growers being affected by
this?
Ms. Stump. I will just briefly say that I think it is
necessary to reauthorize the agency for the very reasons you
outlined. There is a tremendous amount of market evolution that
has occurred since 2008, and just for frame of reference, I
worked on that bill, and I had a child who was 2. He is now in
college.
[Laughter.]
Ms. Stump. So, I would just say that I do think it is a
worthwhile endeavor for the Committee and Congress to consider
reauthorization--reauthorizing the agency with updated, current
parameters.
Mr. Prosser. I think from the end-user community, the idea,
and Dawn said this in her remarks, the certainty that
reauthorization brings matters. And that is really, from our
perspective, is knowing that they are going to be there,
knowing that they are going to be the referee matters to the
end-user community.
Ms. Salinas. Thank you, and my time has expired. I yield
back.
Mr. Johnson. Mr. Scott, you are recognized.
Mr. Austin Scott of Georgia. Thank you, Mr. Chairman. Ms.
Stump, you have already talked about how important it is for
the Commission to engage in research activities. We have had
some discussion about technology and how fast those
advancements are moving. What are the challenges or impediments
to the Commission best fulfilling the mandate that they have to
promote responsible innovation?
Ms. Stump. Thank you for the question. Yes, I think
Congress had the foresight in 1974 when the agency was created
to include in the statute a research and information program. I
would say that that language is slightly outdated now and could
benefit from an update. I mean, things--technology was very
different in 1974 and the task was very different in 1974, so
to the extent that the Committee would update that, I think
that is worthwhile.
Mr. Austin Scott of Georgia. Yes.
Ms. Stump. As to impediments, there have been occasions
when the agency would have benefited from obtaining information
from the private-sector because when we talk about technology,
the private-sector is where the most beneficial information
would be for the CFTC to conduct this research. And there are
occasions when Federal procurement laws has prevented them from
doing so.
Mr. Austin Scott of Georgia. Part of it gets to the
definition of a gift. We most oftentimes think of a gift as
something of a monetary value or a physical item when
technology--the definition there. And so, I want to move to
you, Mr. Schwartz. My colleague, Congresswoman Kristen McDonald
Rivet, and I, we introduced the CFTC Research and Development
Modernization Act (H.R. 6598, Commodity Futures Trading
Commission Research and Development Modernization Act of 2025)
to rewrite the CFTC's mandate for research and development
activities. Specifically, it modernizes and, hopefully, will
future proof the Commission's research and development mandate
and provide an opportunity for the Commission to create a new
research and development plan. How might clearer requirements,
definitions, and authorities around this mandate improve
operations of the Commission?
Mr. Schwartz. Well, to pick up on something that
Commissioner Stump said, the language is 50 years old now, and
it authorizes or directs the Commission to have a research and
information program about things like determining the
feasibility of using computers for trading. You know, I think
we are all satisfied that it is feasible. The Commission has
moved on.
[Laughter.]
Mr. Schwartz. But it would be helpful to have a clear
mandate to tell the--look, the Commission would always rather
have clear direction from Congress to execute rather than to
set the mission for itself and make sure that it doesn't cross
any lines. The appropriations issue is very, very important, so
I think all involved would appreciate that kind of legislation.
Mr. Austin Scott of Georgia. So, I will stay with you, Mr.
Schwartz. No other regulator currently exercises authority over
entities registered with the Commission, such as futures
exchanges, clearinghouses, or FCMs, for activities subject to
the Commodity Exchange Act. If a state regulator were able to
unilaterally determine that a transaction was subject to state
law, what would be the consequences of state regulators also
exercising concurrent jurisdiction over an exchange, a
clearinghouse, or an FCM for that transaction?
Mr. Schwartz. That is a question that was asked back in
1974, and Congress answered it with exclusive jurisdiction for
the CFTC. You would have a patchwork, and that is probably too
generous, of 50 states and the District of Columbia regulating
activities that occurred on, for example, the designated
contract market. I don't think it is workable.
Mr. Austin Scott of Georgia. All right. Those are my
questions, Mr. Chairman, and I will yield the 1 minute and 5
seconds back. Thank you.
Mr. Johnson. Very good. Mr. Scott banks the 1 minute for
future use in some future hearing, and with that, the good
gentleman from Illinois, Mr. Jackson, you are recognized.
Mr. Jackson of Illinois. Thank you, Mr. Chairman. Thank
you, Ranking Member. Once again, I would like to follow up on
the earlier discussed question on the unique features of the
agency being the only U.S. financial regulator that is not
funded directly by the industry that it oversees, and there is
this explosion now going on in sports betting. I am very much
concerned about the susceptibility of the young people to these
market conditions.
So, over the last decade, we have witnessed the explosion
in legalized sports wagering, an industry that has grown faster
than many of our traditional financial markets. And we know
whenever capital, technology, and human behavior converge at
this speed, history teaches us that risk accelerates also. In
finance, we would call this a systemic creep. This isn't where
we want to go, but this is where we can unintentionally end up,
the danger that small, unregulated activities aggregate into a
structure capable of inflicting broad harm. We call these young
persons students and athletes, but after the gamblers and other
people surround them and prey upon them, then they are cast
aside as adults and have to fend for themselves. And
considering that the sports is gaining money and, at the same
time, the President is reducing the oversight when there is
more profitability, this is an open question.
Probably starting with you, Mr. Schwartz, do you think the
Administration is going in the right direction having reduction
in enforcement of 20 percent for oversight, at the same time
there is more money, more profitability available? Will this
create more harm for students or more safety?
Mr. Schwartz. Well, I certainly share your concern about
young people. I have my 15 year old behind me here in the
audience today, and if I find out that he has been betting on
sports or taking positions on a futures exchange, I am going to
take away his phone.
[Laughter.]
Mr. Schwartz. So, I think it benefits everybody to have a
strong enforcement program, not to turn against my son, but
against the actual wrongdoers, and I don't think that the--I
think most parts of the private-sector would agree. It depends
on who the enforcement program is looking at, but that is a
very important aspect of what the CFTC does.
Mr. Jackson of Illinois. Mr. Schiffrin, and I would ask
that to you. Is the Administration going in the right direction
in asking for reduction, and the agency has no means by which
to generate funds to safeguard the protection of students?
Mr. Schiffrin. Thank you for the question. As I said
earlier, no, I think it is the wrong direction. I think the
funding for the CFTC needs to be increased, not decreased. I
also think that it needs to be increased so the CFTC can focus
on its core mission. I am not sure that the Commodity Futures
Trading Commission is the right regulator to regulate what is,
essentially, sports gambling. And so, we want to see if--but if
it is going to be forced to do that, it needs to have way more
funds than it has currently.
Mr. Jackson of Illinois. Okay. And today, as we--look, the
danger is not theoretical. The decisions that this body will
make will have long-lasting impact. It is already pressing
against the lives of young people. Many of these NCAA students
are students that are able to make more money than professors.
Students, the ones that went to college are being preyed upon.
I would ask that to you, Mr. Prosser. What should the agency
ask for, for funding, if you have an opinion that, sir.
Mr. Prosser. I don't have an opinion on funding, and I can
say that from our side, as we look at all the new innovations
that are happening, it is not really our place to say whether
it is good or bad. But I think that it is better to have that
debate with a fully funded, fully staffed Commission in place
to make sure that all of the participants get to have input and
then to have a decision rather than to do it in a vacuum.
Mr. Jackson of Illinois. Thank you. I will ask that of Ms.
Crighton, please.
Ms. Crighton. Thank you. I will echo Mr. Prosser's
comments. I am not a lawyer, but I am a risk manager. So, two
places that I would encourage, not only Congress, but the CFTC
to focus on is the risk management framework that will and,
ultimately, potentially apply to these contracts when one is
thinking about segregation of default funds. So, where there is
an intersection of these new products with more traditional
products and end-users, we have to think about the segregation
of default funds to protect those communities from one another
and insulate them from each other. And I would also encourage
everyone to think about the impact of direct clearing. By
removing intermediaries, by removing, in particular, the asset
segregation and customer protections that we provide, and when
they go directly to the clearinghouse, many of those
protections go away. So, there are kind of two very practical
considerations that should be part of this as well.
Mr. Jackson of Illinois. Well, I have exceeded my time. Ms.
Stump, I wish I could have gotten to you as well. Maybe next
time. Mr. Chairman, Ranking Member, I yield back, but there is
a fine line between the fandom--the speculation and the
coercion are now blurred at an accelerating speed. I hope that
we fully fund this, and I strongly disagree with the
Administration in cutting back funding for oversight.
Mr. Johnson. Mr. Jackson yields back. Thank you, sir. The
chair is recognized for 5 minutes.
I have been heartened by how many of my colleagues on both
sides of the aisle have emphasized the need to reauthorize the
CFTC, and, of course, thanks to all of our witnesses for so
eloquently explaining why that matters. Of course, it is not
just people in this room who agree. In fact, National Grain and
Feed has asked me to submit for the record a statement asking
us to reauthorize, and unless there is objection, that will be
submitted.
[The statement referred to is located on p. 90.]
Mr. Johnson. All right. Ms. Crighton, perhaps a year ago, I
submitted a letter to then CFTC Chairman, Russ Benham, asking
for them to revisit and strengthen the clearinghouse margin
methodology to better support end-users as they do risk
management planning and liquidity planning. Give us an update.
Where are we at with that?
Ms. Crighton. Thank you for your work on that letter. We
greatly appreciate it, and we felt like it sent a strong
statement to the Commission to prioritize their focus on margin
adequacy. I think as we look to where we are now,
unfortunately, we haven't seen as much progress as we would
like on behalf of the clearinghouses in terms of thinking about
what is an appropriately calibrated risk margin regime. And so,
we do think that should be a priority for the incoming chair to
focus on the safety and soundness of the clearinghouses and
think about kind of making some revisions to what that margin
framework is.
Mr. Johnson. So, you say we haven't made enough progress.
Has substantial progress been made at all?
Ms. Crighton. In short, no, and I think as we continue to
live through various events that have created market
volatility, we see what the impact of that is. And so, in many
perspectives, you would say we withstood recent volatility
quite well, we are not aware of any defaults as part of the
ecosystem. But what ultimately happens when we see margins go
too low in times of low volatility and we enter into a period
of intense volatility, not only do we create a scenario where
we have large increases in initial margin that is required, we
have a requirement for a significant amount of variation margin
or mark-to-market that is required on behalf of the community
to post. And so, what that means is it actually undermines the
credibility and, ultimately, the capacity that we are all
willing to stand in and provide, and so that becomes an
important topic. It kind of ultimately feeds to the
conversation that we have been having with the end-user
community, so not enough progress.
Mr. Johnson. Yes. Thanks very much. Mr. Schwartz, I thought
your testimony was excellent in at least a couple of different
ways. I think you did a good job reminding all of us that
despite these many market shocks in the last years, the stuff
that the CFTC has within their jurisdiction held up pretty gosh
darn well. I also liked how you talked about the diverse
expertise that exists within the Commission. You also
mentioned, at least in your oral testimony, that your main
concern was you were concerned that they don't have enough
resources, so talk to us a little bit about the expertise
within the agency. Are there particular areas where you think
there is a deficiency, and do you get the sense that the
Commission has a plan to address that?
Mr. Schwartz. I will just say that it is impossible for any
one Commissioner or chair to have a balanced expertise in all
of the areas that I listed. So, I am not going to pick apart
the knowledge of any one individual, but it needs to be broader
because the markets are extremely broad. It touches, again, as
I said, many, many areas of our economy, probably more than any
other regulator, so you have to make sure that the Commission
has the expertise the statute requires, and you ought to make
sure that it is adequately staffed because the shedding of
staff has not just been numbers. It has been some of the most
experienced and knowledgeable people at the agency, and I don't
know how you address that, but it is going to be important to
get people with talent and education and experience into those
positions, certainly before crypto legislation comes out and
while the markets are expanding in some of the ways we have
discussed.
Mr. Johnson. Sure. Commissioner, I have always understood
the power of the self-certification process, which I think
helps to balance the outside expertise, the innovation you
talked about, as well as leveraging the expertise inside the
agency. Do we feel like that is holding up well here in the
longer haul?
Ms. Stump. Well, I am a huge proponent of the self-
certification process. I do know that, well, I will start by
saying that without the self-certification process, the task
that Congress has given the agency to promote innovation might
be hindered. The self-certification process permits a more
expedited process for various new products to come to market,
but I would also like to take the opportunity to dismiss the
fallacy that this sort of a process is without any oversight.
Certainly, with the vast number of new products that are coming
to market currently, there is a lot of work for the agency to
do, but they have to do this through examinations. They have to
do rule enforcement reviews of any of the entities that are----
Mr. Johnson. Sorry. I need to give myself the hook,
Commissioner.
Ms. Stump. That is okay.
[Laughter.]
Mr. Johnson. If you would be willing to submit any other
comments for the record, that would be wonderful. Thank you.
Ms. Stump. Great.
The Chairman [presiding.] All right. I am now pleased to
recognize the gentlelady from Ohio, Ms. Brown, for 5 minutes.
Ms. Brown. Thank you, Mr. Chairman. The Commodity Futures
Trading Commission was created 50 years ago to ensure that
farmers, ranchers, and energy producers, and manufacturers
could rely on fair, transparent markets to manage risk. For
decades, that meant corn, soybeans, cattle, oil, and
electricity, markets that affect the price of food on our
kitchen tables and gas in our cars, but today the CFTC is being
asked to do far more.
In addition to its traditional responsibilities, it is now
on the front lines of regulating crypto derivatives, digital
commodities, algorithmic trading, and new prediction-style
contracts that blur the line between finance and gambling.
These markets operate 24/7 across borders and at incredible
speed. That means the job of protecting market integrity,
preventing manipulation, and safeguarding customers have become
more complex and more demanding than ever before. At the same
time, the agency is expected to oversee hundreds of trillions
of dollars in futures in swaps markets while operating with a
Commission that has been reduced to a single sitting member and
a budget that is a fraction of the size needed to keep up with
the market policies. That imbalance should concern all of us
because when markets move faster than the regulators, everyday
people are often left to pay the price. We have seen what
happens when financial innovation outpaces oversight or when
Congress leaves regulatory gaps: a global financial crisis. We
cannot afford to repeat those mistakes in crypto or prediction
markets.
So, Mr. Schiffrin, the CFTC regulates traditional
agriculture energy markets and emerging areas, like crypto and
prediction-style contracts. It is operating with just one
Commissioner and a relatively flat budget. What specific new
resources, staffing, technology funding, or enforcement
authority must Congress authorize in order to prevent the
agency from putting consumers and producers at risk?
Mr. Schiffrin. Thank you for the question. Congress simply
needs to ensure that if the CFTC is going to be tasked with not
just fulfilling its traditional responsibilities that you
mentioned, ensuring that the prices of commodities are fair and
are set by supply and demand, but also take on the
responsibilities for things like crypto and prediction markets,
it has the resources it needs to properly oversee those
markets, and that would require tremendous new sources of
funding and staffing. And one of the reasons for that is
because, as you kind of alluded to, traditionally, the CFTC has
been focused on markets that have sophisticated institutional
players, but the products--the new products that you are
talking about are really geared towards retail investors, and
the CFTC has not traditionally had a focus on protecting retail
investors. And so, if that is going to now be its focus, it
needs to kind of have the resources and staffing to shift its
focus.
Ms. Brown. Thank you, and, Ms. Crighton, what are the risks
to clearinghouse stability today if the agency staffing and
resources do not grow alongside its mission?
Ms. Crighton. Thank you. From a risk management
perspective, we are incredibly focused on what is the framework
that these contracts may be margined under and how are--all of
the financial resources that are at the clearinghouse, how are
they brought to bear in the event of a default or an extreme
stress situation. So, one of the things that we want to make
sure is that we are thinking about, particularly on
clearinghouses where there is an intersection of end-users as
well as retail investors in these event-type contracts, that we
are thinking about segregating the default fund and segregating
the resources that backstop those contracts. And we think
insulating those two very distinct pools of risk is an
incredibly important step.
Ms. Brown. Thank you, and back to you, Mr. Schiffrin. What
are the risks to market stability, rulemaking legitimacy, and
enforcement credibility when an agency overseeing hundreds of
trillions of dollars is operating with only one sitting
Commissioner?
Mr. Schiffrin. Well, as was referred to earlier, right, if
the CFTC can't act through regular order, it is going to be
harder for it to fill its role of, essentially, being the cop
on the beat, right? That is what we are talking about. We are
talking about the CFTC policing the derivatives markets, and if
there is just one Commissioner and not a full complement of
Commissioners, and there is no bipartisan discussion and the
CFTC doesn't have the resources that it needs, it is not going
to be able to fill its cop-on-the-beat function.
Ms. Brown. Thank you so much. Reauthorization is not just
about keeping the lights on. It is about making sure the CFTC
actually has the tools, the staffing, the leadership, and the
funding to do the job Congress expects of it. If we expand the
CFTC's mission without expanding its capacity, we aren't
strengthening oversight. We are weakening it in ways that will
be felt by farmers, consumers, and everyday families, and with
that, Mr. Chairman, I yield back.
The Chairman. I thank the gentlelady. I now recognize the
gentleman from Indiana, Mr. Baird, for 5 minutes.
Mr. Baird. Thank you, Mr. Chairman, and thank you,
Committee Members and witnesses, for being here.
It is really helpful to have the expertise that you possess
to share with us so that we can make better decisions about
whatever it is we are talking about, in this case, the CFTC
reauthorization. So, I am going to start off, Mr. Prosser, with
the idea that you mentioned: real-world uncertainty in the
soybean oil market due to delayed Federal guidance on the
biofuels policy. So, how does regulatory uncertainty, whether
it is the EPA, the Treasury, the lack of CFTC reauthorization,
how does that translate into volatility and increased risk for
farmers and other commercial end-users?
Mr. Prosser. Markets are pretty good at pricing risk, and
uncertainty increases risk, and that price flows through to
either the consumer or the producer. If you take the biofuels
policy and the different contortions that we have had trying to
get it started and un-started and reauthorized, and we are
going through a process now at the EPA to try to finalize it,
all of those, as we try to determine the possibility of it
happening or not happening, needs to get priced in these
markets. And I think that has been a really interesting
experiment in how these markets work.
As we get more certain, we throw those prices--that we can
actually pay more to the farmer and sell products cheaper than
when the process is more uncertain. And, certainly, the
political process we have gone through around renewables has
created uncertainties that have thrown soybean oil markets,
soybean meal markets, and, to some extent, soybeans kind of in
that arena where uncertainty was priced in a negative way.
Mr. Baird. Thank you. Anyone else have a comment in that
regard about the soybean oil?
[No response.]
Mr. Baird. If not, my next question goes to Ms. Stump.
Drawing on--you have a lot of experience both in and out of
commodity futures trading. And so, drawing on your work during
the financial crisis and the implementation of Dodd-Frank, what
lessons should Congress keep in mind as it approaches this as
we approach this reauthorization?
Ms. Stump. Having worked on the legislative side during a
crisis and during a time when we didn't have a crisis, I think
the policy outcomes are much better when you adjust the
Commodity Exchange Act outside of a crisis environment.
Oftentimes, during the development of Dodd-Frank--and I am not
suggesting that there weren't great changes made in the
financial crisis in response to what was going on, but it is
very challenging to legislate in the midst of a crisis. We
would be far better served to address changes to the Commodity
Exchange Act before the event of a crisis.
Mr. Baird. You mentioned in your testimony a new product
and technology that may already be in development around the
world. What emerging risks should Congress be thinking about
now before they come into the market?
Mr. Schwartz. I think the self-regulatory model that the
Commodity Exchange Act established is very helpful in this
regard because as new challenges come over the horizon, the
Commission has the ability to deal with them quickly and
flexibly, and it is not constrained by the same kinds of rigid
rules that other regulators might be. And so, it doesn't have
to rigid rules can lead to loophole-seeking behavior and just
kind of hinder the agency from reacting quickly. So, I would
just urge Congress to consider the importance of the
principles-based regulations, self-regulatory model that the
Commission has, and allow the markets to develop in an
innovative way, but also not handcuff the agency from
addressing issues as they arise.
Mr. Baird. So, thank you. And we have about 25 seconds
left, so the other two that I haven't got to, I would like to
have a chance to talk to you, but do you have any comments to
add? You got about 16 seconds now.
[Laughter.]
Ms. Crighton. Maybe I will just add, I agree. I think there
are a significant amount of merits to the self-certification
model, but I think given the number of new products that are
coming to market, it is worth taking a closer look at that.
Mr. Baird. Thank you, and I yield back.
The Chairman. I thank the gentleman. I am now pleased to
recognize the gentleman from Alabama, Mr. Figures, for 5
minutes.
Mr. Figures. Thank you, Mr. Chairman and Ranking Member.
Thank you to all the witnesses for sitting through this.
Normally when you see me, it means that you are very close to
the end, but given the participation today, that may not be the
case as Members come back and forth, so I apologize if I am not
near the end.
But, look, it has been hit on pretty regularly here today
and pretty consistently in terms of the staffing challenges, in
terms of the overall Commission, the current structure of the
Commission there being down to one Commissioner. And I just
want to go down the line and just, in light of CFTC's expanded
jurisdiction that we are considering here, expanded crypto
market participation, do we think that given recent reductions
in force that we have seen, given the overall staffing
situation at the Commission currently, do we think that the
Commission is best set up for success given the current status
of staffing and the Commission structure where we currently
are? And we can just go down the line. Ms. Stump?
Ms. Stump. Well, I am not familiar with the specifics of
their staffing needs. I will leave that to the current
Commission, but I will say the CFTC has always punched above
its weight, and I am certain that they will continue to do so.
Mr. Figures. Mr. Prosser?
Mr. Prosser. One Commissioner is not enough. We need a full
Commission with all their various backgrounds and interests,
and especially in these markets that continue to evolve and
innovate. But we would continue to encourage--even though the
political process goes through--however it needs to happen, we
need to get the Commission fully staffed. And again, I would
repeat the idea that we would like some of those to have an ag
background.
Mr. Figures. Ms. Crighton?
Ms. Crighton. Thank you. Yes, FIA supports a fully staffed
and resourced Commission. We think the diversity of expertise,
the diversity of opinions, the durability of the policy that it
will create is incredibly important for safety and soundness.
Mr. Schwartz. Yes, I will add that a fully staffed
Commission is not important merely to restrain activity in the
private-sector, but I know that people in the private-sector
are concerned about things like getting new exchange
applications approved and getting new clearing applications
approved. And without the right staff, that it is simply not
going to be doable in an orderly or timely fashion.
Mr. Schiffrin. It would be impossible for the CFTC to
adequately regulate the crypto markets, the prediction markets,
and the traditional derivatives markets with the funding and
staffing it has now. And I also think not only is a full
complement of Commissioners important for bipartisanship, but
it is important for the diversity of views, even if you are
putting bipartisanship aside, right? As was alluded to earlier,
if you just have one person, that person can't possibly have
expertise in all the different areas that the CFTC has to
oversee. So, putting aside bipartisanship, you need at least
more than one Commissioner to get all those views in the
building.
Mr. Figures. Yes, and, Mr. Schiffrin, are we in a ticking-
time-bomb situation given the current staffing in your view, or
can things be sustained, but we are going to hit a cliff at
some point?
Mr. Schiffrin. No, I think it is a disaster waiting to
happen.
Mr. Figures. Thank you. And also, on the accessibility
standpoint, and, I mean, accessibility through the lens of who
can actually participate in and benefit from the markets that
CFTC oversees. And for many rural farmers and small producers,
including those in states like Alabama that I represent,
broadband limitations make it incredibly difficult, sometimes
impossible, to access pricing tools and education, risk
management platforms, or even basic agency information, and
these producers rely on future markets the most, yet they face
some of the steepest barriers. Ms. Crighton, with the current
staffing, shrinking outreach capacity, technology deficits,
does CFTC currently have the resources necessary to improve
accessibility of those sort of educational materials, complaint
systems, market information for customers with limited
broadband access?
Ms. Crighton. I would say I have less of a view on that,
but what I can offer in terms of follow-up from here is both
resources from an FIA and Goldman Sachs standpoint. Goldman
Sachs has been investing heavily in rural communities, and we
would love to follow up with you on that.
Mr. Figures. All right. Thank you.
I yield back, Mr. Chairman.
The Chairman. I thank the gentleman. I now recognize the
gentleman from Indiana, Mr. Messmer, for 5 minutes.
Mr. Messmer. Thank you, Mr. Chairman, and thank you all for
taking time to highlight the importance of the CFTC this
morning.
Earlier this week, the President, alongside Secretary
Rollins and Bessent, announced bridge payments to our farmers
that, while this assistance is what the producers in my
district need to stay in business next year, they are the first
to say they would never have wanted to take these payments.
American farmers would rather rely on healthy markets that
honor their investment rather than have to accept Federal ad
hoc assistance. Mr. Prosser, you shared the American
derivatives markets are a vital tool for farmers in risk
management of their operations. From your perspective as a
commercial end-user, could you further explain the role of
futures and option markets in helping agriculture producers
plan and manage seasons of market volatility and shrinking
margins?
Mr. Prosser. For the end-users, the derivatives markets,
again, are not an opportunity to speculate. We use them as
risk-aversion tools. When a farmer asks us to buy his crop, we
will offset that risk in a futures market, therefore, stripping
off what is a flat price risk and a basis risk or a freight
differential to the delivery point. This allows us a lot more
capacity because we are not taking the whole price risk. It
allows us also to weather extreme price events, whether that be
geopolitical or weather. The idea of having a functional
derivative market in those ag commodities allows the whole
industry to price farther out with more capacity to provide
more price certainty, not just for farmers, but for consumers.
Mr. Messmer. Okay. Thank you. Certainly, it is important
for farm operations, as any other--certainly it is important
for farm operations, as far as any of the business. Earlier
this year, the Committee spent months working on the CLARITY
Act to provide regulatory certainty for innovators in digital
asset space. Mr. Prosser, you highlighted the importance of
protecting the marketplace for our farmers, while also
incentivizing innovative technologies to establish roots in
America. Could you speak to the CFTC's unique role in ensuring
that there is both fertile ground for new industries to
innovate and stable footing for commercial hedgers?
Mr. Prosser. I think that we are most interested in the
regulatory environment that we have for our traditional markets
and protecting those to be open and transparent. There is going
to be a debate about where this new innovation is going and how
it is going to be regulated. And our initial interest is in
making sure that those two Venn diagrams don't necessarily
intersect or the direct--or the amount that they intersect is
limited to the part of the industries that work. Where am I
trying to go?
So, the one in the back of my mind is 24/7 trading: 24/7
trading might be absolutely adequate for some of the new
innovations. We don't believe it works for our traditional
markets. Again, the derivative markets or derivative cash
markets, our cash markets don't trade like that. It creates
holes in liquidities. So, having a fully funded, fully staffed
CFTC would allow us to come to our regulator, lay out the
reasons why certain things that might work for crypto or events
don't work for the traditional markets, and hopefully we keep
the regulatory regimen the same for the traditional markets we
have today.
Mr. Messmer. Thank you. The CFTC's work provides a
foundation for the entire fabric of an American industry.
Unfortunately, the absence of a reauthorization package--some
of the Commission's regulations have grown stale. In fact,
Representative McClain Delaney and I just introduced the CFTC
Charitable Organization Exemption Act of 2025 (H.R. 6655) to
address regulatory issues at the CFTC that has unnecessarily
plagued our churches for decades. Although the fix has been
approved by this Committee three times and passed the House
floor twice, failure to reauthorize the CFTC has kept the
solution from being implemented, exempt our churches from
regulation. Ms. Stump and Mr. Schwartz, I know there are other
similar issues impacting other industries that could be
addressed through a simple reauthorization of the Commission.
How important is it that we reauthorize the CFTC, not just fund
it, to bring substantive improvements to a variety of
industries?
Ms. Stump. I think it is very important. I think that there
are a number of things since the last reauthorization that
warrant improvement--refinement is the word I would use--and
this is the opportunity.
Mr. Messmer. Okay. Thank you.
Mr. Schwartz. I would just add quickly that I don't think
churches and universities need to be regulated as commodity
pool operators, so I think we are in agreement on that.
Mr. Messmer. Okay. Thank you. I yield back my time.
The Chairman. I thank the gentleman. I now recognize the
gentleman from California, Mr. Carbajal, for 5 minutes.
Mr. Carbajal. Thank you, Mr. Chairman and Ranking Member.
Thank you to all the witnesses for taking time to be with us
today.
Mr. Schiffrin, my office has been hearing increased
concerns surrounding online betting. Stakeholders have warned
that this emerging unregulated gambling industry, also known as
prediction markets, is abusing the CFTC self-certification
process and that the Commission has not taken sufficient action
to stop illegal futures contracts. Right now, for example,
individuals can put a bet on who will win the Super Bowl or
whether Democrats or Republicans will take the control of the
House of Representatives next November, even though we know who
that will be.
[Laughter.]
Mr. Carbajal. All these bets are being waged without proper
oversight or safeguards in place. We have seen betting scandals
in the NBA, MLB, and NCAA where bad actors were discovered as a
result of information sharing, monitoring, strict regulations
at the state level. However, these same protections are not in
place for prediction markets. Given this landscape, do you
believe the CFTC has expertise and experience to regulate what
is, effectively, a multibillion dollar gambling industry, and
how would the CFTC address problem gambling, underage gambling,
or cheating under this system?
Mr. Schiffrin. No, I don't think the CFTC has the authority
or expertise to regulate sports gambling. It is the Commodity
Futures Training Commission. It is supposed to regulate the
derivatives markets, and these event contracts, although they
want to call them trading on derivatives, that is not what they
are. These are event contracts that, essentially, allow betting
on sports. Take tonight's Thursday night football game, right?
You can go on sites like Kalshi and Polymarket and,
essentially, put a bet on either of the teams, and if the team
that you put a bet on wins, you get money. That is gambling,
that is sports betting, and the CFTC really has no expertise or
authority in that area.
Mr. Carbajal. Thank you. Mr. Schwartz, you mentioned in
your testimony that during your time at CFTC, you witnessed
what happened behind closed doors with Commissioners while they
deliberated important questions before the agency. You stated
that Democrats and Republicans of good faith would debate,
sharpen their own thinking, compromise, and sometimes even
convince one another to change their minds. You also pointed
out that partisanship should not and typically does not dictate
how the CFTC executes its mission. With there being only one
sitting Commissioner currently on the CFTC and a growing
concern that it could stay that way, do you believe this is
creating partisanship within the agency in how it executes its
mission, and do you have concerns if it remains with only one
Commissioner in charge?
Mr. Schwartz. Well, it certainly diminishes, eliminates the
ability to meet, and deliberate, and sharpen thinking and to
persuade one another, so I think it is just inherent in only
having one Commissioner. I am not going to comment on anybody's
partisanship, but there is currently one individual who makes
the decisions for the Commission, and it is inevitably going to
be that one person's decision that controls, partisan or
otherwise.
Mr. Carbajal. Thank you. Mr. Prosser, as you likely know,
the CFTC has seen a 20 percent reduction in staff. This
reduction could impact the agency's ability to execute
essential functions of protecting customers/consumers,
preventing fraud, and encouraging market efficiency. In your
testimony, you mentioned your support for full funding and
staffing of CFTC in order for it to keep up with the
technological complexity, market growth, and global
competitiveness. What current functions and processes at the
CFTC are you concerned could be impacted by this reduction in
staff?
Mr. Prosser. I don't have any specifics. The thing that
concerns me is markets can be mundane for long periods of time
and quickly change, and we don't get to understand when or the
magnitude of those changes until it happens, and having a fully
funded, fully staffed CFTC at the ready to for the next
inevitable market event is, we think, wise.
Mr. Carbajal. Thank you. Mr. Chairman, I yield back.
The Chairman. The gentleman yields back. I now recognize
the gentleman from Alabama, Mr. Moore, for 5 minutes.
Mr. Moore. Thank you, Mr. Chairman. I appreciate all the
witnesses being here today, and I am happy that the Committee
is holding a hearing on CFTC's reauthorization, and certainly
our desire is that we ensure that CFTC can continue conducting
oversight with stability.
Ms. Stump, the CFTC is uniquely positioned to provide
robust oversight while also providing cryptocurrencies the
ability to operate without over-regulation. How do you see the
pending market structure legislation advancing the priority of
both conducting the oversight and allowing the market to
prosper with cryptocurrency?
Ms. Stump. Well, when I started at the agency, I repeatedly
raised the alarm bells that I do not believe the agency has
adequate authority, nor do I think any regulator has authority,
to regulate a component of the market which is a non-security
spot, and this has become a point that has been raised
repeatedly at the agency. The marketplace is desperate to have
their product regulated, and so we should meet that with
appropriate authority for the CFTC to regulate the spot market
outside of the security spot market. I would note that since
that time, the agency and the marketplace have found a way to
enter the CFTC space for retail commodities in the spot
component, but I would also like to note that I don't think
that is the cleanest approach, and I think the legislation
advancing would be a cleaner authority for the CFTC.
Mr. Moore. I guess I will ask this to kind of all the
witnesses and give you, I don't know how much time I have. I
have 3 minutes, so it doesn't give you a lot of time. But the
rulemaking effect on agriculture is going to be different for a
lot of firms and from the financial institutions, obviously.
What is the right balance for the regulatory environment when
it comes to rulemaking to protect participants without being
overly prescriptive--that would be a good word--and what is the
right balance in enforcement to weed out the bad actors and not
restrict normal market activity? And, Mr. Prosser, if you want
to start and we will work our way down, and when I run out of
time, I will just throw up my thumb and say, ``Okay.'' Go
ahead, sir. Oh, okay. Go ahead, Ms. Crighton. That will be
great. Whoever is the expert. I guess you all are. So, Mr.
Schwartz, it is down to you now.
Mr. Schwartz. The right balance is spelled out in the
statement of purpose in the statute. An illustrative part of
that is responsible innovation, and it lists things like market
integrity on the one hand, in addition to foster competition is
one part of it, but also to protect customers. I think if the
agency governs according to the mandate, that it will get the
right balance, and I think it usually does.
Mr. Moore. Very good. Anybody else? I have still got a
little bit of time, more than I thought. You all went fast. Mr.
Prosser.
Mr. Prosser. I guess I am just going to--I don't know that
we know the right balance. We have been talking about event
contracts here, and the example of the day seems to be betting
on the Super Bowl. What happens if we had an event contract
that bet on the size of the corn carryout?
Mr. Moore. Yes.
Mr. Prosser. Then all of a sudden I might be interested as
a traditional end-user. So, the balance and where we go with
the regulatory environment, I think these markets will innovate
faster than we expect them to, and having a CFTC that is there
to meet those challenges is terribly important.
Mr. Moore. I agree. I agree. Anybody else want to? Mister,
is it Schiff? I can't see your name.
Mr. Schiffrin. Schiffrin.
Mr. Moore. It is at an angle. Okay. Go ahead. Oh, Mr.
Schiffrin, go ahead.
Mr. Schiffrin. No, I was just going to say, look, I just
think it is important that the rules innovate along with the
products. And so, you hear a lot about innovation and new
products coming onto the market, and that is all well and good,
but if you don't have the rules that innovate along with it,
you are going to have fraud and manipulation that doesn't go
detected.
Mr. Moore. Thank you for that. Mr. Chairman, I am out of
questions, so I will yield back you, sir.
The Chairman. The gentleman yields back now. I now
recognize the gentleman from North Carolina, Mr. Davis, for 5
minutes.
Mr. Davis of North Carolina. Thank you so much, Mr.
Chairman, and to our Ranking Member. Mr. Chair, I want to start
out by sharing with you, I am from eastern North Carolina, and
I believe I heard one of the witnesses today is a dairy farmer
in Brooklyn.
[Laughter.]
Mr. Davis of North Carolina. I don't know that I have met
many----
Mr. Schwartz. Grandson of. Grandson of.
[Laughter.]
Mr. Schwartz. But, yes, there was such a thing until----
Mr. Davis of North Carolina. Okay.
Mr. Schwartz. Yes. It has been a while.
Mr. Davis of North Carolina. Well, being from rural eastern
North Carolina, many farmers operate on thin margins, and often
face severe weather and global price shocks. My value here is
simple: access to markets must not depend on ZIP Code. So, to
the Commissioner, my question would be, what reforms,
regulatory or statutory, would reduce barriers to prevent
rural, small-scale, or minority farmers from fully benefiting
from derivative markets without increasing row type?
Ms. Stump. I think that the reforms that there may not be
any reforms that are necessary. Maybe more direction from
Congress in the way of a dialogue. The way the statute is
currently constructed, it permits a variety of people to
participate in the markets, and it is designed that way very
intentionally so that it is not exclusive. Traditionally, the
people who have come to the marketplace have been more
institutional in nature, but we are seeing an increased
participation from the retail community. And the point has been
made that maybe that warrants a different conversation about
protections, and that may be relevant here, so.
Mr. Davis of North Carolina. Thank you. I have been serving
as Ranking Member, and we have been navigating this
cryptocurrency digital asset space. And my question is for you
also, Madam Commissioner, if the Senate and the House actually
comes together and we move forward with some sort of regulatory
framework agreement providing clarity, what happens if, then,
the CFTC is not authorized?
Ms. Stump. Technically, the authorities continue, the
responsibilities of the agency continue, and, as has been
apparent over the last decade, the agency operates as it is
intended.
Mr. Davis of North Carolina. No, I understand it continues,
but what is the net effect is what I am getting at.
Ms. Stump. I think--I think the net effect is that the
Commission and the staff are left to make--apply parameters of
the Act that may not have been designed with current markets in
mind, and so----
Mr. Davis of North Carolina. And that leads to my next
question then. I mean, we are here having a meaningful
conversation, but what steps are currently being taken,
regardless of reauthorization or not?
Ms. Stump. I think the agency, at least when I was serving,
we were able to bring in some experts. But, I think the most
important thing that this agency does that may be slightly
different from other market regulators is we have a constant
dialogue with the marketplace, and the point has been made that
that is best done when you have a full complement of
Commissioners. I would agree. And in the absence of updating
the statute, I do think that the market participants should
feel that there is an open door at the agency, such that those
who are tasked to carry out the Act, even without the benefit
of refinements from Congress, can do so in a way that is
responding to current situations.
Mr. Davis of North Carolina. And my question to Mr.
Schwartz, and I do look forward to shaking your hand, too, by
the way.
[Laughter.]
Mr. Davis of North Carolina. We are here talking about
reauthorization of the CFTC. I know there has been a lot of
questions regarding the prediction market, but, regardless of
all the conversations, I am trying to understand what are the
implications in terms of the functions of the agency if there
is reauthorization or not with prediction markets.
Mr. Schwartz. Well, like a broken record, agency capacity
is very important, but to pick up on something that
Commissioner Stump said, this is a statute that is aging and
even the parts that were revised in Dodd-Frank. The statutory
definition of swap includes anything that is or in the future
becomes commonly known to the trade as a swap. These sports
prediction markets, these sports event contracts are
undoubtedly commonly known to the trade as swaps, so the CFTC
has the exclusive jurisdiction, but it is obviously something
that not everybody--I think that most people did not anticipate
the way this would go.
Mr. Davis of North Carolina. Well, again, thank you to all
the witnesses for being here, and we look forward to continuing
conversation. This is a very important topic, as we all know
and understand. I yield back, Mr. Chairman.
Mr. Johnson [presiding.] And the chair thanks Mr. Davis for
his substantial leadership on the Commodity Markets, Digital
Assets, and Rural Development Subcommittee. With that, the
gentleman from Tennessee is recognized for 5 minutes.
Mr. Rose. Thank you, Mr. Chairman, and thanks, Chairman
Thompson and Ranking Member Craig, for holding this important
hearing, and thank you to all of our witnesses for being with
us today. Ms. Stump, the Whistleblower Office and the Customer
Protection Fund are critical tools for the Commission. Can you
briefly describe how these tools help to protect customers in
the marketplace?
Ms. Stump. Yes. The whistleblower provision incentivizes
those who may have knowledge of a violation to come to the
CFTC. If that information is, in fact, utilized in a material
way to bring an enforcement action with a monetary sanction
over $1 million, that money is put in the Customer Protection
Fund from which the whistleblower may be compensated between
ten and 30 percent of the monetary sanction. At the point which
the fund reaches $100 million, that money then begins to
accumulate back to the Treasury.
Mr. Rose. Thank you. Mr. Schwartz, for the past several
years, the Commission's Whistleblower Fund has been in danger
of running out of money. Can you briefly describe or briefly
explain the issue for us and what the consequences of that
might be?
Mr. Schwartz. I will try to be brief. So, the Customer
Protection Fund is used for two things. One is to pay
whistleblower awards, the second is to fund the Office of
Whistleblower, including staff salaries, and it also funds the
Office of Consumer Education and Outreach. If you have a--an
award, and this has only happened a few times and threat of it
has only happened a few times, that would be large enough to
deplete the fund down to zero, then you have to furlough the
entire staff of the Office of the Whistleblower. So, the office
can't function. The program shuts down. The other thing that
happens is, typically, the contributions to the Customer
Protection Fund are small, so there are these incremental
additions that get out of the hole, and especially if you have
further debt on a large claim to a whistleblower, it could take
forever to get there. So, it is the furloughing of staff and
the deeply difficult task of replenishing the fund for other
whistleblower awards.
Mr. Rose. While you were General Counsel, Congress passed
legislation to try to address the issue. Please explain the
current fix, if you will, and is it sufficient to address this
issue for the long haul?
Mr. Schwartz. Well, what it does is it creates a second
account that can hold up to $10 million that can be used to
fund the office operations, staff salaries, and the like, so
that is good. When these patches exist, they are not under
threat of furlough, but Congress has had to do this over and
over again, so that is not something that you want to do. I
think a permanent fix would be justified, and it also doesn't
solve the problem of having to replenish the fund in these
incremental amounts.
Mr. Rose. Any particular recommendations for what the
broader fix should be?
Mr. Schwartz. Yes. I think when a large monetary or any
monetary sanction that could lead to a whistleblower award is
collected, it should--or at least up to 30 percent of it--that
could be--the top-level whistleblower award should continue to
be accessible to the Commission to use to pay for awards that
large so it won't hobble the office.
Mr. Rose. Thank you, and, Mr. Schwartz, has the--or, yes,
Mr. Schwartz. Has the CFTC's expired authorization since 2013
created perceptions of instability that discourage
international participants from listing products on the U.S.
exchanges?
Mr. Schwartz. Well, I think because of the nomenclature, it
probably does make certain people nervous. It certainly sounds
like the Commission is about to go out of business, or is more
than a decade overdue, so I agree with Commissioner Stump when
she said some other way of doing this, it would probably be
preferable.
Mr. Rose. Ms. Crighton, in what ways might foreign
regulators exploit the U.S. reauthorization gap to attract
swaps in futures volumes, such as through lighter-touch rules
on clearing or data reporting, thereby gaining derivatives
market share from American firms?
Ms. Crighton. Yes. Thank you. Look, I think we are well
regulated in every jurisdiction in which we operate, and we
think the system of substituted compliance and deference works
particularly well.
Mr. Rose. Thank you. My time is about to expire. I yield
back, Mr. Chairman.
Mr. Johnson. The chair threw both Mr. Harris and Mr. Rose
for a loop by taking them out of order. The chair begs their
indulgence and will provide them both a personalized tour of
the world's only corn palace as an apology gift.
[Laughter.]
Mr. Johnson. With that, Mr.----
Mr. Rose. I have already been.
[Laughter.]
Mr. Johnson. Yes, very good. Mr. Vindman, you are
recognized.
Mr. Vindman. Thank you, Mr. Chairman, and thank you to all
the witnesses for appearing here today.
So, the thing I hear most from the farmers in my district
is that input costs are too high. Costs for seed, fertilizer,
repair parts are, frankly, just too high. They have been high
for years, and that affects prices at the grocery store. So, my
question for each of you, and we can go in line starting from
Ms. Stump. I would like to ask each of you, what is the single
most important thing that this Committee can do to lower costs
for Americans at the grocery store?
Ms. Stump. Well, that one may be well beyond my expertise,
but I will say with regard specifically to the Commodity
Futures Trading Commission, I think your oversight is very
important to ensure that the markets continue to function in a
way that those input provide--those that service your farmers
are able to take advantage of the markets to manage their own
price risk.
Mr. Prosser. I think I mentioned earlier that the market
prices uncertainty negatively--and I think that the things that
the CFTC regulates and the derivative markets which it
oversees, particularly in the things that I deal with every
day--corn, beans, wheat--the things that we that--the food and
the fiber in the United States, providing certainty in the
regulatory environment, certainty for the participants in the
market would help.
Ms. Crighton. Thank you. I think to add on from my seat,
the focus on margin, particularly a well-calibrated margin
regime, is critically important for us to provide the services
that we need to--particularly, to the end-user community.
Mr. Schwartz. I will add that in the time of rising prices
because of reasons, it would be particularly unhelpful if there
were manipulation in the markets that you are describing. So, I
think ensuring that the CFTC is able to police effectively its
markets, be it the enforcement program or market surveillance,
I think that is the kind of thing that the agency can do, and I
think that is the capability that Congress should ensure that
it has.
Mr. Schiffrin. Yes. The CFTC needs to have adequate
resources and staffing to fulfill its core mission, and the
Committee needs to ensure that the CFTC's focus is its core
mission, which is ensuring that prices for commodities reflect
supply and demand, and not excessive speculation.
Mr. Vindman. Thank you, and I appreciate that. And I
appreciate your comment on predictability, Mr. Prosser,
because, frankly, I think one of the areas that we see a lack
of predictability is the tariff regime and the effect it is
having on farmers in my district and around the country, but I
do want to turn my attention briefly to prediction markets and
event market regulation. And my question is, are there any
topics, and I will start with Mr. Schwartz. Are there any
topics that are out of bounds? I mean, ultimately, some people
can certainly perceive these as bets on just about everything,
like, how many school shootings there might be. As we all know,
the President is both aged and infirm. People could be betting
on whether he is going to make it through his current term. Are
there things that are out of bounds for these markets?
Mr. Schwartz. Well, look, I wouldn't list those contracts
if I had a futures exchange. I think it would be helpful if the
CFTC has some direction from Congress on this score. It is a
delegation to examine topics like that, and if the CFTC is in
need of further direction on that point, then I think the
policy question has to come back to Congress to resolve.
Mr. Vindman. Mr. Schiffrin?
Mr. Schiffrin. I think there are--at least there should be,
right? If the statute says that event contracts on things like
gaming aren't permissible and the event contracts is listing a
bet on who's going to win the football game, it should be
pretty easy for the CFTC to say this is not the type of event
contract that is permissible. And when Congress was debating
Dodd-Frank, Senator Lincoln said exactly that. That is why the
language about gaming was included in the statutory
authorization because, otherwise, you would have people doing
event contracts on the Super Bowl. That is literally the
example that was given--one of the examples that was given, and
now here we are. And so, I think the CFTC needs to make it
clear that that is not appropriate.
Mr. Vindman. So, thank you for that, and, obviously, I
think this is meant to illustrate the fact that there are and
there should certainly be areas that are out of bounds for
these contracts. And we have talked about gambling, we have
talked about predictions on some terrible events, and we have a
role to play. So, thank you for that, and I yield back.
Mr. Johnson. Thank you, sir. Mr. Harris, you are
recognized.
Mr. Harris. Thank you, Mr. Chairman, and thank you to all
the panels for your presence and your expertise today.
As a pastor for the last 36 years, I know firsthand that
churches oftentimes operate with very limited administrative
resources. And for this reason, many churches and nonprofits
use common risk management tools, like swaps, to help manage
retirement plans and educational or charitable endowments,
providing long-term financial stability for these funds.
However, due to the broadened definitions of the Dodd-Frank Act
in 2010, these organizations, as you know, unexpectedly found
themselves swept into a regulatory category that was never
intended for them. And so, Mr. Schwartz, I just want to ask you
if you can take a moment to explain how Dodd-Frank's broad
definition of commodity pool unintentionally swept these
ministry and nonprofits into a Wall Street regulatory
framework.
Mr. Schwartz. Yes, sir. The definition of commodity pool
includes any collective investment vehicle. And so, if it were
pension plans and other entities that had an interest in the
pool like you are describing, it would be a collective
investment vehicle that includes any one of a series of
commodity interests. So, it is a low bar to clear for any
investment vehicle like you are describing, and that is how it
ended up in that category.
Mr. Harris. Okay. Thank you. Well, and the fact is, as I am
sure we can all agree, and as already mentioned when my
colleague from Indiana mentioned it earlier, church pension
plans and charitable endowments are not the same as Wall Street
hedge funds and were never intended to be affected by this law.
And, Commissioner Stump, during your time as a CFTC
Commissioner, did you ever recognize the tremendous burden and
uncertainty that these classifications were placing on
churches, their retirees, and other nonprofit organizations?
Ms. Stump. Yes. Actually, when Congress asked us to provide
assistance in designing refinements that might be necessary in
the context of reauthorization, I believe all of the
Commissioners, while we didn't vote on this, we agreed that
this was probably an unintended consequence of--and I would
just like to point out, again, regulating in the midst of a
crisis oftentimes results in these sorts of things. So, it is
best to manage these things outside of a time when we are
hurried.
Mr. Harris. Exactly, and prior to your time as a
Commissioner, the CFTC did issue a no-action letter in 2014
offering temporary relief for church pension plans and a 2017
no-action letter offering relief for university endowments, but
these letters, of course, can be revoked at any time. So, I
guess my question is, in your view, should faith-based
nonprofits, which operate on long-term stewardship models, be
forced to rely on temporary administrative relief instead of
having clear statutory certainty from Congress?
Ms. Stump. Oh, absolutely not. There should be--in the case
that no-action relief is a useful tool for the agency, it is
best if we can have Congress speak to correcting it, or have
the agency, and by that I mean their Commissioners' vote to
change it, but in this case, I do not believe the Commissioners
can vote to change it without an act of Congress.
Mr. Harris. Yes. Well, and I will say as Congress
undertakes the CFTC reauthorization, are there any specific--in
the last minute we have, specific recommendations that, really,
either you or Mr. Schwartz would be willing to offer us to
ensure that religious charities, church pension plans, and
other nonprofits are shielded from these regulatory
requirements that were never intended for them? Either of you.
Mr. Schwartz. You could either--I guess, two ways--put in a
carve-out from the definition of commodity pool, or you could
direct the Commission to issue rules and regulations to ensure
that that is the result that comes out of it.
Mr. Harris. Okay.
Ms. Stump. And I would expect that the agency would do so
very quickly because I am unaware of any Commissioner that has
felt that this was the intended result.
Mr. Harris. Excellent. Well, thank you very much, and, Mr.
Chairman, I yield back.
Mr. Johnson. Thank you very much. With that, Mr. Vasquez,
you are recognized.
Mr. Vasquez. Thank you so much, Mr. Chairman. Before I
begin my remarks, I would like to submit for the record a
statement from the Indian Gaming Association.
[The statement referred to is located on p. 108.]
Mr. Vasquez. I want to start by saying something that may
get overlooked in this issue, but when we talk about CFTC, we
are also dealing with Tribal sovereignty. I have seven
sovereign nations in my district. Some of them operate gaming
operations. For me, being here from southern New Mexico and the
Tribes that are in our district, including Mescalero, Akima,
[speaking native language] Laguna, Santa Ana, so many others,
they depend on us to uphold our trust and treaty obligations as
a nation to them, and that includes protecting the gaming
compacts that they negotiated with the U.S. Government in good
faith. Now, in New Mexico, Tribal gaming isn't just the
business for the Tribes. It is jobs for all New Mexicans,
provides for education, funds for housing. It is the foundation
of the economy for rural and Native American communities.
And when it comes to sports betting, the rules are simple.
In New Mexico, it only happens at Tribal casinos under Tribal,
Federal, and state regulation, with strong safeguards in place
to ensure tax revenue supports state and Tribal priorities,
prevents underage betting, and protects those who struggle with
gambling addiction. But now we are seeing that companies are
trying to get around those rules by calling sports bets
something else--event contracts or prediction markets--and they
are using the CFTC's process to do so. So, from where I sit and
from where New Mexico Tribes sit, bets on sports, regardless if
they happen inside the casino or not, should be treated and
regulated as sports betting.
Now, what worries me is that the CFTC allows these
companies to move forward unchecked, and we are going to end up
with unregulated and unsafe online sports betting that are
offered by unlicensed operators with none of the protections
the Tribes and the states have spent decades building and have
to follow. And the people who lose the most in my district are
those Tribes who have very little, if no other, economic means.
So, I want to dig into that, and, Mr. Schwartz, can you help me
understand why a contract on the outcome of a sporting event is
not considered gambling, and where do you draw that line?
Mr. Schwartz. It comes from the statutory definition of
swap that Congress passed in the Dodd-Frank Act. It was not
trying to be narrow or nuanced. This was coming out of the
financial crisis. It felt it important enough to give the CFTC
broad jurisdiction, but because there are not those kinds of
nuances in the definition, it would sweep in quite a lot. As I
mentioned before--I am not sure you were you were present for
it--the definition includes anything that is or in the future
becomes commonly known to the trade as a swap. And we have them
listed on designated contract markets offered by futures
commission merchants, cleared by derivatives clearing
organizations. If you look at the CFTC's product submission
webpage, you see all of the submissions on this subject, and
they are submitted as swap, swap, swap, swap, swap. So, I don't
have any doubt that they fit within that definition but that is
not the same thing as what the policy should be.
Mr. Vasquez. Sure. So, do you agree then that the intent,
essentially, of providing a product like this is akin to
gambling and should be regulated likewise?
Mr. Schwartz. I don't think I am the right person to answer
that question.
Mr. Vasquez. Why is that?
Mr. Schwartz. I prefer to leave policy to the policymakers.
Mr. Vasquez. Okay. Well, you are our issue expert, so the
policy experts can't make the policy without having your
expertise.
Mr. Schwartz. Yes, I am to provide whatever legal
assistance that I can.
[Laughter.]
Mr. Vasquez. Okay. Thank you so much. I appreciate it. One
other question, Mr. Schwartz. Do you believe that regulating
gambling is part of the CFTC's core mission? Is that something
that you feel the CFTC is doing today?
Mr. Schwartz. This is an old issue. It used to be illegal
in many or most states to trade futures contracts on corn or
wheat, and there is just a long-running debate on where the
line should be between gambling and derivatives trading. And
this is just the latest iteration of that, and I think the
policymakers should look at it through the same lens.
Mr. Vasquez. Thank you, Mr. Schwartz. I appreciate your
answers, and I will just end with this. If online sports
betting suddenly shifts into the CFTC's purview and the
traditional system for these types of activities get bypassed
along with Tribal compacts that the U.S. Government has made,
it is going to impact Tribal revenue, it is going to have an
impact on Tribal authority, and in New Mexico, that is a real
impact on our schools and our rural communities and those
casinos that depend on that revenue. So, this has a huge impact
on rural New Mexico, it has a huge impact on Tribes, and this
Committee has a responsibility to make sure that CFTC is
enforcing the laws as Congress has passed, obviously make sure
that we modify those that we understand are outside of the law.
And so, as we discuss reauthorization, I hope we are going to
continue to protect consumers and that we stand with all our
Tribes across the country and those in New Mexico. Thank you,
Mr. Chairman. I yield back.
Mr. Johnson. Thank you. Mr. Mann, you are recognized.
Mr. Mann. Thank you, Mr. Chairman, and thank to all of our
witnesses for being here today. Good to see you, Mr. Prosser. I
know we saw each other at the K State football game earlier
this fall.
Mr. Prosser. Go, Cats.
Mr. Mann. Precisely, yes.
[Laughter.]
Mr. Mann. He took the words out of my mouth. The CFTC plays
a critical role in today's economy, ensuring our markets
function as they should for farmers, ranchers, and ag
producers. In the big 1st District of Kansas and throughout the
country, these markets are essential risk management tools that
allow them to hedge a lot of uncertainty and secure prices in a
very volatile environment. The CFTC's oversight helps keep
those tools reliable and effective. However, as has been
mentioned many times, the agency has gone over 15 years without
a full reauthorization and it is way over past time to update
and reauthorize.
Just a handful of questions. Again, thank you all for being
here. First for you, Mr. Schwartz: commodity futures and swaps
markets are global markets. In fact, one of the largest
clearinghouses registered with the CFTC is located in London.
Can you speak to the importance for global regulators to be
able to coordinate, share information with, and learn from one
another as they surveil and regulate these markets?
Mr. Schwartz. Yes, you put your finger on it. These markets
are global, and things like systemic risk and wrongdoing don't
recognize international borders, but on the other hand, there
are differences in between the localities, right? They may have
different practices in one part of the world, there are
certainly different laws all over the world, and the CFTC's
jurisdiction is primarily domestic. So, it is absolutely
critical that they would be cooperating with foreign
regulators, and information sharing is inherent in that.
Mr. Mann. In your mind, would detailing staff to and from
foreign regulators, like the UK or EU, support the global
sharing of knowledge and experience and, ultimately, allow the
CFTC to best serve the markets that, at the end of the day,
helps Kansas and our ag farmers?
Mr. Schwartz. Yes. Having those kinds of perspectives at
the ready without having to engage in some kind of
international process would be, I would think, very helpful to
the agency, yes.
Mr. Mann. And at the end of the day that would help our ag
producers, right, I mean, which is which matters for these
markets.
Mr. Schwartz. Sure.
Mr. Mann. Thank you. Quick question for you, Ms. Crighton,
and good seeing you again. The protection of customer funds at
an FCM is one of the bedrock principles for futures
regulations. Can you briefly talk about how that process works
both day to day in the event of a bankruptcy, and what happens
if funds are held in a segregation account? If those funds are
insufficient, how are customers made whole?
Ms. Crighton. Sure. Nice to see you as well, and thank you
for the question. You are right. I think one of the most
important principles that we focus on as an FCM is our ability
to segregate assets and protect client assets. And when we
think about some of the newer structures that are being
proposed, these sort of direct clearing models, we have to take
a very careful look at how are assets protected in those new
structures. Customers move from being a customer of an FCM and
having those protections to being a counterparty to the
clearinghouse where, in the event of a bankruptcy, they become
a general creditor. And so, that is a very distinct difference
in those two models, and it is one that we have to pay careful
attention to.
And the customer protection regime is one that we focused
on quite heavily within the FTX discussion, right? When you
think of these new structures, what does that actually mean?
So, we segregate assets. We hold them into accounts designated
for the benefit of customers in the event that we were ever to
default. And if there was ever a shortage of assets in those
segregation funds, one of the things that we are looking for is
what we call the Griffin fix, and it is kind of cementing in
statute the prioritization of customers. In the event that
there were a shortage, they would be prioritized over other
general creditors of the FCM.
Mr. Mann. That is very helpful, though. Thank you. Last
question, entirely different direction, for you, Mr. Prosser.
In your testimony, you mentioned convergence and its importance
to the real-world work of moving ag commodities around the
planet. Can you speak to what convergence is and why that is
important to the work that Scoular does?
Mr. Prosser. The idea that, ultimately, these derivatives
derive their value from a real commodity, the things we make
food and fiber out of, is central to why they work as risk
mitigation tools. And this is why the Commission has a role to
play in physical markets because they do, as we come into
delivery, help us go to a benchmark price that reflects the
physical price of the commodities that these represent, and
because of that process, they become integral hedge tools for
producers as well as consumers.
Mr. Mann. Great. Yes. Well, thank you all for being here. I
yield back the balance of my 1 second, Mr. Chairman. Thank you.
[Laughter.]
Mr. Johnson. Very good. Thank you, Mr. Mann. Ms. Budzinski,
you are recognized.
Ms. Budzinski. Thank you, Mr. Chairman. Thank you, Ranking
Member. I appreciate all the witnesses' time today for this
important discussion on reauthorizing the Commodity Futures
Trading Commission.
I represent a district in central and southern Illinois. I
come to this hearing really with a clear priority, which is
making sure our derivatives markets continue to serve the real
economy, especially the farmers, grain handlers, biofuel
producers, and cooperatives who rely on these markets every
single day. For producers in my district, futures markets are
not abstract financial tools. They are lifelines, risk
management tools that help determine whether a family farm
survives in a volatile season like we have right now, whether a
grain elevator can offer competitive bids, and whether rural
communities can count on stable economic conditions.
Right now, we are asking the Commodity Futures Trading
Commission to do more than ever at a time when it has less
capacity than ever. The agency has just one sitting
Commissioner and four vacancies, an unprecedented situation for
a regulator overseeing trillions of dollars in market activity.
As the Commodity Futures Trading Commission is asked to keep up
with rapid changes in technology, data systems, digital assets,
and increasingly complex clearing operations, I support
responsible innovation, but we have to be honest about the
tradeoffs. If growing responsibilities aren't matched with real
resources, we risk weakening oversight where it matters most
for my district: our agricultural markets. So, as we move
forward with this reauthorization, my hope is simple: that we
give the Commodity Futures Trading Commission the tools and
resources it needs to keep up with today's markets, and that we
never lose sight of the farmers and rural businesses who rely
on these markets every day to manage real-world risks. Central
and southern Illinois helps feed and fuel this country, and our
producers deserve strong, modern, and well-regulated markets
that put their needs first.
I appreciate our witnesses being here today, and again, I
have a couple of questions. First, I wanted to direct to Ms.
Crighton, and my question for you is, as margin and collateral
requirements continue to evolve, how can reauthorization
promote stability and sound risk management while also
accounting for the liquidity constraints faced by smaller
agricultural firms?
Ms. Crighton. Thank you for the question.
Ms. Budzinski. Yes.
Ms. Crighton. I am going to separate those things a bit,
and I think referencing Commissioner Stump, I think the CFTC
has the ability to act and engage with us on margin now.
Ms. Budzinski. Yes.
Ms. Crighton. And I will say kind of parallel to that is,
it is incredibly important to reauthorize, right? But kind of
specifically on your question on margin, it serves as what we
think of as the first line of defense. It is the capital, it is
the collateral that sits with the FCM to mitigate a risk issue,
to be the protections for the ecosystem in the event of a
default. And when margin levels go too low and then we hit a
period of real stress, what we find is an incredible stress and
strain on the system where customers, end-users have to quickly
source cash, which can have a broader destabilizing effect.
Ms. Budzinski. Yes.
Ms. Crighton. So, as margin levels continue to drift lower,
one of the things that we think is most important is we think
about recalibrating what those margin levels are so they don't
drift so low. And if you have the ability for kind of more
healthy projections, you have the ability to then source more
stable funding so you are not looking at sourcing additional
cash when everyone else is and cash is just more expensive.
Ms. Budzinski. Right.
Ms. Crighton. So, I don't think it is necessarily intuitive
when we say higher or stronger margins. A more robust margin
regime is one of the right answers, but we think it is because
it gives that stability and durability of funding, and so you
are not raising your costs when you really don't want to.
Ms. Budzinski. Okay. Thank you for that, and I am going to
squeeze in maybe one more question. Mr. Schiffrin, what
improvements to transparency do you think Congress can or
should prioritize in this reauthorization to better support
commercial end-users' understanding of market conditions and
risk?
Mr. Schiffrin. Thank you for the question.
Ms. Budzinski. Yes.
Mr. Schiffrin. Well, I think that if the CFTC is going to
take on newfound responsibilities in emerging markets, it needs
to make sure that investors in those new and emerging markets
have the disclosures that they need to understand the risks.
Ms. Budzinski. Yes.
Mr. Schiffrin. So, when you are talking about things like
24/7 trading or prediction markets or perpetual futures, those
are new and novel products that have new and novel risks, at
the Commission we should make sure that investors have the
disclosures that they need to understand those products.
Ms. Budzinski. Is there anything specifically that you
might recommend that in the reauthorization that we should be
doing to get to that just to communicate more around the risks
around some of these emerging markets?
Mr. Schiffrin. Nothing comes to mind specifically, but I am
happy to work with your office and get back to you on that.
[Laughter.]
Ms. Budzinski. Okay. Thank you. Thank you. I will yield
back.
Mr. Prosser. There are opportunities for the Commission to
publish data about the market participants, who's buying, who's
selling, and the cadence at which they do that, and we would
encourage that to become more frequent.
Ms. Budzinski. Thank you for that. Thanks.
Mr. Johnson. Mr. Taylor from Ohio, your 5 minutes.
Mr. Taylor. Thank you, Mr. Chairman, and thank you, Ranking
Member, for holding this hearing today, and thank you to the
witnesses for your time and expertise. And the sacrifices you
make to be here don't unnoticed, and we appreciate it.
Mr. Schwartz, the definition of swap is rooted in a broad
statutory definition passed as part of the Dodd-Frank Act,
which was further defined by the CFTC and the SEC. What are
some of the possible consequences of poorly considered efforts
to narrow the definition of a swap?
Mr. Schwartz. Well, if it were narrowed too far, and
financial innovation oftentimes includes regulatory avoidance,
you could get into a situation where the CFTC didn't have
jurisdiction that it needed. You could have systemic risk
problems. You could have anti-fraud, anti-manipulation
problems. So, that is something that Congress and the CFTC need
to consider very, very carefully.
Mr. Taylor. Okay. Thank you, and staying with you, Mr.
Schwartz, it is my understanding that the Environmental and
Energy Markets Advisory Committee was created by the Commodity
Exchange Act, while the other four advisory committees were
created by the CFTC, pursuant to the Federal Advisory
Committees Act (Pub. L. 92-463). Despite all being advisory
committees, because EEMAC was created in a different way, EEMAC
is subject to different rules. How does administering the
advisory committees according to two different sets of rules
unnecessarily complicate agency operations, and can you talk
more about some of the differences between the rules?
Mr. Schwartz. Sure. Thank you. It is an administrative
burden. There is, I can tell you, one expert in the Federal
Advisory Committee Act in the Office of the General Counsel.
She spends probably more than 50 percent of her time on this,
and there are two sets of rules. It doesn't need to be so. I
mean, some of the differences under the FACA, you have to
submit various reports, documents, charters for approval by
GSA. You don't have to do that for the EEMAC because it is
exempt from the FACA. It is created differently. There are
different rules as far as number of members from each
committee. I don't know that there is justification that
anybody sat down and thought about before they made two
different sets of rules. It would just be easier to process if
there were one set of rules for everyone.
Mr. Taylor. Okay. I appreciate your perspective on that. As
we work to reauthorize the CFTC, we have the opportunity to
make improvements to ensure maximum efficiency toward its
mission, to promote the integrity, resilience, and vibrancy of
the U.S. derivative markets. One area, as Mr. Schwartz spoke
about, where I think we can make an improvement is streamlining
the advisory committee structure so all advisory committees
operate equally. By all counts, the advisory committees serve a
great purpose and provide great insight to the Commission, and
it doesn't make sense that we have one advisory committee
operating with different rules. To fix this, I will be
introducing the CFTC Advisory Committee Improvement Act of 2025
(H.R. 6899), which will eliminate the single authorization for
EEMAC and replace it with a generic authorization for all
advisory committees. I know in D.C. we like to make things
complicated sometimes, but I think by standardizing the
operating structures, we can make things better for the
American people. I look forward to continuing to work with my
colleagues on the CFTC authorization, and I am going to let you
guys off a minute-and-a-half early. I yield back.
Mr. Johnson. Very good. Thank you, Mr. Taylor. Mr. Davis,
any closing comments for the record?
Mr. Davis of North Carolina. Thank you, Mr. Chairman. Of
course, when we talk about today's hearing, we have heard from
some amazing witnesses on many issues and challenges
confronting the CFTC, Mr. Chairman, and we have received
several statements from the American Gaming Association, Indian
Gaming Association, the NFL, all around the issue of event
contracts on sporting events, and ask for unanimous consent for
these statements to be entered into the record so that they
could be shared with Members.
[The documents referred to are located on p. 103.]
Mr. Johnson. Anything else, sir?
Mr. Davis of North Carolina. Yes. And last, I just want to
thank you again and thank our witnesses.
Mr. Johnson. A couple of our witnesses noted the strong
tradition of nonpartisan decision-making at the Commission. Of
course, we expect that at the staff level, but that has also
been true at the Commissioner level, just really good technical
expertise. I think we have also seen that spirit of non- and
bipartisanship today as people talk about the importance of the
CFTC. We have had words used by our witnesses and by Members--
nimble, innovative, effective--and that is really why
reauthorization is so incredibly important. If we want to
continue to have this be the best little regulator that America
has never heard of, as Mr. Schwartz said, continue to be a
leading example of a quality, principles-based regulation, then
Congress better do our gosh darn job, and I think today was a
really, really good additional step toward that goal.
With that, under the Rules of the Committee, of course the
record is going to remain open for 10 days so our witnesses and
Members can augment the record.
And unless anyone else has anything pressing, the hearing
on this Committee on Agriculture is now closed. Thanks.
[Whereupon, at 12:35 p.m., the Committee was adjourned.]
[Material submitted for inclusion in the record follows:]
Submitted Letter by Hon. Doug LaMalfa, a Representative in Congress
from California; on Behalf of Hon. Kenneth Kahn, Chairman, Santa Ynez
Band of Chumash Indians
December 11, 2025
Re: CFTC Reauthorization/``Event Contracts'' That Function as Sports
Wagering or Casino-Style Gaming
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Santa Ynez Band of Chumash Indians (``Chumash
Tribe'' or ``Tribe''), thank you for the opportunity to submit this
statement for the record as the Committee considers reauthorization of
the Commodity Futures Trading Commission (CFTC) and potential
amendments to the Commodity Exchange Act (CEA).
The Santa Ynez Band of Chumash Indians operates the Chumash Casino
Resort, a full Class III Tribal gaming facility offering a broad mix of
Las Vegas-style gaming. Guests can play more than 2,300 slot machines,
including video poker and progressive titles, alongside over 45 table
games such as blackjack, baccarat, roulette, and poker. The one thing
you will not find at our resort is a sports book as over 80% of
California voters opposed such a proposition in 2022.
The Tribe supports well-regulated derivatives markets that serve
legitimate commercial and risk-management purposes. However, we write
to express serious concern about the increasing effort by certain
vendors to use the CEA to facilitate sports wagering and other gaming-
like products through so-called ``event contracts.'' Without clear
statutory barriers, these instruments risk becoming a federally enabled
pathway for betting activity that directly conflicts with Tribal
interests, Tribal-state compacts, and long-settled Federal policy
governing gaming.
The CFTC Is Not a Sports Wagering Regulator and Is Unfamiliar with
Gaming Oversight
Sports wagering and casino-style games are not simply ``another
financial product category.'' They involve unique issues of integrity
monitoring, suspicious wagering detection, responsible gaming
safeguards, consumer harm risks, age and location controls, and the
close relationship between wagering and underlying contests. These are
specialized regulatory domains that have historically been handled
through state gaming regulators and, in Indian Country, through the
Federal and compacting framework that respects Tribal sovereignty.
The CFTC's expertise is in derivatives markets--market structure,
clearing, manipulation, and risk transfer--not in the operational
realities of sports books, gaming compliance, or the public policy
tradeoffs that states and Tribes have navigated for decades. The Tribe
is concerned that, absent explicit direction from Congress, the CFTC
will be placed in the untenable position of approving or allowing
products that function as gaming, without the institutional tools,
experience, or framework to regulate them as gaming.
Without Congressional Barriers, Vendors Will Innovate Toward Casino-
Style Products
The Tribe is particularly concerned that vendors such as Kalshi and
others will continue to design contracts that, while styled as
``events'' or ``derivatives,'' will increasingly mimic casino-style
games in their structure and consumer experience.
That evolution is predictable. If a platform can successfully offer
contracts that resemble bets on athletic outcomes, the commercial
incentives will naturally push toward:
high-frequency, short-duration contracts resembling in-play
wagering;
``prop-style'' contracts that resemble parlays or other
consumer betting formats; and
contract structures that imitate games of chance or casino-
style gameplay mechanics through rapid resolution and repeated
participation.
In practice, this would allow gambling-like activity to scale
nationwide under a commodities-law label, bypassing the licensing,
enforcement, and public interest protections that states and Tribes
rely upon--and undermining Tribal gaming operations that fund essential
governmental services.
Requested Action: Amend the CEA To Draw a Bright Line
The Chumash Tribe respectfully urges the Committee to amend the CEA
to make clear that the CFTC should not approve, permit, or otherwise
facilitate contracts that constitute sports wagering or casino-style
gaming, including products whose predominant purpose and practical
effect is consumer betting rather than bona fide risk management.
Specifically, the Tribe recommends Congress:
1. Define and exclude sports wagering and casino-style gaming
(including substantially similar products) from CFTC-
authorized instruments, regardless of labeling.
2. Direct the CFTC to treat sports- and casino-style event contracts
as ``contrary to the public interest,'' and therefore not
permissible under the CEA.
Conclusion
Tribal governments have built gaming enterprises within a carefully
balanced legal framework that respects sovereignty and state policy
choices, and that supports critical governmental services for our
communities. The Tribe strongly encourages Congress to ensure that CFTC
reauthorization does not inadvertently create a Federal on-ramp for
sports betting or casino-style gaming through the derivatives laws.
Thank you for your consideration.
Respectfully submitted,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Kenneth Kahn,
Chairman,
Santa Ynez Band of Chumash Indians.
______
Submitted Statements by Hon. Doug LaMalfa, a Representative in Congress
from California; on Behalf of:
Statement 1
hon. rodney a. butler, chairman, mashantucket pequot tribal nation
Reauthorization of the Commodity Futures Trading Commission
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Mashantucket Pequot Tribal Nation (MPTN), thank
you for the opportunity to submit this statement for the record as the
Committee considers reauthorization of the Commodity Futures Trading
Commission (CFTC) and potential amendments to the Commodity Exchange
Act (CEA).
MPTN supports well-regulated derivatives markets that serve
legitimate commercial and risk-management purposes. However, we are
deeply concerned that the CEA is increasingly being invoked as a
vehicle to facilitate widespread sports wagering--and potentially
casino-style gaming--through products marketed as ``event contracts''
or similar financial instruments. These developments threaten Tribal
sovereignty and undermine Connecticut's carefully negotiated gaming
framework with federally recognized Indian Tribes.
MPTN is a federally recognized Indian Tribe with inherent sovereign
authority and substantial governmental and economic interests in
Connecticut. MPTN operates gaming facilities pursuant to the Indian
Gaming Regulatory Act (IGRA) and long-standing agreements with the
State of Connecticut. Revenue from these operations funds essential
governmental services, including public safety, education, health care,
housing, infrastructure, and cultural preservation for the Mashantucket
Pequot people.
Connecticut's Gaming System Is Built on Tribal-State Agreements
Connecticut's gaming framework is unique and deliberate. For
decades, gaming in the state has been governed by negotiated agreements
between the state and two federally recognized Tribes--MPTN and the
Mohegan Tribe. These agreements reflect a carefully balanced exchange
of rights and obligations, under which Tribal gaming exclusivity has
generated substantial and consistent revenue for the state while
supporting Tribal sovereignty, self-determination and economic
stability.
In recent years, Connecticut has expanded lawful gaming to include
sports wagering and online gaming--but only through legislation that
reaffirmed the central role of the Tribes and subjected all such
activity outside Tribal lands to strict regulatory oversight by the
Connecticut Department of Consumer Protection. Tribal gaming operators
remain subject to extensive licensing, integrity monitoring, consumer
protections, responsible gaming requirements, and age and geolocation
controls.
This system reflects clear policy choices by the state and the
Tribes, and it depends on respect for the Tribal-state agreements that
underpin it.
Event Contracts Threaten to Undermine Connecticut Law and Tribal
Agreements
MPTN is increasingly concerned that sports-related ``event
contracts'' offered by vendors such as Kalshi and Crypto.com threaten
to bypass Connecticut's gaming laws and negotiated agreements entirely.
Although these vendors assert that their products are financial
instruments governed by the CEA, in practice the products function as
sports bets--allowing consumers to wager money on the outcomes of
sporting events with no connection to bona fide hedging or commercial
risk management.
These products directly compete with lawful Tribal gaming
operations in Connecticut while avoiding the regulatory obligations set
by state and Tribal regulators and longstanding agreements between the
state and the Tribes. Event contracts are being marketed to Connecticut
residents, including on Tribal lands, without authorization from state
or Tribal regulators and without regard to the Tribal-state framework
that governs gaming in the state.
Allowing gambling-like products to operate nationwide under the CEA
erodes the value of the Tribal exclusivity commitments that Connecticut
and the Tribes have relied upon for decades and destabilizes a system
that has worked for both the state and the Tribes.
The CFTC Is Not a Gaming Regulator and Should Not Override State-Tribal
Policy Choices
The CFTC's mission and expertise center on derivatives market
integrity, clearing, and enforcement against fraud and manipulation.
The Commission is not designed or equipped to regulate sports wagering
or casino-style gaming, which raise distinct public-interest concerns,
including consumer protection, wagering integrity, responsible gaming,
and respect for state and Tribal sovereignty.
In Connecticut, those responsibilities are addressed through
Tribal-state agreements, state law, and gaming regulators--not Federal
commodities law. Allowing gambling-like products to proceed under the
CEA risks transforming the CFTC into a de facto national gambling
regulator and displacing Connecticut's carefully negotiated gaming
system without Congressional authorization.
Such an outcome would undermine IGRA, erode Tribal-state
agreements, and weaken a framework Congress has long recognized as
essential to Tribal self-determination and economic development.
Without Clear Limits, Event Contracts Will Continue to Expand Toward
Casino-Style Gaming
MPTN urges the Committee to recognize the strong commercial
incentives driving these products. If sports-style event contracts are
permitted to scale under the CEA, vendors will predictably design
offerings that increasingly resemble casino-style gaming--short-
duration outcomes, rapid repeat play, and wagering mechanics
indistinguishable from regulated sports betting.
Without clear statutory boundaries, these products will proliferate
in Connecticut outside of state and Tribal oversight, undermining
regulatory authority and Tribal revenues that support essential
governmental services.
Requested Congressional Action: Draw a Bright Line in the Commodity
Exchange Act
MPTN respectfully urges the Committee to include in any CFTC
reauthorization legislation targeted amendments to the CEA that:
Clarify that the CFTC may not approve, permit, or otherwise
facilitate contracts that constitute sports wagering, including
contracts whose predominant purpose and practical effect is
consumer betting rather than bona fide hedging or commercial
risk management.
Prohibit event contracts and similar instruments that
function as casino-style games or otherwise replicate gambling
mechanics, regardless of how such products are labeled or
marketed.
Conclusion
MPTN appreciates the Committee's leadership in overseeing the
nation's derivatives markets. Modernization, however, must not come at
the expense of Connecticut's Tribal-state gaming framework, Tribal
sovereignty, or the integrity of negotiated agreements that have served
the state and the Tribes for decades. We urge Congress to act now to
ensure that the CEA does not become a Federal workaround for sports
betting and casino-style gaming--activities that directly conflict with
Connecticut law and undermine Tribal self-determination.
Thank you for the opportunity to submit this statement for the
record.
Statement 2
hon. austin lowes, chairman, sault ste. marie tribe of chippewa indians
Reauthorization of the Commodity Futures Trading Commission
On behalf of the Sault Ste. Marie Tribe of Chippewa Indians, I urge
the Committee to oppose unlicensed and unregulated sports betting being
offered under the guise of ``event contracts'' under the Commodity
Exchange Act. These products function as sports wagering, yet are
designed to evade Michigan law and the Tribal-state gaming compacts
that protect consumers, uphold Tribal sovereignty, and fund essential
public services. Allowing them to proliferate would directly undermine
the Tribe's gaming operations, disrupt Michigan's carefully regulated
gaming system, and weaken long-standing cooperative agreements between
the state and Tribal Nations.
If unchecked, these platforms will siphon revenue from regulated
Tribal and state gaming, provide no support for problem-gambling
prevention, and expose Michigan residents--including those on Tribal
lands--to gambling without meaningful oversight or safeguards. The CFTC
is not a gaming regulator, and the Commodity Exchange Act should not be
used as a backdoor to impose nationwide sports betting at the expense
of Tribal Nations and states. We respectfully urge the Committee to
reaffirm that gambling regulation belongs to states and Tribal
governments--not Federal commodities law.
Statement 3
mark macarro, chairman, pechanga band of indians
Reauthorization of the Commodity Futures Trading Commission
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Pechanga Band of Indians, thank you for the
opportunity to submit this statement for the record as the Committee
considers reauthorization of the Commodity Futures Trading Commission
(CFTC) and potential amendments to the Commodity Exchange Act (CEA).
The Pechanga Band supports well-regulated derivatives markets that
serve legitimate commercial and risk-management purposes. However, we
are deeply concerned that the Commodity Exchange Act is increasingly
being invoked as a vehicle to facilitate widespread sports wagering--
and potentially casino-style gaming--through products marketed as
``event contracts'' or similar financial instruments. These
developments threaten Tribal sovereignty and undermine California's
voter-approved gaming framework.
The Pechanga Band of Indians is a federally recognized Indian Tribe
with inherent sovereign authority and substantial governmental and
economic interests in California, employing nearly 5,000 people and
generating an economic impact of over $1.1 billion for the State of
California. The Tribe operates a gaming facility pursuant to the Indian
Gaming Regulatory Act (IGRA) and Tribal-state compacts with the State
of California. Revenues generated from these operations fund essential
governmental services, including public safety, education, health care,
housing, infrastructure, and cultural preservation for our citizens.
California's Gaming Framework Is Voter-Approved and Constitutionally
Grounded
California's gaming system is distinct and deliberate. Tribal
gaming in the state is grounded in the California Constitution and
repeatedly reaffirmed by California voters. Through ballot initiatives
and the compacting process under IGRA, voters and policymakers have
made clear choices about where, how, and by whom gaming may occur in
California.
Under this framework, Class III gaming--including casino-style
gaming and sports wagering--is permitted only pursuant to Tribal-state
compacts approved by the Legislature and the Governor, and subject to
rigorous oversight. This system reflects a careful balance between
Tribal sovereignty, state interests, and public accountability. It has
provided regulatory certainty, strong consumer protections, and
critical economic support for Tribal governments across California.
Event Contracts Circumvent California Law and Voter Intent
The Pechanga Band is increasingly concerned that sports-related
``event contracts'' offered by vendors such as Kalshi and Crypto.com
are bypassing California's constitutional and statutory gaming
framework altogether. Although these vendors claim their products are
financial instruments governed by the CEA, in practice the products
function and are advertised as sports bets--enabling gambling on the
outcomes of sporting events with no connection to bona fide hedging or
commercial risk management.
These gaming products directly conflict with California law and
voter intent. They compete with lawful Tribal gaming operations that
are subject to strict regulatory oversight and public accountability.
These unregulated gaming contracts are being marketed to California
residents--including on Tribal lands--without approval from the state,
without voter authorization, and without regard to Tribal-state compact
obligations.
Allowing sports betting to operate nationwide under the CEA is an
affront to states' rights. It effectively circumvents California's
constitutional framework and nullifies the choices California voters
have repeatedly made regarding gaming.
The CFTC Is Not a Gaming Regulator and Should Not Set Gambling Policy
for California
The CFTC's expertise lies in regulating derivatives markets to
ensure market integrity and protect against fraud and manipulation. It
was never designed or equipped to regulate sports wagering or casino-
style gaming, which raise distinct public-interest concerns, including
consumer protection, wagering integrity, responsible gaming, and
respect for state and Tribal sovereignty.
In California, those responsibilities are addressed through the
IGRA framework, Tribal-state compacts, and state constitutional
processes--not Federal commodities law. Allowing sports betting
products to proceed under the CEA would transform the CFTC into a de
facto national gambling regulator and displacing California's voter-
approved system without Congressional authorization.
Such an outcome would undermine IGRA, erode Tribal-state compacts,
and weaken a framework Congress has long recognized as essential to
Tribal self-determination and economic development.
Without Clear Limits, Event Contracts Will Continue To Evolve Toward
Casino-Style Gaming
The Pechanga Band urges the Committee to recognize the strong
commercial incentives driving these products. If sports-style event
contracts are permitted to scale under the CEA, vendors will
predictably design offerings that increasingly resemble casino-style
gaming--short-duration outcomes, rapid repeat play, and wagering
mechanics indistinguishable from regulated sports betting. In fact,
recent news reports indicate Kalshi has recently launched ``combos,'' a
version of the popular and profitable parlays offered by regulated
sports book operators.
Without clear statutory boundaries, these products will proliferate
in California outside of voter approval, state oversight, and Tribal
gaming regulation.
Requested Congressional Action: Draw a Bright Line in the Commodity
Exchange Act
The Pechanga Band of Indians respectfully urges the Committee to
include in any CFTC reauthorization legislation targeted amendments to
the Commodity Exchange Act that:
Clarify that the CFTC may not approve, permit, or otherwise
facilitate contracts that constitute sports wagering, including
contracts whose predominant purpose and practical effect is
consumer betting rather than bona fide hedging or commercial
risk management.
Prohibit event contracts and similar instruments that
function as casino-style games or otherwise replicate gambling
mechanics, regardless of how such products are labeled or
marketed.
Conclusion
The Pechanga Band of Indians appreciates the Committee's leadership
in overseeing the nation's derivatives markets. Modernization, however,
must not come at the expense of California's Constitution, voter-
approved gaming policies, or Tribal sovereignty.
We urge Congress to act now to ensure that the Commodity Exchange
Act does not become a Federal workaround for online sports betting and
internet casinos--undermining both state sovereignty and the economic
foundations of Tribal governments.
Thank you for the opportunity to submit this statement for the
record.
Statement 4
hon. charles martin, tribal chairman, morongo band of mission indians
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Morongo Band of Mission Indians (``Morongo'' or
``Tribe''), thank you for the opportunity to submit this statement for
the record in connection with the Committee's work to reauthorize the
Commodity Futures Trading Commission (CFTC) and consider potential
amendments to the Commodity Exchange Act (CEA).
The Morongo Band of Mission Indians operates Morongo Casino Resort
& Spa and Casino Morongo, offering extensive Class III gaming with
thousands of slots, a wide range of table games (including blackjack,
baccarat, roulette, craps, pai gow, and proprietary poker variants), a
large poker room, and bingo. However, Morongo does not operate a retail
sportsbook because sports wagering remains illegal in California after
voters rejected 2022 ballot measures (Propositions 26 and 27) that
would have authorized sports betting at Tribal casinos and online
statewide.
Morongo supports well-regulated derivatives markets that serve
legitimate commercial purposes--especially those that allow producers,
businesses, and market participants to manage risk. At the same time,
Morongo is deeply concerned by efforts to use the CEA to facilitate or
expand sports betting and casino-style wagering through so-called
``event contracts'' or other instruments that function in practice as
gambling. Whatever label is applied, these products resemble and
operate as wagering on the outcome of athletic contests or games of
chance--not traditional hedging or risk-management tools.
For Tribal governments, these developments are not academic. Tribal
gaming is a cornerstone of Tribal economic development and governmental
self-determination. It supports essential governmental services such as
public safety, healthcare, housing, education, and infrastructure.
Tribal gaming is also governed by a carefully balanced framework of
Federal law and Tribal-state compacts that reflect state policy choices
and respect Tribal sovereignty. Allowing sports wagering or casino-
style gambling to proliferate nationwide under the guise of commodities
regulation threatens that balance, undermines compacting, and risks
preempting state and Tribal regulatory structures that Congress has
long recognized as central to gaming policy.
Morongo respectfully urges the Committee to amend the CEA to
provide clear statutory direction that the CFTC should not approve,
permit, or otherwise facilitate contracts or instruments that
constitute betting on sporting events or casino-style games.
Specifically, Morongo encourages Congress to:
1. Clarify that ``gaming'' and ``sports wagering'' are outside the
proper scope of CFTC-regulated derivatives when the
product's predominant purpose and practical effect is
consumer wagering rather than bona fide hedging or
commercial risk transfer.
2. Direct the CFTC to treat event contracts tied to sporting events,
athletic performance, or casino-style games as contrary to
the public interest, including because they conflict with
long-standing Federal policy respecting state and Tribal
authority over gaming.
3. Prevent Federal preemption of state and Tribal gaming policy
through CEA mechanisms, including by ensuring the CFTC
cannot use self-certification processes or other procedural
paths to enable markets that replicate sports books or
online casino products.
4. Protect Tribal sovereignty and the Federal Tribal-state
compacting framework by requiring that the CFTC's
determinations explicitly account for impacts to Tribes and
to state-Tribal compacts whenever proposed products
implicate gaming-like activity.
Morongo recognizes that Congress may consider expanding or refining
the CFTC's authority in other contexts. But any reauthorization should
strengthen the Commission's ability to police manipulation, fraud, and
market abuse in legitimate derivatives markets--not create a pathway to
nationalize sports betting or casino-style gambling through Federal
commodities law.
For these reasons, Morongo respectfully requests that the Committee
incorporate into its reauthorization package targeted amendments to the
CEA that draw a bright line between legitimate derivatives and gambling
products--and that reaffirm Congress's intent that gaming remains
regulated through the appropriate Federal, state, and Tribal
frameworks, not through the CFTC.
Thank you for your consideration.
Respectfully submitted,
Charles Martin,
Tribal Chairman,
Morongo Band of Mission Indians.
Statement 5
james siva, chairman, california nations indian gaming association
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
My name is James Siva, and I serve as Chairman of the California
Nations Indian Gaming Association (CNIGA), which represents 57
federally recognized Tribal governments in California. Thank you for
the opportunity to provide testimony regarding our perspective on the
reauthorization of the Commodity Futures Trading Commission (CFTC).
This is a timely matter: Congress urgently needs to conduct
oversight of the CFTC and revise its authorizing statute. Why? For
nearly a year the CFTC has failed to exercise its authority to halt
actions which clearly violate the letter and spirit of the Commodity
Exchange Act (CEA) and CFTC regulations, and in so doing allowed
private actors to violate the sovereignty of Tribal nations in
California and across the country.
I am referring to the proliferation of so-called prediction markets
operating under the guise of ``sports event contracts.'' In fact, these
contracts are nothing more than a clever ruse to conduct illegal sports
betting across the nation. This includes gaming on Tribal lands, which
is a violation of the Indian Gaming Regulatory Act.
If the CFTC cannot or will not act to halt this illegal activity,
Congress must do so.
Congress and CFTC Regulations Explicitly Rejected Sports Event Futures
as Gambling
The intent of Congress in enacting the Commodity Exchange Act, and
the CFTC in its implementing regulations, was to exclude gaming in
CFTC-regulated markets. This was made explicitly clear during debate on
the most recent modernization of the CEA in 2010, when the then-Senate
Agriculture Committee Chairman stated \1\ * the purpose of Sec. 745 \2\
of the bill, identifying ``gaming'', and other contracts as not in the
public interest:
---------------------------------------------------------------------------
\1\ 156 Cong. Rec. S5[09]6 (daily ed. July 15, 2010).
* Editor's note: references annotated with are retained in
Committee file.
\2\ 7 U.S.C. 7a-2(c)(5)(C).
``. . . I maintained this provision in the conference report
to assure that the Commission has the power to prevent the
creation of futures and swaps markets that would allow citizens
to profit from devastating events and also prevent gambling
through futures markets.
``The Commission needs the power to, and should, prevent
derivatives contracts that are contrary to the public interest
because they exist predominantly to enable gambling through
supposed `event contracts.' It would be quite easy to construct
an `event contract' around sporting events such as the Super
Bowl, the Kentucky Derby, and Masters Golf Tournament. These
types of contracts would not serve any real commercial purpose.
Rather, they would be used solely for gambling.''
The CFTC acted on this direction from Congress in developing its
implementing regulations,\3\ which explicitly prohibit contracts
involving gaming:
---------------------------------------------------------------------------
\3\ 17 CFR 40.11.
(a) Prohibition. A registered entity shall not list for
trading or accept for clearing on or through the registered
---------------------------------------------------------------------------
entity any of the following:
(1) An agreement, contract, transaction, or swap
based upon an excluded commodity, as defined in Section
1a(19)(iv) of the Act, that involves, relates to, or
references terrorism, assassination, war, gaming, or an
activity that is unlawful under any state or Federal
law;
Years ago, Congress and the CFTC itself acted to ensure that
futures markets would not be become a sports betting loophole, yet
today prediction markets brazenly flout this law with impunity.
Prediction Markets Are Operating Illegal Online Sports Betting
Despite a clear regulatory prohibition and direction from Congress,
online platforms registered with the CFTC as Designated Contract
Markets (DCM) are currently offering online sports betting while
asserting that sports event contracts are somehow legitimate futures.
These sports event contracts are gaming in every sense of the word and
are advertised as such by the operators. However, they lack the robust
safeguards required by state, Tribal, and Federal law, and conceal that
in these prediction markets, the platform also often acts as the house
by taking the other side of consumers' bets.
Prediction markets claim to Congress, the CFTC, and courts that
sports bets are simply event futures contracts; however, their own
advertising \4\ describes such contracts as legalized sports betting in
all 50 states. In countless instances, these entities advertise their
products to consumers as ``legal betting'', including describing their
offerings as legal in states which currently prohibit all forms of
sports betting.
---------------------------------------------------------------------------
\4\ Source: Dustin Gouker, Ten Times Kalshi Said People Could Bet
On Things, Event Horizon, https://nexteventhorizon.substack.com/p/ten-
times-kalshi-said-people-could (last accessed December 16, 2025).
---------------------------------------------------------------------------
One advertisement by prediction market Kalshi claims it is ``The
First Nationwide Legal Sports Betting Platform'',\5\ a frequent theme
in prediction market advertising:
---------------------------------------------------------------------------
\5\ Source: https://nexteventhorizon.substack.com/p/ten-times-
kalshi-said-people-could (last accessed December 16, 2025).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The same prediction market also ran advertisements during the
annual college basketball tournament in California--where all sports
betting is illegal--urging viewers to ``Make $ on March Madness'' and
claimed to be ``Legal in California''. Prediction markets are
intentionally misleading consumers to believe that they are conducting
legal gaming activities. It is clear from prediction markets'
advertising that consumers are intended to view these sport event
futures contracts as gaming.
The hypocrisy is stunning. While spending millions to advertise
``legalized sports betting in all 50 states,'' prediction markets
simultaneously argue that state and Tribal gaming laws do not apply to
them.
Prediction market sports event futures lack virtually all of the
core safeguards required by state and Tribal law. Unlike licensed
sportsbooks, prediction markets actively seek to avoid compliance with
state gaming laws, do not operate pursuant to Tribal-state compacts,
and frequently lack mandatory age-verification, responsible-gaming
programs, advertising restrictions, and problem-gaming funding
requirements. Legal gaming systems also impose integrity monitoring,
data-sharing with leagues and regulators, limits on bet types, and
robust consumer-protection standards, including dispute resolution and
enforcement mechanisms tailored to betting activity.
While prediction markets have argued that they differ from legal
sports betting in that they simply facilitate peer-to-peer transaction
and do not operate as the house by taking the other side of bets,
recent litigation \6\ indicates that claim is false. Rather, it appears
prediction markets utilize subsidiaries to conceal their role as the
house:
---------------------------------------------------------------------------
\6\ Pelayo v. Kalshi Inc., No. 1:25-cv-09913 (ALC), Compl.
(S.D.N.Y. Nov. 26, 2025).
``Kalshi Trading LLC and KalshiEX, both wholly owned
subsidiaries of Kalshi, operate as highly sophisticated `market
makers,' which bet against consumers when their bets stray from
Kalshi's internal projected odds. A Kalshi representative
called Kalshi Trading `one of many `peers' in the peer-to-peer
---------------------------------------------------------------------------
ecosystem.' Kalshi Trading is not a peer; it is the House.''
Thanks to prediction markets' intentional avoidance of the
comprehensive public oversight, integrity, and consumer safeguards that
states and Tribes have long deemed essential for legal gaming, it is
not unreasonable to suggest that today underage children are gambling
away their parents' savings in the churches, schools and other
institutions that are designed to protect them.
Sports Futures on Tribal Lands Violate Federal, Tribal, & State Law
The enactment of the Indian Gaming Regulatory Act (IGRA) in 1988
created a clearly defined structure governing gaming on Tribal lands.
Tribal governments may operate gaming on Tribal land in states in which
gaming is legal, subject to limitations of state law and, frequently,
Tribal-state gaming compacts delineating the scope of gaming which may
be operated. IGRA also created the National Indian Gaming Commission,
the only Federal gaming regulatory entity. Under IGRA, only Tribal
governments may operate gaming on Tribal land, and they may only do so
in compliance with state and NIGC requirements.
Tribal gaming has been one of the primary economic development
tools available to Tribes. In states where Tribal gaming occurs, Tribes
have been able to help address their members' health care, education,
housing, and other needs. Tribal gaming has been beneficial not only
for Tribes and their members, but for surrounding communities and
states, too. In 2021, CNIGA found that members' enterprises supported
an astounding 85,000 jobs across our state.
In California, all sports betting is prohibited. Neither Tribal
governments, the state, nor commercial entities may offer sports
betting on lands under Tribal or state jurisdiction.
However, today, prediction markets are offering online sports
betting, as described in their own words, on Tribal lands in California
and across the nation. Again, this is a crystal clear violation of
Federal law, Tribal gaming ordinances, and state gaming laws.
State Attorneys General and Regulators Agree: Sports Futures Are
Illegal Sports Bets
The Tribal governments CNIGA represents are not alone in objecting
to the illegal online sports betting offered by these prediction
markets. Dozens of states have taken legal action in court, or
regulatory action through state gaming oversight agencies, to halt the
illegal online sports betting offered by prediction markets.
CFTC regulations allowing platforms to self-certify event contracts
without pre-clearance from the agency enable an ecosystem in which
prediction markets are able to launch gaming products first, then
litigate after developing a customer base and generating immense
revenue. This business model has resulted in an incredible 26 lawsuits
in which states, Tribes, classes, and individuals all argue that these
companies are violating the law and exploiting consumers, including
vulnerable populations. An amicus brief \7\ joined by 34 state
attorneys general \8\ supporting litigation against a prediction market
operator notes:
---------------------------------------------------------------------------
\7\ Brief of Amici Curiae of Nevada, Ohio, 32 Other States,
District of Columbia, and Northern Mariana Islands Supporting
Appellants, KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. June 17,
2025).
\8\ Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware,
Hawaii, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nevada, New
York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode
Island, South Carolina, South Dakota, Tennessee, Utah, Vermont,
Washington and Wisconsin.
``Initially, it claims that its events contracts do not count
as sports gambling. As a legal matter, that depends on
definitions within state law. But, as a real-world matter, the
activity Kalshi facilitates is obviously sports betting.
``To confirm as much, one must only peruse Kalshi's website.
The website has an entire category dedicated to `sports'
where--through a few easy clicks--people can bet on things like
the Steelers winning more than eight games this season or the
Ravens winning the Super Bowl. Baseball fans can similarly play
the odds on whether the Phillies or the Mets will win the
National League East.''
State gaming regulators are also engaging to prevent the
proliferation of this illegal online gaming, which they believe lack
the safeguards established gaming systems impose to ensure integrity,
consumer protection, and oversight. For example, the Pennsylvania
Gambling Control Board stated in an October letter \9\ to Congress:
---------------------------------------------------------------------------
\9\ Pennsylvania Gaming Control Board, Letter from Kevin F.
O'Toole, Executive Director, to Members of Congress (Oct. 3, 2025).
``Sports prediction markets operating outside established
regulatory frameworks raise significant integrity concerns due
to their vulnerability to manipulation. Our frameworks involve
mandatory data sharing between licensed operators and sports
leagues, sophisticated monitoring systems to detect suspicious
betting patterns, and strict rules prohibiting participation by
---------------------------------------------------------------------------
athletes, officials, and other insiders.''
Notably, any sports event contract found by state gaming regulators
to be illegal sports betting under state law--as has occurred in at
least a dozen states--is therefore also in violation of CFTC regulatory
prohibition on contracts which are unlawful under Federal or state law.
The CFTC Has Failed to Act
Despite evidence in plain sight, and prediction markets' own words
that sports event futures constitute illegal gaming, a September 2025
CFTC staff letter \10\ notes ``the Commission has not . . . taken any
official action to approve the listing for trading of sports-related
event contracts,'' because ``all sports-related event contracts that
are currently listed for trading . . . have been listed pursuant to
self-certifications.'' In essence, the CFTC argues that it has not
taken action because, by self-certifying their gaming products,
prediction markets have demonstrated their compliance. This is a
flagrant violation of CFTC regulation, and it is clear that the self-
certification system is failing to provide sufficient safeguards
against illegal online gaming.
---------------------------------------------------------------------------
\10\ CFTC Staff Letter No. 25-36 (September 30, 2025).
---------------------------------------------------------------------------
In other words, the CFTC is asleep at the wheel.
Recent court documents show that one prominent prediction market
reported more than $1 billion in gaming volume in a single month, with
90% of that coming from so-called sports event contracts. The sheer
volume of this activity demands greater scrutiny by the CFTC, yet the
Commission has failed to take any substantive action whatsoever.
If the CFTC Won't Act, Congress Must
Tribal gaming was authorized by Congress to support government
services and enable our nations to address generations of broken
promises and underinvestment in our communities. In California, that
has resulted in Tribal governments having the exclusive right to offer
casino-style gaming under the state Constitution and our Tribal-state
gaming compacts. It is a travesty that rogue corporations are allowed
to offer bets to our own casino patrons that we cannot offer ourselves,
and so I respectfully ask that the House and Senate step in without
delay. Congress must take immediate action to reaffirm the integrity of
the CEA, restore the proper balance between Federal and Tribal-state
authority, and protect consumers from predatory, unregulated online
gaming.
The CFTC's dereliction of its responsibility may be due to a lack
of resources, or, unlikely as it is, the CFTC may be unaware of the
illegal activity occurring on its watch. Regardless of the reason, the
outcome is the same: prediction markets are disregarding Federal,
Tribal, and state laws to generate massive revenues at the expense of
consumers and those who comply with the law.
Unless Congress reaffirms the boundary between legitimate
derivatives markets (which should be insulated from state law and
interference) and gaming activity, these companies will continue to
expand unchecked.
Thank you for the opportunity to provide testimony. CNIGA stands
ready to assist the Committee as it continues its oversight of the CFTC
and considers legislative solutions tothis growing problem.
Statement 6
hon. lucas sprague, chief, saginaw chippewa indian tribe
Reauthorization of the Commodity Futures Trading Commission
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Saginaw Chippewa Indian Tribe of Michigan, thank
you for the opportunity to submit this statement for the record as the
Committee considers reauthorization of the Commodity Futures Trading
Commission (CFTC) and potential amendments to the Commodity Exchange
Act (CEA).
The Saginaw Chippewa Tribe supports well-regulated derivatives
markets that serve legitimate commercial and risk-management purposes.
However, we are increasingly concerned that the Commodity Exchange Act
is being invoked to facilitate widespread sports wagering--and
potentially casino-style gaming--through products marketed as ``event
contracts'' or similar instruments. These developments were not
intended under the Commodity Exchange Act, threaten Tribal sovereignty
and undermine Michigan's carefully constructed gaming regulatory
framework.
The Saginaw Chippewa Tribe is a federally recognized sovereign
Indian Tribe with governmental authority and substantial economic
interests in Michigan. The Tribe operates gaming facilities pursuant to
the Indian Gaming Regulatory Act (IGRA), Tribal regulations and a
Tribal-state gaming compact with the State of Michigan. Revenue
generated from these operations supports essential governmental
services for our citizens, including public safety, education, health
care, housing, infrastructure, and cultural preservation.
Michigan's Gaming Framework Reflects Deliberate Policy Choices
Michigan has made deliberate and comprehensive policy choices
regarding gaming. Sports wagering and internet gaming are lawful in the
state only because the Michigan Legislature enacted detailed statutory
frameworks and entrusted oversight and enforcement to the Michigan
Gaming Control Board (MGCB). Tribal and commercial internet gaming
operators are subject to extensive licensing requirements, integrity
monitoring, consumer protections, responsible gaming safeguards, and
strict age and geolocation controls.
Tribal gaming in Michigan operates within the framework Congress
established under IGRA, which is grounded in respect for Tribal
sovereignty and implemented through comprehensive Tribal regulations,
Federal oversight and negotiated Tribal-state compacts. This system has
provided regulatory certainty, economic stability, and strong consumer
protections while supporting Tribal self-determination and economic
development.
Event Contracts Threaten to Circumvent Michigan Law and Tribal Compacts
The Saginaw Chippewa Tribe is deeply concerned that sports-related
``event contracts'' offered by vendors such as Kalshi and Crypto.com
threaten to bypass Michigan and Tribal gaming laws and regulatory
system entirely. Although these vendors assert that their products are
financial instruments governed by the CEA, in practice the products
function as sports bets--allowing consumers to wager money on the
outcomes of sporting events with no connection to bona fide hedging or
commercial risk management.
These products compete directly with lawful commercial and Tribal
gaming operations in Michigan while avoiding the regulatory obligations
imposed by Federal, Tribal and state law and Tribal-state compacts.
Event contracts are being offered to Michigan residents, including on
Tribal lands, without licensure or approval by the MGCB or the Tribes
and without regard to Michigan law or compact requirements.
This approach creates an uneven and unfair playing field. Tribal
gaming operators remain subject to extensive regulatory oversight and
enforcement, while event-contract vendors claim nationwide authority to
offer gambling-like products outside of state and Tribal regulatory and
licensing systems.
The CFTC Is Not a Gaming Regulator
The CFTC's mission and expertise lie in regulating derivatives
markets to protect against fraud, manipulation, and systemic risk. It
is not designed to regulate sports wagering or casino-style gaming,
which raise distinct public-interest concerns, including consumer
protection, wagering integrity, responsible gaming, and respect for
state and Tribal sovereignty.
In Michigan, those responsibilities rest with the MGCB and, in
Indian Country, with Tribal gaming regulators operating under IGRA.
Allowing gambling-like products to proceed under the CEA risks
displacing Michigan's regulatory framework and effectively establishing
national gambling policy through commodities law--without Congressional
authorization and without involvement from states or Tribes.
Such an outcome would also undermine IGRA and the Tribal-state
compacting process that Congress has long recognized as essential to
Tribal self-government.
Without Clear Limits, Event Contracts Will Continue to Expand Toward
Gambling
If sports-style event contracts are permitted to scale under the
CEA, vendors will predictably design products that increasingly
resemble casino-style gaming-short-term outcomes, rapid repeat play,
and wagering mechanics indistinguishable from regulated sports betting.
Without clear statutory boundaries, these products will continue to
proliferate in Michigan outside of state and Tribal oversight.
Requested Congressional Action
The Saginaw Chippewa Indian Tribe respectfully urges the Committee
to include in any CFTC reauthorization legislation targeted amendments
to the Commodity Exchange Act that:
Clarify that the CFTC may not approve, permit, or otherwise
facilitate contracts that constitute sports wagering, including
contracts whose predominant purpose and practical effect is
consumer betting rather than bona fide hedging or commercial
risk management.
Prohibit, or deem contrary to the public interest, event
contracts and similar instruments that function as casino-style
games or otherwise replicate gambling mechanics, regardless of
how they are labeled or marketed.
Conclusion
The Saginaw Chippewa Indian Tribe appreciates the Committee's
leadership in overseeing the nation's derivatives markets.
Modernization, however, must not come at the expense of Michigan's
gaming laws, Tribal sovereignty, the IGRA or the integrity of the
Tribal-state compacting system. We urge Congress to act now to prevent
the Commodity Exchange Act from becoming a Federal workaround for
sports betting and casino-style gaming-activities that directly
conflict with Michigan law, the IGRA and undermine Tribal self-
determination.
Thank you for the opportunity to submit this statement for the
record.
Statement 7
matthew j. wesaw, chairman, pokagon band of potawatomi indians
Reauthorization of the Commodity Futures Trading Commission
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Pokagon Band of Potawatomi Indians (Pokagon Band),
a federally recognized Indian Tribe, thank you for the opportunity to
submit this statement for the record as the Committee considers
reauthorization of the Commodity Futures Trading Commission (CFTC) and
potential amendments to the Commodity Exchange Act (CEA).
The Pokagon Band supports well-regulated derivatives markets that
serve legitimate commercial and risk-management purposes. However, we
are deeply concerned that the CEA is increasingly being used to
facilitate widespread sports wagering--and will be used for casino-
style gaming--through products marketed as ``event contracts'' or
similar financial instruments. These developments threaten Tribal and
state sovereignty and undermine the carefully constructed gaming
regulatory frameworks in both Michigan and Indiana, where the Pokagon
Band exercises governmental authority and operates gaming facilities
under the Indian Gaming Regulatory Act (IGRA).
The Pokagon Band has substantial governmental, economic, and
regulatory interests in southwest Michigan and northern Indiana. We
conduct gaming operations in both states within our Indian lands under
IGRA and negotiated Tribal-state compacts. We also conduct sports
wagering and internet gaming beyond our Indian lands in Michigan under
state law. Revenue from these operations funds essential governmental
services for our citizens and others, including public safety,
education, health care, housing, infrastructure, and cultural
preservation. Importantly, under the Tribal-state compacts, the Pokagon
Band shares tens of millions of dollars each year with both states and
their local units of government.
Michigan and Indiana Have Distinct but Deliberate and Comprehensive
Gaming Frameworks
Both Michigan and Indiana have made deliberate and carefully
calibrated policy choices regarding gaming--choices that are unique and
reflect state law, Tribal sovereignty, and local public interests.
In Michigan, sports wagering and internet gaming are lawful outside
of Indian lands only because the Michigan Legislature enacted
comprehensive statutory frameworks, under which the Michigan Gaming
Control Board (MGCB) provides robust regulatory oversight. Tribal and
commercial operators are licensed under state laws for these activities
and are subject to licensing, auditing, integrity monitoring, consumer
protection requirements, responsible gaming safeguards, and age and
geolocation controls. Importantly, Tribal gaming operations within
Indian lands in the state operate pursuant to IGRA and Tribal-state
compacts that reflect a balance between Tribal sovereignty and state
regulatory interests.
In Indiana, commercial gaming, including sports wagering, is
likewise authorized through a comprehensive statutory system overseen
by the Indiana Gaming Commission (IGC). Indiana law establishes clear
boundaries for permissible gaming activity, requires licensing and
regulatory compliance, and entrusts enforcement to a specialized gaming
regulator. Like in Michigan, Tribal gaming on Indian lands within
Indiana, including retail sports betting, operates under IGRA and a
Tribal-state compact that balances the parties' respective interests.
In both states, gaming outside of Indian lands is lawful only
because legislatures acted and empowered regulators to oversee and
license permitted gaming activities within each state, while within
Indian lands, Tribal gaming operates under the comprehensive framework
Congress expressly created through IGRA.
Event Contracts Threaten to Bypass IGRA and State Systems
The Pokagon Band is increasingly concerned because sports-related
``event contracts'' offered by vendors such as Kalshi and Crypto.com
bypass these regulatory systems, which mandate fair play and consumer
protection. Although these vendors assert that their products fall
under the CEA, the products function as sports betting, as they allow
consumers to wager money on the outcomes of sporting events with no
connection to bona fide hedging or commercial risk management.
These products directly compete with lawful Tribal and commercial
gaming operations in Michigan and Indiana, in a manner that violates
IGRA, Tribal-state compact obligations, and state laws. Event contracts
are being marketed and made available to residents of Michigan and
Indiana--including on Tribal lands--without the required approvals
mandated by these regulatory requirements.
This creates an uneven and unfair playing field. Tribal and
commercial gaming operations remain subject to extensive regulatory
requirements, enforcement oversight, and public-interest obligations,
while event-contract vendors claim nationwide authority under the CEA
to offer gambling-like products (currently, sports wagering) free from
state and Tribal control.
The CFTC Is Not a Gaming Regulator and Should Not Supplant State and
Tribal Authority
The CFTC's expertise lies in derivatives market oversight, not in
regulating sports wagering or casino-style gaming. Gaming regulation
involves distinct public-interest concerns, including consumer
protections tailored to wagering, integrity monitoring, responsible
gaming requirements, and respect for state and Tribal sovereignty.
In Michigan and Indiana, those responsibilities are entrusted to
specialized gaming regulators and, within Indian lands, to Tribal
gaming regulators. Allowing gambling-like products to proceed under the
CEA risks displacing both states' regulatory frameworks and IGRA and
effectively setting national gambling policy through commodities law--
without Congressional authorization and without the involvement of
states or Tribes.
Such an outcome is contrary to Congress's intent under the CEA and
IGRA, undermines state and Tribal autonomy, violates state law, erodes
Tribal-state compacts, and weakens a framework Congress has long
recognized as essential to Tribal self-determination and economic
stability.
Without Clear Limits, Event Contracts Will Evolve Toward Casino-Style
Gaming
The Pokagon Band urges the Committee to recognize the strong
commercial incentives at play. If sports-style event contracts are
permitted under the CEA, vendors will inevitably design offerings that
resemble casino-style gaming--short-duration outcomes, rapid repeat
play, and wagering mechanics indistinguishable from regulated sports
betting.
Without clear statutory boundaries, these products will continue to
proliferate across Michigan and Indiana outside of state and Tribal
oversight, thereby undermining regulatory authority and threatening
Tribal and state government revenues that support essential services.
Requested Congressional Action: Draw a Bright Line in the Commodity
Exchange Act
The Pokagon Band respectfully requests that the Committee include
in any CFTC reauthorization legislation targeted amendments to the CEA
that:
Clarify that the CFTC may not approve, permit, or otherwise
facilitate contracts that constitute sports wagering, including
contracts whose predominant purpose and practical effect is
consumer betting rather than bona fide hedging or commercial
risk management.
Prohibit event contracts and similar instruments that
function as casino-style games or otherwise replicate gambling
mechanics, regardless of how such products are labeled or
marketed.
Conclusion
The Pokagon Band appreciates the Committee's leadership in
overseeing the nation's derivatives markets. However, modernization
must not come at the expense of Michigan and Indiana gaming law, IGRA,
Tribal sovereignty, or the integrity of the Tribal-state compacting
system. We urge Congress to act now to ensure that the CEA does not
become a Federal workaround for sports betting and casino-style
gaming--activities that directly conflict with state law and IGRA and
undermine the economic foundations of Tribal governments and threaten
state revenue.
Thank you for the opportunity to submit this statement for the
record.
Statement 8
match-e-be-nash-she-wish band of pottawatomi indians
Reauthorization of the Commodity Futures Trading Commission
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Match-E-Be-Nash-She-Wish Band of Pottawatomi
Indians (Gun Lake Tribe), thank you for the opportunity to submit this
statement for the record as the Committee considers reauthorization of
the Commodity Futures Trading Commission (CFTC) and potential
amendments to the Commodity Exchange Act (CEA).
The Gun Lake Tribe supports well-regulated derivatives markets that
serve legitimate commercial, price-discovery, and risk-management
purposes. However, we are deeply concerned that the CEA is increasingly
being invoked as a vehicle to facilitate widespread sports wagering and
potentially casino-style gaming through products marketed as ``event
contracts''. These developments directly conflict with Tribal gaming
interests, infringe on Tribal sovereignty, and threaten the time tested
and balanced framework that governs gaming in Indian Country.
Impact on Tribal Gaming in Michigan
The Gun Lake Tribe conducts gaming operations pursuant to a Tribal-
state compact with the State of Michigan, in full compliance with the
Indian Gaming Regulatory Act (IGRA). This compact reflects our status
as a federally recognized Tribe and is the result of extensive, good-
faith negotiations with the state to balance Tribal sovereignty, state
regulatory interests, and critical public policy considerations.
Michigan has established a comprehensive gaming regulatory
framework, including for sports wagering, that expressly recognizes
Tribal authority and the central role of Tribal-state compacts. When
companies market sports-related ``event contracts'' on a nationwide
basis under the Commodity Exchange Act, they effectively bypass
Michigan's gaming laws and the Tribal compacting process while
competing directly with Tribal gaming operations that operate in full
compliance with those laws. This circumvention undermines Tribal
sovereignty, erodes IGRA exclusivity, weakens responsible gaming
safeguards maintained by Tribal operators, and threatens critical
revenue streams that support Tribal governmental services and
contribute substantially to local and regional economies.
Of particular concern are sports-related event contracts offered by
vendors such as Kalshi, and Polymarket. Although characterized as
derivatives products regulated by the CFTC, these offerings function as
sports bets: consumers stake money on the outcome of sporting events
with no connection to commercial risk management or hedging. These
products are currently being offered broadly, including to Michigan
residents and on Tribal lands, without meaningful review for compliance
with state law or Tribal gaming compact obligations.
The CFTC Lacks Expertise and Authority To Regulate Gaming
The Commodity Futures Trading Commission's core mission and
institutional expertise are centered on overseeing derivatives markets,
including promoting market integrity, facilitating legitimate risk
transfer, and preventing fraud and manipulation. The Commission is
neither designed nor resourced to regulate sports wagering or casino-
style gaming, which present distinct and well-established public-
interest concerns beyond the CFTC's traditional role. These concerns
include the integrity of sporting events, age and geolocation
verification, wagering--specific consumer protections, and the
prevention and mitigation of gambling-related harms. Oversight of these
matters has long and appropriately rested with state gaming regulators
and Tribal authorities operating under the IGRA and Tribal-state
compacts.
Absent clear Congressional direction, the CFTC risks being drawn--
through self-certification processes and increasingly aggressive
product design--into regulatory decisions that effectively establish
national gambling policy under the guise of commodities law. Such an
outcome would exceed the Commission's statutory mandate and disrupt the
longstanding Federal-state-Tribal balance governing gaming regulation.
Event Contracts Headed Toward Casino-Style Gaming
The Gun Lake Tribe urges the Committee to recognize the strong
commercial incentives driving the rapid evolution of these products. If
sports-style event contracts are permitted to scale under the Commodity
Exchange Act, vendors will be incentivized to push boundaries further--
aggressively designing increasingly short-term, repetitive, and game-
like contracts that closely resemble traditional sports wagering and
casino mechanics.
Absent clear statutory boundaries, innovation in this space will
continue to trend toward the nationwide offering of gambling-like
products outside established state and Tribal gaming oversight. This
trajectory would place compliant Tribal gaming operations at a
competitive disadvantage and undermine the integrity of longstanding
regulatory frameworks.
Requested Congressional Action
The Gun Lake Tribe respectfully requests that the Committee include
targeted amendments in any CFTC reauthorization legislation to:
1. Clarify that the CFTC may not approve, permit, or otherwise
facilitate contracts that constitute sports wagering,
including contracts whose predominant purpose and practical
effect is consumer betting rather than bona fide hedging or
commercial risk management.
2. Prohibit (or deem contrary to the public interest) event
contracts and similar instruments that function as casino-
style games or otherwise replicate gambling mechanics,
regardless of the label applied.
Conclusion
The Gun Lake Tribe appreciates the Committee's leadership in
modernizing market oversight. However, modernization must not come at
the expense of Tribal sovereignty or the integrity of gaming frameworks
that Congress has long respected and continuously affirmed. We urge
Congress to act decisively to ensure that the CEA does not become a
Federal pathway for nationwide sports betting and casino-style gaming,
activities that directly conflict with the longstanding Federal-state-
Tribal balance governing gaming regulation.
Statement 9
mohegan tribe of indians of connecticut
Reauthorization of the Commodity Futures Trading Commission
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Mohegan Tribe of Indians of Connecticut
(``Mohegan''), thank you for the opportunity to submit this statement
for the record as the Committee considers reauthorization of the
Commodity Futures Trading Commission (CFTC) and potential amendments to
the Commodity Exchange Act (CEA).
Mohegan supports well-regulated derivatives markets that serve
legitimate commercial and risk-management purposes. But we are deeply
concerned that the CEA is increasingly being invoked as a vehicle to
facilitate widespread sports wagering--and potentially casino-style
gaming--through products marketed as ``event contracts'' or related
instruments. These developments are contrary to the clear intent of the
CEA, the interests of Tribes, and threatens the carefully balanced
framework that governs gaming in Indian Country.
In Connecticut and Pennsylvania, we are already seeing companies
expand gambling-like products that compete directly with Tribal gaming
operations protected under Tribal-state gaming compacts and Mohegan's
licensed gaming operations in Connecticut and Pennsylvania. Although
these vendors claim their products are financial instruments governed
by the CEA, they operate and are essentially marketed to the public as
sports bets implicating Tribal, Federal and state law. The scope and
speed of their actions are unprecedented and of significant concern to
Tribes and states across the country.
The CFTC Is Not a Gaming Regulator--and Congress Should Not Let Private
Entities Exploit the CEA As a Back Door for Betting
The CFTC's mission and expertise center on derivatives market
integrity, risk transfer, clearing, and enforcement against fraud and
manipulation. The Commission is not designed or resourced to regulate
sports wagering or casino-style gaming, which involve distinct public-
interest concerns: game integrity, consumer protections tailored to
wagering, age and location controls, and safeguards against gaming-
related harms.
Congress does not hide elephants in mouseholes and did not do so
here. Absent Congressional reaffirmation, the CFTC risks being pushed--
through these entities' self-certification dynamics and aggressive
product design--into decisions that effectively set national gambling
policy under commodities law. Such an outcome is antithetical to the
CEA and undermines the policy Congress established through the Indian
Gaming Regulatory Act (IGRA). Through IGRA, Congress balanced the
sovereign interests of Tribes and states, and made clear that Indian
gaming revenues support Tribal self-sufficiency and essential
governmental services in Indian Country.
Without Reaffirmation, Vendors Will Predictably Design Contracts That
Mimic Casino-Style Games
Mohegan urges the Committee to recognize the strong commercial
incentives at play. If sports-style event contracts are permitted to
scale under the CEA, vendors will naturally iterate toward products
that replicate the look and feel of casino-style gaming--short-duration
outcomes, repeated play mechanics, and contract structures that
function as wagering rather than risk management. ``Innovation'' will
increasingly mean gaming-like offerings, with nationwide reach, outside
of state and Tribal gaming oversight.
Requested Congressional Action: Amend the CEA To Draw a Bright Line
We respectfully request that the Committee include in any CFTC
reauthorization package targeted reaffirming amendments to the CEA
that:
1. Clarify that the CFTC may not approve, permit, or otherwise
facilitate contracts that constitute sports wagering,
including contracts where the predominant purpose and
practical effect is consumer betting rather than bona fide
hedging or commercial risk management.
2. Prohibit (or deem contrary to the public interest) event
contracts and similar instruments offered through
designated contract markets that function as casino-style
games or otherwise replicate gambling mechanics, regardless
of the label applied.
Conclusion
Mohegan appreciates the Committee's leadership in modernizing
market oversight. But modernization must not come at the expense of
Tribal sovereignty or the integrity of gaming frameworks that Congress
has long respected. We urge Congress to act now to prevent the CEA from
becoming a new pipeline for sports betting and casino-style gaming--
activities that directly conflict with the CEA itself, Tribal interests
and Tribal-state compacts.
______
Submitted Letter by Hon. Dusty Johnson, a Representative in Congress
from South Dakota
March 27, 2024
Hon. Rostin Behnam,
Chairman,
Commodity Futures Trading Commission,
Washington, D.C.
Dear Chair Behnam:
Thank you for your leadership as a Commissioner and Chairman of the
Commodity Futures Trading Commission in promoting a robust dialogue
about the resilience of derivatives clearinghouses. As a previous
sponsor of the CFTC Market Risk Advisory Committee (MRAC), you
encouraged a diverse and broad coalition of stakeholders and market
participants to develop consensus recommendations for the CFTC to adopt
to strengthen the financial markets.
One indispensable tool to strengthen financial derivatives markets
is the use of margin to manage the risks of price volatility and
protect derivatives markets. During a hearing before the House
Committee on Agriculture on March 9, 2023, focused on reviewing
volatility in global commodity markets, the topic of margin received
significant attention from members.
The hearing focused on the importance of futures markets for end-
users during the recent periods of increased stress in the financial
system, including the commodity market volatility and disruptions
caused by the COVID pandemic and the Russian invasion of Ukraine. At
the hearing, witnesses discussed the role of the futures markets as a
critical risk management tool for end-users, particularly during
increased market volatility. Witnesses also discussed that while
markets functioned well during the turmoil, the experiences serve as an
important opportunity to examine how to enhance market resilience to
the benefit of end-users and financial stability.
We understand that clearinghouse margin requirements should
naturally rise when markets are volatile and fall when conditions
normalize. However, some witnesses expressed concern that the magnitude
and speed with which clearinghouse margin levels increased added stress
to markets and forced many end-users and investors to source additional
funding. At a time when funding was scarce and more expensive, meeting
higher than expected margin calls exacerbated already volatile market
conditions.
Last September, a report \1\ published by international regulatory
authorities examined the impact on markets caused by the rapid and
significant margin increases at the onset of the pandemic in March
2020. In May, the report was followed by a more in-depth look \2\ at
margin practices in commodities markets during the market volatility
associated with the Russian invasion of Ukraine in February 2022.
---------------------------------------------------------------------------
\1\ The Basel Committee on Banking Supervision (BCBS), Bank for
International Settlements' Committee on Payments and Market
Infrastructure (CPMI) and the International Organization of Securities
Commissions (IOSCO) published a report on margin calls during the high
market volatility and ``dash for cash'' during the onset of COVID-19 in
March and April 2020. The report showed that total initial margin
requirements across clearinghouses increased by roughly $300 billion
over March 2020, with a further increase in excess collateral of $115
billion, resulting in an overall increase in collateral prepositioned
at clearinghouses of $415 billion (a roughly 40% increase relative to
the average in February 2020). https://www.bis.org/bcbs/publ/d537.htm.
\2\ https://www.bis.org/bcbs/publ/d550.pdf.
---------------------------------------------------------------------------
This is an important issue that we know the CFTC continuously
examines, both for the clearinghouses under its own jurisdiction, and
as a part of the global standard setting bodies responsible for
fostering consistency across jurisdictions.
Stakeholders are also making important contributions to this
discussion. In February 2021, the MRAC endorsed a series of consensus
recommendations \3\ from a wide range of market participants for the
CFTC to implement to strengthen and improve clearinghouse margin
methodology practices. To date, those recommendations have not been
adopted by the CFTC. In addition, global regulators continue to review
the issue, publishing \4\ a consultative report with recommendations to
improve the transparency and responsiveness of initial margin in
centrally cleared markets on January 16, 2024.
---------------------------------------------------------------------------
\3\ https://www.cftc.gov/media/6206/MRAC_CCPRGS_DPBPCCPMM022321/
download.
\4\ https://www.iosco.org/library/pubdocs/pdf/IOSCOPD757.pdf.
---------------------------------------------------------------------------
The events of the last several years demonstrate the importance of
initial margin to market resilience. It is essential to ensure that
clearinghouse margin models: (1) are adequately transparent to market
participants to help clearing members and their clients better prepare
for market volatility; (2) are appropriately calibrated and stable to
avoid levels that fall too low during normal conditions, only to
increase dramatically in stressed markets; and (3) do not threaten the
affordability and accessibility of the risk management markets for end-
users.
Respectfully, we ask that you make this a priority for the CFTC to
strengthen and improve clearinghouse margin methodology practices and
better support end-users in their risk management and liquidity
planning.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Hon. Dusty Johnson Hon. Yadira Caraveo
Chairman, Ranking Minority Member,
Subcommittee on Commodity Markets, Subcommittee on Commodity Markets,
Digital Assets, and Rural Digital Assets, and Rural
Development, Development,
______
Submitted Statement by Hon. Dusty Johnson, a Representative in Congress
from South Dakota; on Behalf of National Grain and Feed Association
Reauthorization of the Commodity Futures Trading Commission
The National Grain and Feed Association (NGFA) respectfully
requests submission of this statement into the written record for the
House Agriculture Committee's hearing on reauthorization of the
Commodity Futures Trading Commission (CFTC).
The NGFA, established in 1896, consists of grain, feed, processing,
exporting and other grain-related companies that operate facilities
handling U.S. grains and oilseeds. Its membership includes grain
elevators; feed and feed ingredient manufacturers; biofuels companies;
grain and oilseed processors and millers; exporters; livestock and
poultry integrators; and associated firms that operate over 8,000
facilities providing goods and services to the nation's grain, feed and
processing industry. NGFA's membership includes cooperatives and
private companies employing 175,000 Americans and supporting over 1.16
million associated jobs nationwide with an annual economic impact of
$401.7 billion.
The NGFA strongly supports reauthorization of the CFTC as a
standalone agency. It performs an important oversight and regulatory
role benefiting the grain, feed and processing industry--a primary user
of agricultural products on regulated exchanges. Our association
maintains a strong and professional working relationship with CFTC and
believes current regulation helps the United States maintain its
agricultural and energy leadership in exchange-traded derivatives.
Our industry, as the first purchaser of grains and oilseeds from
producers, has traditionally provided both marketing and risk
management services to farmers through a variety of cash contracts.
NGFA's membership also represents a substantial portion of the hedge
business volume on the grain exchanges, so we have strong interest in
the performance of both futures and cash markets.
As the undisputed centerpiece of price discovery and price risk
management in grain-based agriculture, exchange-traded futures
contracts remain the single most important tool and provide the
foundation for many other risk management tools. Virtually all cash
contracts offered to grain farmers are designed to permit hedging the
risk through exchange instruments. Thus, a high percentage of cash
contracting activity establishes a price risk to the buyer that is
ultimately ``laid off'' in futures markets.
NGFA has a long history of working closely with CFTC in many areas,
but this statement will focus on several key issues impacting our
members that were recently brought before the CFTC.
24/7 Trading
While other CFTC-regulated industries may request 24/7 trading,
commercial users oppose 24/7 trading of agricultural commodities
contracts for the following reasons:
Trading is heavier at the market opening and settlement and
provides opportunities to price larger orders. Spreading
liquidity across a wider trading period creates trade execution
risk, potentially widens bid/ask spreads, and expands potential
for market manipulation while the market is diluted.
The underlying domestic cash market does not trade 24/7,
thus having futures markets open for more hours while cash
markets are closed would create additional exposure and risk.
Global cash markets are accommodated by current trading
hours. Traders in Geneva and Rotterdam are at the end of their
workdays when daytime trading settles at 1:20 p.m. CST and
Beijing traders are beginning their workday when overnight
trading opens at 7:00 p.m. CST. Thus, the daytime trading hours
accommodate European trading, and the overnight futures align
with trading hours in Asia.
Our members perform their daily reconciliation functions
when markets are closed. This function is critical in managing
risk and exposure in cash markets.
A pause in trading in futures markets is essential for
physical deliveries. This pause allows those involved in
physical deliveries to assess what is changing in cash and
futures markets, along with their delivery economics. NGFA
believes actions in the delivery market are what lead to
convergence, and this is a critical function of the
agricultural futures contracts.
Staffing costs would unnecessarily increase to add
monitoring of futures markets during the expanded weekday hours
and weekends. Extended trading would lead to less time for
managing other aspects of their businesses.
Having a large gap between when the market settles and
closes would create confusion for the industry and its
customers.
In short, NGFA members believe expanding trading hours to 24/7
would increase price risk and costs without offsetting benefits.
Intermediate Trading
NGFA members appreciate the intermediary role Futures Commission
Merchants (FCM) play in futures and other derivative markets by
handling customer orders, managing client accounts and ensuring margin
requirements are met. NGFA had concerns that the pool of FCMs would
shrink further when the Federal Reserve, the Federal Deposit Insurance
Corporation, and the Office of the Comptroller of the Currency were
proposing to increase capital requirements through Basel III endgame
rulemakings. NGFA believes the proposal, if implemented, would have
disincentivized banks from providing FCM services and led to increased
hedging costs. Fortunately, the current Federal Reserve leadership has
indicated plans to ease Basel III endgame requirements.
In 2022, FTX proposed disintermediate trading for clearing
cryptocurrency derivatives, which NGFA members feared would creep into
agricultural and energy futures markets. Under FTX's proposal,
customers would have directly cleared trades and bypassed traditional
FCM intermediaries. This proposal was touted as innovation and
streamlining but caused NGFA members concern about fund custody, the
lack of traditional checks and balances, and customer protections
offered by FCMs. FTX collapsed before CFTC could provide a final
decision on the disintermediate proposal.
NGFA members escaped two proposals that had the potential to
disrupt the proven intermediate trading system. We believe a light was
shown on the important role FCMs play in risk management.
Commitments of Traders Report
The Commission provides a valuable service to agricultural markets
through its weekly publication of Commitments of Traders (COT) reports.
The COT report is CFTC's most downloaded item, a testament to its
value. The COT report data is collected on Tuesday and reported on
Friday. It is a summary of open interest positions held by various
types of market participants and helps traders make informed decisions
about the market dynamics and their risk exposure.
NGFA believes COT report benefits could be improved by reducing the
3 day lag time between data collection and reporting as well as by
increasing the frequency of COT reporting. Further, NGFA urges CFTC to
establish a process to publish current COT reports immediately
following Federal Government shutdowns. The current process involves
publishing missed COT reports in chronological order over the course of
weeks or even months and can result in market participants being in the
dark for long periods. NGFA members see CFTC's work on COT reports as a
great benefit to the marketplace and encourage CFTC to further explore
ways to enhance this offering.
Conclusion
NGFA supports CFTC as a standalone agency and appreciates Congress
and CFTC's understanding of the agricultural industries' needs for
managing risk. Thank you for your consideration of NGFA's statement.
______
Submitted Letter by Hon. Sharice Davids, a Representative in Congress
from Kansas
October 3, 2025
Hon. Brian K. Fitzpatrick, Hon. Lloyd Smucker,
1st District U.S. House of 11th District U.S. House of
Representatives, Representatives,
Washington, D.C. Washington, D.C.
Hon. Brendan F. Boyle, Hon. Summer L. Lee,
2nd District U.S. House of 12th District U.S. House of
Representatives, Representatives,
Washington, D.C. Washington, D.C.
Hon. Dwight Evans, Hon. John Joyce,
3rd District U.S. House of 13th District U.S. House of
Representatives, Representatives,
Washington, D.C. Washington, D.C.
Hon. Madeleine Dean, Hon. Guy Reschenthaler,
4th District U.S. House of 14th District U.S. House of
Representatives, Representatives,
Washington, D.C. Washington, D.C.
Hon. Mary Gay Scanlon, Hon. Glenn Thompson,
5th District U.S. House of 15th District U.S. House of
Representatives, Representatives,
Washington, D.C. Washington, D.C.
Hon. Chrissy Houlahan, Hon. Mike Kelly,
6th District U.S. House of 16th District U.S. House of
Representatives, Representatives,
Washington, D.C. Washington, D.C.
Hon. Ryan Mackenzie, Hon. Christopher R. Deluzio,
7th District U.S. House of 17th District U.S. House of
Representatives, Representatives,
Washington, D.C. Washington, D.C.
Hon. Robert P. Bresnahan, Jr., Hon. John Fetterman,
8th District U.S. House of United States Senate,
Representatives, Washington, D.C.
Washington, D.C.
Hon. Daniel Meuser, Hon. David McCormick,
9th District U.S. House of United States Senate,
Representatives, Washington, D.C.
Washington, D.C.
Hon. Scott Perry,
10th District U.S. House of
Representatives,
Washington, D.C.
RE: Sports Prediction Markets Threat to Pennsylvania Gaming
Regulatory Framework
Dear Representatives and Senators,
I am writing to you today on behalf of the Pennsylvania Gaming
Control Board (PGCB) to respectfully share our concerns about the
growing presence of sports prediction markets and the significant
threat they pose to Pennsylvania's long-established regulatory
framework for gaming.\1\
---------------------------------------------------------------------------
\1\ To be clear, the PGCB feels prediction markets on non-sports
related events (e.g., Will there be a civil war in the United States in
2025? Will Taylor Swift announce her pregnancy in 2025? See
polymarket.com) are equally--if not more--troubling than sports related
event contracts; however, given our regulatory role in this area is
limited to sports wagering, that will be the focus of this letter.
Notwithstanding that fact, the same basic concerns exist across
``current event'' related contracts as well.
---------------------------------------------------------------------------
Following the U.S. Supreme Court's decision in Murphy v. National
Collegiate Athletic Association, 584 U.S. 453 (2018), which struck down
the Professional and Amateur Sports Protection Act of 1992 (PASPA) and
recognized a state's right to authorize and regulate sports wagering
within its boundaries, Pennsylvania began to authorize intrastate
sports wagering. A comprehensive framework was developed through
statute, 4 Pa.C.S. Chapter 13C, and regulation, 58 Pa. Code Part VII,
Subpart Q, which is administered by the PGCB, an independent state
agency also tasked with overseeing casino gaming, iGaming, video gaming
terminals, and fantasy sports contests within the Commonwealth. Our
system is designed to ensure consumer protections, responsible gaming,
and the integrity of sporting events.
However, sports prediction markets operate under the assertion that
they are financial derivatives, or swaps, and therefore claim to not be
gambling under state law (or at the very least that state law is pre-
empted). These markets claim primary regulatory oversight falls under
the Federal Commodity Futures Trading Commission (CFTC). This assertion
creates a direct conflict regarding regulatory authority, pitting
Federal derivatives law against Pennsylvania's established power to
regulate gambling activities within its borders and criminalize illegal
gambling. The introduction of these markets operating under purported
Federal oversight poses a direct threat to the comprehensive regulatory
system that Pennsylvania, and many other state jurisdictions, have
meticulously constructed for gaming.
The Threat to State Sovereignty and Regulatory Integrity
The regulation of gambling has historically been a matter left to
individual states, reflecting the principle of state sovereignty. This
was reaffirmed in Murphy. The framework Pennsylvania enacted was based
on a long-standing understanding that regulation is crucial to the
success of gaming. Allowing sports prediction markets to operate under
the primary jurisdiction of the CFTC, which allows prediction markets
to be self-certified by the private entities making them available,
directly undermines this state authority. These markets effectively
create a backdoor to legalized sports betting, operating parallel to,
but outside of, the state-regulated system, and without strict
oversight.
This strategy employed by prediction market operators appears to be
one of regulatory arbitrage. State-regulated sports betting operators
in Pennsylvania face significant requirements, including thorough
background investigations, licensing fees, state taxation on gross
gaming revenue for the benefit of the Commonwealth's citizens, and
mandatory compliance with detailed rules providing consumer
protections, responsible gaming provisions, and integrity monitoring.
By seeking classification as financial derivatives, prediction markets
aim to sidestep these crucial state-level requirements. This creates an
uneven playing field where prediction markets could gain a competitive
advantage by exploiting a perceived loophole between Federal financial
regulation and state gaming law. Perhaps most troubling, the CFTC
regulates a system that also allows wagers on events that a single
person can control--something the PGCB would never allow for fear of
manipulation of the market and a cascading loss of confidence in the
integrity of the betting system.
With all due respect to the CFTC, it would take years for them to
create the regulatory system and oversight that state gaming
authorities have in place, which would create a redundancy for a system
that already exists and works exceptionally well. The CFTC is a
financial market regulator, lacking the specific expertise and
historical mandate for overseeing consumer gambling activities. State
bodies like the PGCB possess specialized knowledge and experience in
this area to protect the public interest.
Inadequate Consumer Protection and Sports Integrity
The jurisdictional clash carries a significant risk of resulting in
inconsistent and inadequate regulation. The CFTC's framework is
designed for derivatives markets often involving sophisticated
institutional participants. In contrast, state gaming regulators
prioritize consumer protection for the public, implementing detailed
measures for responsible gaming, age verification, and problem gambling
prevention. Sports prediction markets, despite their financial framing,
are marketed broadly and attract retail participation, including
potentially-vulnerable populations, including individuals as young as
18.\2\ Without state oversight, these markets operate without the
specific, consumer-focused protections Pennsylvania mandates for its
licensed gaming operators.
---------------------------------------------------------------------------
\2\ Regulated gaming in the Commonwealth pursuant to the
Pennsylvania Race Horse Development and Gaming Act requires an
individual to be at least 21 year of age. 4 Pa.C.S. 1207(8).
---------------------------------------------------------------------------
Pennsylvania law and PGCB regulations require licensed online
gambling operators to implement specific consumer protection and
responsible gaming measures. These include:
The ability to place limits on deposits, wagers, and time
spent gambling.
Implementing strict procedures to verify the age and
identity of players.
Displaying clear information about the risks of gambling and
providing easy access to resources like the 1-800-GAMBLER
helpline and the Council on Compulsive Gambling of
Pennsylvania.
Crucially, the PGCB also has the ability to penalize the operators
should they not live up to the strict and necessary statutory and
regulatory requirements the operator agreed to upon application for
licensure--something that an operator who ``self-certifies'' their
contracts/wagers would never be subjected to. Indeed, the CFTC self-
certification process, coupled with, to date, laissez-faire oversight
into products due to a lack of the regulatory infrastructure even seems
disconcerting to the CFTC which wrote, in a September 30, 2025,
industry guidance document, the following:
The Commission has not, to date, been requested to take or
taken any official action to approve the listing for trading of
sports-related event contracts . . . All sports-related event
contracts that are currently listed for trading on DCMs have
been listed pursuant to self-certifications filed by the
relevant DCM . . . and the Commission has not, to date, made a
determination regarding whether any such contracts involve an
activity enumerated or prohibited under (the) CEA.
In addition to the above, it is further noteworthy that the PGCB
and other state regulators are heavily involved in monitoring the
integrity of sporting events. Sports prediction markets operating
outside established state regulatory frameworks raise significant
integrity concerns due to their vulnerability to manipulation. Our
frameworks involve mandatory data sharing between licensed operators
and sports leagues, sophisticated monitoring systems to detect
suspicious betting patterns, and strict rules prohibiting participation
by athletes, officials, and other insiders. If prediction markets
successfully carve themselves out of the ``gaming'' definition, they
risk creating a parallel wagering ecosystem where bets on sports
outcomes occur with significantly less oversight regarding potential
match-fixing or the exploitation of insider information. Even worse,
the parallel tracks risk confusing patrons who engage in these markets
by utilizing the veneer of a highly-regulated market when, in reality,
their markets are more akin to the ``wild west''.
For decades, Pennsylvania has demonstrated its capability to
oversee a successful and safe gaming environment. We urge you to
recognize and support the state's role in this area. Maintaining the
integrity of our established regulatory framework is paramount to
protecting the public interest, ensuring consumer safety, and
safeguarding vital state revenue streams.
Thank you for your attention to this critical matter. Of course, I
and my staff are more than willing to meet and discuss this very
important issue should you have any questions.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Kevin O'Toole,
Executive Director,
Pennsylvania Gaming Control Board.
______
Submitted Opinion by Hon. Sharice Davids, a Representative in Congress
from Kansas
Opinion No. 2025-073
October 23, 2025
Hon. Bryan B. King,
State Senator,
Green Forest, AR
Dear Senator King:
You have requested an opinion from this Office concerning
prediction markets and event contracts. In making your request, you
note that Kalshi, ``one of the largest exchange platforms for
predictive markets,'' allows people to ``bet on future events'' like
``election outcomes, the occurrence of natural disasters, sports
outcomes, and who will win the Nobel Peace Prize this year.''
In that light, you ask the following four questions:
1. Would a company like Kalshi be operating in violation of Arkansas
law if it was not licensed to engage in gaming operations?
Brief response: Yes, based on the information provided in the
opinion request, a business model like you have described
constitutes gambling or gaming and requires licensure.
2. Under Arkansas law, would sports related event contracts be
subject to Arkansas's tax on fantasy sports games?
Brief response: No, unless the contracts meet the definition of
a ``paid fantasy sports game'' under A.C.A. 23-116-102,
they are not subject to such a tax. Only games that meet
this definition pay the tax and benefit from the exemption
under A.C.A. 23-116-101.
3. If companies like Kalshi are not required to possess gaming
licenses, would they be subject to any other Arkansas
regulatory body as a financial exchange?
Brief response: My response to Question 1 renders this question
moot.
4. If companies like Kalshi can operate under Arkansas law without a
gaming license, is there any type of event contract that
could not be exchanged under Arkansas law, such as election
contracts or contracts related to future tragedies?
Brief response: My response to Question 1 renders this question
moot.
Discussion
Question 1: Would a company like Kalshi be operating in violation of
Arkansas law if it was not licensed to engage in gaming
operations?
To answer your question, one must first determine whether a company
like Kalshi facilitates or offers ``gambling'' or ``gaming.'' Although
neither word is defined by statute, the Arkansas Supreme Court uses
these words interchangeably and has defined them as ``the risking of
money between two or more persons, on a contest or chance of any kind,
where one must be loser and the other gainer.'' \1\
---------------------------------------------------------------------------
\1\ Sharp v. State, 350 Ark. 529, 534, 88 S.W.3d 848, 851-52 (2002)
(quoting Portis v. State, 27 Ark. 360, 362 (1872)); Ark. Att'y Gen. Op.
2025-022.
---------------------------------------------------------------------------
Generally, gambling and gaming are prohibited in Arkansas.\2\
Regulating or prohibiting such activities falls ``within the police
powers of a state.'' \3\ When interpreting statutes that prohibit
gambling or gaming, judges will read ``the statutes liberally'' and
``in favor of the prohibition,'' to prevent someone ``from evading the
penalty of the law'' by changing the name or creating a new name or
device.\4\
---------------------------------------------------------------------------
\2\ E.g., A.C.A. 5-66-101 to -120; Ark. Att'y Gen. Ops. 2025-
022, 2023-008, 2016-073, 2009-123, 2006-052.
\3\ See Ah Sin v. Wittman, 198 U.S. 500, 505-07 (1905).
\4\ A.C.A. 5-66-101; Ark. Att'y Gen. Op. 2009-123.
---------------------------------------------------------------------------
The acts you describe meet the Supreme Court's definition of
gambling and gaming: a participant is risking money on a chance that
some future event occurs. The fact that a company has rebranded this
gambling activity as a ``prediction market'' does not protect it from
scrutiny. Further, it is unlawful for anyone to ``receive or transmit
information'' concerning sports or games ``for the purpose of gaming.''
\5\ Thus, to the extent that a company like Kalshi facilitates wagers
on sports outcomes or transmits data for gaming purposes (and your
correspondence suggests that it does), those actions violate the law as
well.
---------------------------------------------------------------------------
\5\ A.C.A. 5-66-114(a).
---------------------------------------------------------------------------
Question 2: Under Arkansas law, would sports related event contracts be
subject to Arkansas's tax on fantasy sports games?
Arkansas law permits the online operation of ``paid fantasy sports
games,'' which are expressly exempt from the state's gambling and
gaming prohibitions.\6\ To qualify for this exemption, the operator of
such games must pay a tax \7\ and meet multiple other requirements.\8\
For purposes of this opinion, the most relevant requirements are:
---------------------------------------------------------------------------
\6\ Id. 23-116-101, -103.
\7\ Id. 23-116-104.
\8\ Id. 23-116-102(5).
The value of ``all prizes and awards offered to winning game
participants'' must be ``established and made known'' in
---------------------------------------------------------------------------
advance of the game.
The winning outcomes must be determined ``predominantly by
accumulated statistical results of the performance of
individual athletes.''
A winning outcome cannot be ``based on the score, point
spread, or performance or performance of any single team or
combination of teams on any single performance of an individual
athlete.'' \9\
---------------------------------------------------------------------------
\9\ Id.
Because the business model as you have described does not meet the
above requirements, it would not fall under the statutes governing
``paid fantasy sports games.'' Consequently, it would not be subject to
Arkansas's tax on fantasy sports and would not benefit from A.C.A.
23-116-101(b)'s exemption from certain state gambling laws.
Question 3: If companies like Kalshi are not required to possess gaming
licenses, would they be subject to any other Arkansas
regulatory body as a financial exchange?
My response to Question 1 renders this question moot.
Question 4: If companies like Kalshi can operate under Arkansas law
without a gaming license, is there any type of event contract
that could not be exchanged under Arkansas law, such as
election contracts or contracts related to future tragedies?
My response to Question 1 renders this question moot.
Assistant Attorney General William R. Olson prepared this opinion,
which I hereby approve.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Tim Griffin,
Attorney General.
______
Submitted Indian Gaming Association Briefs by Hon. Donald G. Davis, a
Representative in Congress from North Carolina
brief 1
2025 CFTC Timeline
**9/12/2024--KalshiEx v. CFTC--The U.S. District Court for
the District of Columbia grants Kalshi's motion for summary
judgment, finding that the CFTC exceeded its statutory
authority under the CEA, and that Kalshi's event contracts on
the outcome of the 2024 elections did not involve illegal
activity or constitute gaming.**
January
1/17--January 17, 2025--D.C. Circuit Court of Appeals hears
oral arguments in KalshiEX v. CFTC.
1/17--Kalshi argues in a Federal court case concerning
election contracts that ``gaming'' involves games and conceded
that sports contests are games, which would qualify as
prohibited activities under the Commodity Exchange Act and
applicable Federal regulations.
1/22--Kalshi files self-certification to list contracts on
sports events and certified that ``the contract complies with
the [Commodity Exchange] Act and Commission regulations
thereunder.''
1/25--Kalshi officially announced its entry into sports
trading, advertising itself as the ``first app for legal sports
betting in all 50 states''.
February
2/5--the Commodities Futures Trading Commission (CFTC)
issued a statement of their intent to allow ``futures
contracts'' on sporting events, and other events such as
political elections and even weather events.
CFTC did not issue a rulemaking to implement this
change of policy, and nothing in writing from CFTC
attorneys or Commissioners explaining the change in policy.
CFTC states they would host a roundtable in DC with
interested parties in April.
2/12--White House announces nomination for Brian Quintenz to
serve as CFTC Chair
2/21--Rep. Dina Titus (NV-01) files comments to the CFTC
expressing concern about the public policy implications of
certain platforms offering prediction contracts on the outcome
of political and sports events.
March
3/4--Nevada Gaming Control Board issues cease-and-desist to
[Kalshi]
3/27--New Jersey Division of Gaming Enforcement issues
cease-and-desist to Kalshi and Robinhood
3/29--KalshiEX, LLC v. Flaherty (NJDGE) [No. 1:25-cv-02152],
response to NJ cease-and-desist
3/29--KalshiEX, LLC v. Hendrick (Nevada NGCB) [No. 2:25-cv-
00575], response to NV cease-and-desist
3/31--Ohio Casino Control Commission issues cease-and-desist
to Kalshi, Crypto.com, and Robinhood.
With a large joint effort, CFTC agrees to have a Tribal
portion of roundtable at the end of April and IGA is confirmed
as the moderator.
April
4/1--Rep. Dina Titus (NV-01) sends petition to the CFTC to
require changes to the terms and conditions of all event
contracts that involve the outcome of sports and political
contests. Additionally requests contracts to be stayed.
4/12--Maryland Lottery & Gaming issues cease-and-desist to
Kalshi
4/21--Derivatives North America (Crypto.com) v. Maryland L&G
[No. 1:25-cv-01285]
4/24--CFTC roundtable for 4/30 is canceled with no reasoning
given to participants nor any indications of a timeline for
reschedule.
IGA (Jason Giles), AGA, and CNIGA (Chairman James Siva) met
with Kalshi CEO, Tarek Monsour, as well as Sporttrade CEO, Alex
Kane, discuss their justifications about why they consider
these futures contracts were legal.
May
5/1--KalshiEX, LLC v. Martin (Maryland) [No. 1:25-cv-01283],
response to MD cease-and-desist
5/5--Department of Justice drops appeal pending before the
D.C. Circuit Court of Appeals in KalshiEx v. CFTC.
5/19--Rep. Tom Cole (OK-04) sends letter to CFTC urging
action to protect Tribes from negative impacts of sports events
contracts.
5/21--Arizona Department of Gaming issues cease-and-desist
June
6/10--Senate Ag Committee holds nomination hearing for Brian
Quintenz
6/17--Tribal joint amicus brief filed in NJ case, 60 Tribes
and 8 Tribal orgs/entities
July
7/10--Derivatives North America (Crypto.com) v. Nevada NGCB
[No. 2:25-cv-00978]
7/22--Blue Lake Rancheria; Chicken Ranch; Picayune v. Kalshi
& Robinhood [No. 3:25-cv-06162]
7/28--Ohio Gambling Recovery LLC v. Kalshi, et al. [No.
4:25-cv-01573-BYP]
August
8/15--Montana and Minnesota AGs issue cease-and-desist
8/20--Ho-Chunk Nation v. Kalshi Inc.; KalshiEX LLC;
Robinhood [No. 3:25-cv-00698]
September
9/12--Commonwealth of Massachusetts v. KalshiEX, LLC [No.
2584CV02525]
9/15--Tribal joint amicus brief filed for Crypto.com case in
NV, 24 Tribes and 10 Tribal orgs/entities
9/19--Illinois Gambling Recovery LLC v. Kalshi, et al. [No.
1:25-cv-11394]
9/19--Senator Catherine Cortez Masto (D-NV) sends letter to
CFTC prompting responses to questions regarding the CFTC claims
to validity over sports events contracts and explaining the
lack of exercising enforcement.
9/22--Massachusetts Gambling Recovery LLC v. Kalshi, et al.
[No. 1:25-cv-12707]
9/29--SEC hosts joint roundtable with CFTC
9/30--CFTC issues staff an advisory clarifying sports event
contracts not approved; 5c(c)(5)(C) applies.
9/30--Tribal joint amicus brief filed for Robinhood case in
NV, 23 Tribes and 8 Tribal orgs/entities
October
10/02--Georgia Gambling Recovery LLC v. Kalshi, et al. [No.
2025-10-02]
10/07--KalshiEX, LLC v. Schuler (Ohio Casino Control
Commission) [No. 2:25-cv-01165]
10/08--South Carolina Gambling Recovery LLC v. Kalshi, et
al. [No. 8:25-cv-12867]
10/16--Nevada Gaming Control Board advises licensees re:
prediction-market partnerships (post-Preliminary Injunction
denial).
10/16--Yee v. Kalshi, et al. [No. 1:25-cv-08585-JLR]
10/16--Tribal joint amicus brief filed for Robinhood case in
MA, 17 Tribes and 8 Tribal orgs/entities
10/20--Kentucky Gambling Recovery LLC v. Kalshi, et al. [No.
2025-10-20]
10/20--New York State Gaming Commission issues cease-and-
desist
10/20--Illinois Gaming Board issues advisory to treat sports
event contracts as gambling under state law.
10/24--White House announces Michael Selig as new nominee
for CFTC Chair
10/27--KalshiEX LLC v. New York State Gaming Commission [No.
1:25-cv-08846], response to NY cease-and-desist
November
11/11--Senate Ag announces nomination hearing for Michael
Selig on 11/19
11/14--Tribal joint amicus brief filed for Kalshi case in
OH, 22 Tribes and 9 Tribal orgs/entities
brief 2
Overview of the CFTC and Sports Betting Through Events Contracts
In 2025, the rapid emergence of online sports betting offered under
the guise of prediction markets licensed by the Commodity Futures
Trading Commission (``CFTC'') poses a direct threat to Tribal
sovereignty and the Indian gaming industry. Despite being ``licensed''
by the CFTC, online sports betting/prediction markets constitute
unregulated illegal gambling, lack adequate consumer protections, and
undermine Tribal, state and Federal laws.
Prediction Markets and Sports Betting
A growing number of online and cryptocurrency-related corporations
have registered with the CFTC to offer sports betting through their
platforms, claiming that their offerings are ``event contracts'' that
are subject to the exclusive jurisdiction of the CFTC. With the
implicit blessing of the CFTC, these corporations offer online sports
betting in every jurisdiction in the United States, regardless of
whether Tribal or state governments permit gambling on their lands and
without regard to existing Tribal or state government laws.
The emergence of DCMs offering online sports betting stems from
unwritten policy changes within the Trump Administration's CFTC. Prior
to 2025, it was understood that Congress sought to prohibit sports
betting, and the CFTC had consistently enforced its prohibitions on
event contracts involving gambling. However, unilateral policy changes
and general inaction by the CFTC have fostered the growth of sports
betting through prediction markets in 2025.
By allowing such sports betting contracts, the CFTC is permitting
these corporations to circumvent legal frameworks designed to protect
Tribal sovereignty, state rights, and consumer protection--while also
overriding IGRA, the Wire Act and other Federal laws.
Threats to Tribal Sovereignty
The Supreme Court struck down the Federal law prohibiting sports
betting in 2018. Since then, sports betting has grown slowly on a
Tribe-by-Tribe and state-by-state basis, building a comprehensive
regulatory system to protect consumers and the integrity of sports.
This slow growth has followed the traditional role of local control
over gaming at the Tribal and state level.
Tribes offer sports betting as part of their class III operations,
through compacts that have been negotiated with states pursuant to
IGRA. These compacts often include revenue sharing provisions, under
which Tribes share a portion of their revenue with a state in return
for exclusivity agreements, which limit the expansion of gaming within
the state. Tribes delivered more than $2 billion in revenue sharing
payments to states in 2024, and states collected approximately $3
billion in taxes from sports betting through commercial gaming
operations.
Tribes and states have developed comprehensive sports betting
regulations that include stringent consumer protections, including
establishing minimum age requirements, identity and location
verifications, strict responsible gaming standards, extensive
background checks for operators, and cooperation with amateur and
professional leagues to detect suspicious activity.
Prediction market platforms offer none of these safeguards. Self-
certified and essentially self-regulated corporations--with the
blessing of the CFTC--offer no consumer protections, permit gambling by
18 year olds, and offer no location verification requirements or
responsible gaming rules. These operators aggressively advertise
without the background checks and disclosures, all while avoiding,
Federal, Tribal, and state laws, regulations, and taxes.
The CFTC is not equipped to regulate gambling. The CFTC has an
annual budget of $365 million with 636 full time employees. Congress
approved this budget in FY 2024, before the CFTC unilaterally decided
to add nationwide sports betting to its workload.
Compare that to Tribal and state government gaming regulation,
which invest more than $1.3 billion annually, including a workforce of
8,000+ full time employees that provide immediate oversight, customer
security, consumer protections, cyber-security and much more.
In short, the CFTC's inaction to prediction markets from offering
online sports betting as agency-approved contracts has created a
regulatory vacuum and represents a disaster waiting to happen.
Action Items: What You Can Do To Protect Tribal Sovereignty
Contact Your Members of Congress
Congress must address the regulatory vacuum created by CFTC-
approved sports betting prediction markets by pressuring the CFTC to
enforce its own laws and regulations. In addition, Congress must enact
an amendment to the CEA to further clarify that sports betting through
prediction markets are prohibited.
We urge Member Tribes to consider contacting your local House and
Senate delegation and the House and Senate Agriculture Committees,
urging them to question the CFTC about concerns with sports betting on
CFTC-approved platforms and urging the agency to enforce its own
regulations. This outreach should also urge Congress to directly amend
the Commodity Exchange Act to further clarify that the CEA prohibits
sports betting.
Engage in a Public Relations Effort
Despite the significant disruption caused by the rapid growth of
prediction markets offering online nationwide sports betting, too many
Members of Congress and the public are unaware of this issue, its
impacts, and pending consequences. To correct this oversight, we urge
all Tribes and Tribal organizations to consider submitting op-eds that
detail the threat of online sports betting through prediction markets,
and the dangers it poses to Tribal youth and those impacted by problem
gambling, impacts on Tribal government economies, and the direct threat
to Tribal sovereignty and the Indian Gaming Regulatory Act, among other
impacts.
Build Coalitions
We urge all Members Tribes and regional Tribal organizations to
contact your state governor, state attorney general, and state gaming
commissions, urging them to join both the litigation and legislative
efforts seeking to put a stop to sports betting through prediction
markets. We also ask you to consider working with problem gambling
organizations, religious organizations, and the major and amateur
sports leagues to join these efforts.
Litigation to Stop Prediction Markets on Sports Betting
Tribal and state governments and consumer protection advocates have
sued companies that offer sports betting through their prediction
markets in at least 20 ongoing Federal and state court cases.
Litigation is costly and time-consuming, but necessary to protect
Tribal sovereignty. We continue to encourage all Member Tribes to work
with your attorneys general and in-house counsel to consider signing on
to amicus briefs in ongoing cases that seek to put a stop to prediction
markets on sports betting.
______
Submitted Letter by Hon. Donald G. Davis, a Representative in Congress
from North Carolina; on Behalf of Bill Miller, President and Chief
Executive Officer, American Gaming Association
December 11, 2025
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the American Gaming Association (AGA), thank you for
the opportunity to submit testimony as you begin the important process
of reauthorizing the Commodity Futures Trading Commission (CFTC), which
has not seen a formal reauthorization since 2008.
The AGA is the premier national trade group representing the $329
billion U.S. casino gaming industry. Our diverse membership includes
commercial and Tribal casino operators, U.S.-licensed sportsbook
operators, gaming suppliers, and other stakeholders committed to the
highest standards of integrity, responsibility, and regulatory
compliance. Collectively, the legal gaming industry supports 1.8
million jobs, generates over $104 billion in wages and salaries, and
contributes more than $52 billion in tax revenue to Federal, state, and
local governments annually. Gaming has been embraced by communities
across 46 states and the District of Columbia, where various forms of
regulated gaming are now permitted.
While the gaming industry has not historically had significant
interests before this Committee before we appreciate this opportunity
to add our voice on an increasingly urgent issue under your
jurisdiction: the proliferation of so-called ``sports event contracts''
via CFTC-registered prediction markets and the significant threat they
pose to state regulatory authority, responsible gaming standards, and
the economic foundation of legal sports betting in the United States.
Legal Sports Betting: A Responsible, State-Led Framework
Since the Supreme Court's 2018 decision in Murphy v. NCAA
overturned the Professional and Amateur Sports Protection Act (PASPA),
39 states and the District of Columbia have legalized sports betting.
These markets are governed by robust state regulatory frameworks
tailored to reflect local values, public interests, and consumer
protections.
This state-led system has generated substantial economic benefits:
Americans legally wagered nearly $150 billion on sports in
2024 alone
Commercial legal sports betting produced $13.8 billion in
operator revenue and more than $2.8 billion in tax revenue for
Federal, state, and local governments in 2024--excluding
revenue and state revenue produced by Tribal sports betting,
further increasing the industry's impact
Over 77% of online sports bets now occur in the legal
market--up from 44% in 2019--as consumers continue to migrate
from the illegal marketplace
States have designed these frameworks to ensure strong protections:
Minimum betting ages (21+ in most jurisdictions)
Licensing and suitability requirements for operators
Anti-money laundering (AML) and Know Your Customer (KYC)
protocols
Mandatory responsible gaming resources, including self-
exclusion programs that give individuals the option to self-bar
from wagering and gaming platforms, as well as wager limits
Independent integrity monitoring and compliance audits
The state-run regulatory system ensures that operators utilize the
best technology for ID verification, geolocation services, and
determining the source of a patron's funds. The licensing process is
intentionally intrusive, with extensive background investigations for
company personnel to ensure the integrity of those working in the
gaming industry. Gaming operators also rely on extensive academic
research and proven programs to provide resources to their customers on
responsible gaming. Importantly, they are all required to participate
in state-run self-exclusion programs that allow individuals who have a
problem with gambling to essentially ban themselves from both in person
and online gaming across the state. Legal sports book operators also
work with integrity monitors, sports leagues and law enforcement to
track suspicious wagering patterns and potential manipulation during
games to root out match fixing and corruption.
In short, legal sports betting is a tightly regulated activity
designed to protect consumers, preserve game integrity, and ensure tax
compliance. It is a far cry from the opaque and unregulated illegal
market that existed under PASPA and from what the prediction markets
are offering today.
Sports Event Contracts: Sports Betting by Another Name
Despite this progress, certain prediction market platforms have
introduced retail products based on the outcome of sporting events such
as ``Will the Yankees win the World Series?'' or ``Will Patrick Mahomes
throw three touchdowns on Sunday?'' These sports event contracts are
functionally indistinguishable from traditional sports wagers.
Platforms have openly marketed \1\ * these products as a way to bet on
sports in states where it is not permitted, and Americans
overwhelmingly view \2\ sports event contracts as gambling.
---------------------------------------------------------------------------
\1\ https://nexteventhorizon.substack.com/p/kalshi-is-advertising-
sports-betting-legal-in-california-texas.
* Editor's note: references annotated with are retained in
Committee file.
\2\ https://americangaming.org/resources/sports-events-contracts-
public-opinion-landscape/.
---------------------------------------------------------------------------
The AGA strongly opposes the use of CFTC-registered platforms to
facilitate sports betting activity, for several reasons:
1. Circumvention of State Law: Sports event contracts undermine the
authority of state legislatures and regulators to govern
gaming within their borders. In many cases, these contracts
are offered in states where sports betting remains illegal
or where Tribal exclusivity agreements are in place.
2. Evasion of Regulatory Standards: Unlike licensed sportsbooks,
prediction markets offering sports event contracts are not
subject to state-level oversight or consumer protection
standards that address age verification, AML/KYC
compliance, responsible gaming protocols, and integrity
monitoring--all tools that are essential to maintaining
public trust in the legal gaming industry.
3. Public Policy Conflicts: The Commodities Exchange Act (CEA) and
CFTC's own regulation 17 CFR 40.11, explicitly prohibits
contracts based on ``gaming'' or events that are unlawful
under Federal or state law. In addition, the Indian Gaming
Regulatory Act gives Tribes exclusivity to offer gaming
products on their land, and the Wire Act makes it illegal
to offer sports wagers over state lines.
4. CFTC Is Not Equipped to Regulate Sports Betting: The CFTC was
established to oversee complex financial derivatives and
commodities trading, not to referee athletic contests or
assess the integrity of player performances. Commercial and
Tribal gaming is overseen by approximately 8,400 regulators
with $1.1 billion in budgets, compared to the CFTC's
roughly 600 staff and $365 million budget, illustrating
that some states have nearly as many gaming regulators as
the entire Federal agency. Additionally, unlike state
gaming commissions, the CFTC lacks expertise in sports
integrity monitoring, capacity for age or location-based
access controls, or experience in administrating
responsible gaming controls.
5. Market Confusion and Consumer Risk: Presenting speculative
contracts on sports outcomes as investment vehicles blurs
the lines between entertainment-based betting and financial
trading. This not only risks misleading consumers--
especially younger participants--but also undermines the
regulated industry's message that sports betting should be
treated as entertainment, not a means of wealth generation.
6. Loss of Tax Revenue and Economic Harm: Every dollar wagered
through unregulated, CFTC-sanctioned platforms is a dollar
diverted from licensed sportsbooks that pay taxes and
invest in local economies. As of today, we estimate that
states have lost more than $165 million in state tax
revenue to prediction markets operating illegally in their
states, to say nothing of lost licensing fees.
In response to the spread of sports event contracts, a growing
number of state regulators have begun to take enforcement action.
Nevada, New Jersey, Arizona, Ohio, Montana, Maryland, New York,
Connecticut and Illinois have issued cease-and-desist orders to
platforms attempting to operate outside of their legal gaming
frameworks, asserting that these activities constitute illegal gambling
under state law. The platforms have subsequently sued several of these
states and are currently in litigation. Additionally, there are several
pending Tribal lawsuits and Massachusetts has sued prediction market
companies in state court.
In the pending case in New Jersey, the AGA,\3\ several Tribes,\4\
and 34 state Attorneys General \5\ all filed briefs in support of state
regulated gaming. This strong bipartisan statement from the chief law
enforcement officers from across the country reasserted that states
have the right to regulate gaming and rejected the claim from
prediction markets that the CEA says otherwise. From the brief, ``When
Congress removes the states' historic police powers, it does not
whisper in the dark of night. Rather, courts expect Congress to speak
clear as day when it intends a dramatic shift in our country's
traditional balance of power . . . This federalism canon proves quite
significant here. Nothing in the Commodity Exchange Act's language
clearly signals that Congress was trying to strip the states of their
traditional power to regulate sports gambling. Indeed, several parts of
the statutory scheme overtly recognize the continued application of
state law.''
---------------------------------------------------------------------------
\3\ https://docsend.com/view/dusvfqyfsthhs894.
\4\ https://docsend.com/view/ifd43m6y88cbigei.
\5\ https://docsend.com/view/krbznv38fw5ijfxn.
---------------------------------------------------------------------------
In addition to state enforcement actions, jurisdictions such as
Pennsylvania, Tennessee, and Michigan have taken other actions to
express their concerns regarding sports prediction markets through
comments to the CFTC and their Congressional delegations, and notices
to sportsbook operators that their licenses may be in jeopardy if they
enter this space. Attorneys General in Arkansas and South Carolina have
stepped up, issuing opinions that these platforms require sports
betting licenses and sending letters of concern to their U.S. Senators
respectively.
These actions reflect the clear intent of state authorities to
defend their jurisdiction, protect consumers, and uphold the integrity
of their legal markets. They also underscore the broader industry and
governmental consensus that such platforms pose unacceptable risks and
should not be permitted to operate under the guise of financial
innovation. However, because of complete inaction by the CFTC to reign
in these sport event contracts, states across the country are being
forced to litigate the prohibition on gaming contracts.
Conclusion and Recommendation
In the CFTC's own staff advisory to prediction market platforms,\6\
they acknowledged that the Commission has not approved any of these
sports event contracts, instead relying on the self-certifications by
registered entities. The CFTC's refusal to prevent platforms from using
a backdoor to offer nationwide sports betting should concern every
Member of this Committee and has serious implications for your states'
ability to effectively regulate gaming within its borders. The CFTC
reauthorization process offers a timely opportunity to reaffirm
Congressional intent to prevent gambling through the commodities
markets. As part of this effort, we respectfully urge the Committee to
use its oversight powers to press the CFTC to stop sports betting
contracts, and for the Committee to take appropriate legislative action
if the agency continues to ignore its own regulations that preclude
contracts involving gaming and other excluded commodities.
---------------------------------------------------------------------------
\6\ https://docsend.com/view/yfzhixphr3uyaqc3.
---------------------------------------------------------------------------
The American Gaming Association welcomes continued dialogue with
Congress, the Commission, and stakeholders on this matter. Thank you
for your leadership and for the opportunity to contribute to this
important discussion.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Bill Miller,
President & CEO,
American Gaming Association.
______
Submitted Statements by Hon. Donald G. Davis, a Representative in
Congress from North Carolina; on Behalf of:
Statement 1
jeff miller, executive vice president, communications, public affairs
and policy, player health and safety, national football league
There is no greater priority for the National Football League
(``NFL'') than protecting the integrity of our games. Our fans deserve
confidence that games are free from improper influences, and our
players, coaches, and personnel deserve protection from unfair
allegations relating to sports gambling or manipulation.
We welcome the opportunity to provide this written testimony to the
House Agriculture Committee to express concerns regarding the potential
impact of sports-related events contracts on the integrity of our
games. Since our August 2024 comment in response to the Commodity
Futures Trading Commission's (CFTC's) proposed amendments to 40.11
of the Commodity Exchange Act, these concerns have only intensified
given recent sports betting scandals affecting professional and college
sport. As Commissioner Goodell recently discussed at a public forum,
the league has no plans to participate in prediction markets due to
several outstanding legal, regulatory, and commercial concerns on how
these markets operate and the possible impact on the integrity of
sporting events.
We are particularly troubled that several sports-related futures
contracts have been launched nationwide, including in jurisdictions
where sports betting has not been legalized. These contracts fall
outside the purview of state regulatory authorities and the safeguards
they impose upon the industry, including information-sharing
requirements, integrity monitoring, prohibitions on easily manipulated
markets, official league data requirements, know-your-customer
protocols, and problem gambling resources. For example, just this past
weekend, one prediction market exchange was accepting bets on whether
or not ``concussion protocol,'' ``late hit,'' or ``roughing the
passer'' would be mentioned during the broadcast. Congress and the CFTC
should prohibit these and other types of objectionable bets among the
many consumer and integrity protective measures needed before sports-
related events contracts are legalized.
The amounts potentially wagered through unregulated gaming
contracts markets could significantly exceed those in regulated sports
betting markets, creating substantially greater risks to contest
integrity. Without the comprehensive regulatory framework that now
exists in 39 states and the District of Columbia, these products could
be susceptible to manipulation or price distortion. In each of these
state-regulated markets, regulators and state legislators closely
monitor betting activity and, with input from professional sports
leagues, can determine which bets and wager levels are acceptable.
Those guardrails do not exist in prediction markets.
We would welcome the opportunity to work with the House Agriculture
Committee and the CFTC to understand whether the game integrity
safeguards that exist in regulated sports betting markets can be
effectively implemented on self-regulated exchanges under the
regulatory purview of the CFTC. Until such time that professional
sports leagues and fans can be certain that effective game integrity
and consumer protection measures can be enforced, sports-related events
contracts should not be approved by the CFTC and Congress should
consider clarifying the definition of ``gaming'' contracts in the
prohibited categories of the Commodity Exchange Act.
The NFL appreciates the House Agriculture Committee's consideration
of these critical matters and remains available for further discussion.
Statement 2
coalition for prediction markets \1\
---------------------------------------------------------------------------
\1\ Coinbase, Crypto.com, Kalshi, Robinhood, and Underdog.
---------------------------------------------------------------------------
The Coalition for Prediction Markets (CPM) appreciates the
opportunity to submit this written testimony for the record following
the House Committee on Agriculture's recent hearing on the
Reauthorization of the Commodity Futures Trading Commission (CFTC). CPM
represents a cross-section of the U.S. prediction markets ecosystem,
including companies such as Coinbase, Crypto.com, Kalshi, Robinhood,
and Underdog, all of which operate within the Federal regulatory
framework established under the Commodity Exchange Act (CEA). CPM and
its members strongly support the timely reauthorization of the CFTC and
believe that a well-resourced, modern regulator is essential to
ensuring market integrity, protecting consumers, and maintaining U.S.
leadership in financial innovation.
The CFTC plays a central role in preserving confidence in U.S.
derivatives markets, and its oversight responsibilities have expanded
significantly as markets have become more technologically sophisticated
and interconnected. Prediction markets, like other derivatives markets,
depend on effective supervision, market surveillance, and enforcement
to function properly. Reauthorization provides an opportunity to ensure
that the Commission has the staffing, technical expertise, and data
capabilities necessary to oversee emerging products and trading models
while continuing to fulfill its core mission under the Commodity
Exchange Act.
Prediction markets are regulated financial markets, not gambling
enterprises. Contracts traded on prediction markets are swaps whose
underlying value turns on the resolution of a future event, and they
are listed, traded, cleared, and settled through CFTC-regulated
entities, including Designated Contract Markets and Designated Clearing
Organizations. Market participants trade directly on regulated
exchanges or through registered Futures Commission Merchants and
Introducing Brokers, and transactions are subject to comprehensive
Federal oversight. Unlike casinos, sportsbooks, or other wagering
industries, prediction markets are governed by the CEA and its
implementing regulations, not state gaming laws. Prices are established
through transparent market mechanisms, trading activity is surveilled
for fraud and manipulation, and transactions flow through entities
subject to the Bank Secrecy Act and applicable anti-money laundering
and know-your-customer requirements.
Effective regulation of prediction markets relies on the CFTC's
ability to conduct ongoing market surveillance and to respond quickly
to potential misconduct. As event-based contracts increase in volume
and complexity, the Commission's access to real-time data, analytical
tools, and specialized personnel becomes increasingly important. A
reauthorized and well-equipped CFTC is better positioned to detect
fraud, deter manipulation, and address emerging risks before they
undermine market confidence or harm participants.
CPM members believe that the CFTC is the appropriate Federal
regulator for prediction markets and support clear statutory authority
and strong enforcement tools to oversee this growing segment of the
derivatives marketplace. Our members do not seek to evade regulation;
rather, they seek regulatory certainty, consistent oversight, and a
framework that evolves alongside innovation. Properly regulated
prediction markets can contribute to price discovery, information
aggregation, and risk management, all of which align with the CFTC's
core mission under the Commodity Exchange Act.
Regulatory clarity from the CFTC also supports compliance and
consumer protection by providing market participants with predictable
expectations regarding product design, disclosures, and operational
safeguards. Clear and consistent oversight enables firms to invest in
compliance infrastructure, internal controls, and risk-management
systems that reinforce market integrity. This clarity benefits not only
regulated entities, but also consumers and regulators by promoting
transparency and reducing uncertainty across the marketplace.
CPM members have strong internal rules governing trading activity,
including comprehensive prohibitions on insider trading. These rules
restrict participation by individuals with material non-public
information, by those who can influence or control the outcome of an
event, and by certain employees trading on contracts offered by their
own platforms. CPM members also collaborate with third parties,
including government agencies, professional sports leagues, and other
public and private institutions, to enhance screening protocols and
prevent misuse of insider information.
In conclusion, CPM and its members strongly support the
reauthorization of the CFTC and believe that prediction markets, when
properly regulated, can continue to operate as legitimate financial
markets that serve the public interest. Clear statutory authority,
strong enforcement, and modernized oversight will allow the CFTC to
fulfill its mission while enabling responsible innovation. CPM and its
members stand ready to work with Congress and the Commission to ensure
that prediction markets operate with integrity, transparency, and
robust consumer protections, and to help establish the United States as
the global standard for well-regulated prediction markets.
Thank you for the opportunity to provide this testimony.
Submitted Indian Gaming Association Brief by Hon. Gabe Vasquez, a
Representative in Congress from New Mexico
Overview of the CFTC and Sports Betting Through Events Contracts \1\
---------------------------------------------------------------------------
\1\ Editor's note: there does not appear to be an extant online
version of this ``brief''. There are differences in the brief submitted
by Mr. Davis of North Carolina as compared to the brief submitted by
Mr. Vasquez. As such both are published herein.
---------------------------------------------------------------------------
In 2025, the rapid emergence of online sports betting offered under
the guise of prediction markets licensed by the Commodity Futures
Trading Commission (``CFTC'') has posed a direct threat to Tribal
sovereignty and the Indian gaming industry. Despite being ``licensed''
by the CFTC, online sports betting/prediction markets constitute
unregulated illegal gambling, lack adequate consumer protections, and
violate Tribal, state and Federal laws. This memo outlines the concerns
posed by prediction markets.
Prediction Markets and Sports Betting
A growing number of online and cryptocurrency-related corporations
have registered as designated contract markets (``DCMs'') with the CFTC
to offer sports betting through their platforms, claiming that their
offerings are ``event contracts'' or financial instruments that are
subject to the exclusive jurisdiction of the CFTC. With the implicit
blessing of the CFTC, these DCMs and their partnering ``futures
commission merchants'' (FCMs) have offered online sports betting in
every jurisdiction in the United States--all 50 states and within the
lands of every federally recognized Indian Tribe, regardless of whether
the Tribal or state government permits gambling on their lands.
DCMs self-certify that they meet or will comply with the CFTC's
regulations and core principles. As a self-regulatory organization, a
DCM is responsible for enforcing its own rules, but it must comply with
CFTC principles and regulations, which cover areas like rule
compliance, market manipulation prevention, and financial integrity.
As of November 2025, the most prominent DCMs offering sports
betting through the CFTC are Kalshi and Crypto.com. Robinhood is an FCM
partnering with Kalshi to offer its online sports betting contracts.
The CFTC's inaction on this issue is enabling even more platforms to
flood the CFTC marketplace. Last week, FanDuel and DraftKings announced
that they will engage in prediction markets, with more platforms
expected to enter the market in the coming weeks.
The emergence of DCMs offering online sports betting stems from the
CFTC's unwritten policy changes. Prior to 2025, it was understood that
the Commodity Exchange Act (``CEA'') prohibited sports betting through
the CFTC. In 2010, through an amendment to the CEA, Congress included a
special rule for approval of event contracts that authorized the CFTC
to prohibit ``transactions that involve--activity that is unlawful
under any Federal or state law, terrorism, assassination, war, gaming,
other similar activity . . .''
On July 27, 2011, the CFTC promulgated regulations to implement
this provision that expressly prohibit swaps and event contracts
relating to gaming. The rule provides that ``a registered entity shall
not list for trading [a swap, contract, or transaction] that involves,
relates to, or references . . . gaming, or an activity that is unlawful
under any state or Federal law.''
Prior to 2025, the CFTC had consistently enforced its prohibitions
on event contracts involving gambling. DCM platforms, fearing legal
repercussions, did not offer sports-related contracts, which even
existing DCM/prediction market platforms admitted in Federal court
filings were prohibited under current law.
Unilateral policy changes and general inaction by the CFTC have
fostered the growth of sports betting through prediction markets in
2025. In February, the CFTC indicated that it would take a more hands
off regulatory approach to prediction markets, which has been
interpreted as tacit approval for prediction market expansion.
Further encouraging this expansion, in May of 2025, the CFTC
sought--and was granted--a voluntary dismissal of its appeal against
Kalshi, a self-certified DCM offering event contracts, in a case
involving betting on the outcome of the 2024 elections. This move ended
the Federal Government's legal challenge and opened the door for
enhanced prediction market offerings.
This extraordinary step takes the Tribes and states out of the
regulation of sports wagering. By allowing such contracts to exist on
the market, the CFTC is permitting the conduct of unregulated sports
betting, circumventing legal frameworks designed to protect Tribal
sovereignty, state rights, and consumer protection. Ongoing litigation
to halt these bets and regulatory enforcement actions across multiple
jurisdictions highlight the urgent need for clear Federal guidance to
resolve these jurisdictional conflicts and protect consumers and
established gaming regulatory structures.
The traditional purpose of event contracts was to aggregate
information and predict the likelihood of specific events for decision-
making, planning, or financial tools, usually tied to events with
clear, defined economic-related outcomes such as corporate earnings or
quantifiable damage from natural disasters. However, companies offering
event contracts are expanding the class of tradable instruments to
include sporting events and elections, among other things.
The CFTC has yet to prohibit sports-related futures contracts
outright, but it has expressed concern that such products may blur the
line between regulated financial instruments and unlawful gambling. On
September 30th, the CFTC issued a ``Staff Advisory'' to all ``market
participants'', including DCMs like Kalshi and Crypto.com, and FCMs
like Robinhood, that they ``should'' provide customers notice of
potential litigation risks and regulatory enforcement actions that
could impact ``sports-related event contract positions.'' The Staff
Advisory clarifies that the CFTC ``has not, to date, been requested to
take or taken any official action to approve the listing for trading of
sports-related event contracts . . . All sports-related event contracts
that are currently listed for trading on DCMs have been listed pursuant
to self-certifications . . . and the Commission has not, to date, made
a determination regarding whether any such contracts involve an
activity enumerated or prohibited under the [CEA or CFTC
regulations].''
While this most recent statement by the CFTC undercuts DCM's legal
arguments that the agency fully backs their offering of sports-related
event contracts, it falls far short of enforcing existing Federal
laws--including the CEA and the CFTC's own regulations, the Indian
Gaming Regulatory Act (``IGRA''), and the Wire Act, and completely
fails to protect Tribal and state sovereignty, consumers, and the
integrity of American sports.
Threats to Tribal Sovereignty
Gambling laws in the U.S. have traditionally been regulated at the
local level, allowing each Tribe and state the autonomy to decide which
forms of gambling are legal and how they should be governed. For state
governments, this decentralized model has allowed states to tailor
gambling regulations to their specific needs and concerns, whether it
be for casinos, lotteries, sports betting, online gambling, or horse
racing. Additionally, Tribal sovereignty plays a critical role in
gaming regulation on Tribal lands, where Tribes have the ``exclusive
right to regulate [and operate] gaming activity'' under IGRA.
Nationwide online sports betting through the CFTC's platforms
threatens to preempt Tribal and state laws. These platforms allow for
interstate gambling, bypassing the regulations, controls, and tax
revenues relied upon by Tribal and states governments. This undermines
the federalism that has allowed local governments to maintain control
over gambling within their territories.
In the 7 years since the Supreme Court's 2018 Murphy v. NCAA
decision, sports betting in the United States has grown slowly on a
Tribe-by-Tribe and state-by-state basis, which have built a
comprehensive regulatory system to protect consumers and the integrity
of sports.
Tribes offer sports betting as part of their class III gaming
operations, through compacts that have been carefully negotiated with
state governments pursuant to IGRA. These compacts often include
revenue sharing provisions, under which Tribes share a portion of their
revenue with a state in return for exclusivity agreements, which limit
the expansion of gaming within the state. Tribes delivered more than $2
billion in revenue sharing payments to states in 2024, and billions
more in indirect income, sales and other taxes paid by Tribal employees
and customers. In 2024, states collected approximately $3 billion in
taxes from sports betting through commercial gaming operations.
Tribes and states have developed comprehensive sports betting
regulations that include stringent consumer protections, including
establishing minimum age requirements, identity and location
verifications, strict responsible gaming standards, extensive
background checks for operators, and cooperation with amateur and
professional leagues to detect suspicious activity.
Prediction market platforms offer none of these essential
safeguards. Self-certified and essentially self-regulated DCMs offer no
consumer protections, permit gambling by 18 year olds, and offer no
location verification requirements or responsible gaming rules. These
operators aggressively advertise without the background checks and
disclosures of licensed gaming operations, all while avoiding, Federal,
Tribal, and state laws, regulations, and taxes.
The CFTC is not equipped to regulate gambling. The CFTC has an
annual budget of approximately $365 million with 636 full time
employees, a staff that is rapidly shrinking due to recent firings and
voluntary resignations. Congress approved this budget in FY 2024,
before the CFTC unilaterally decided to add nationwide sports betting
to its workload.
Those numbers pale in comparison to the regulatory systems of
Tribal and state governments, which invest more than $1.3 billion
annually gaming regulation, including a workforce of 8,000+ full time
employees that provide immediate oversight, customer security, consumer
protections, cyber-security and much more.
In short, the CFTC's inaction to prediction markets from offering
online sports betting as agency-approved contracts has created a
regulatory vacuum and represents a disaster waiting to happen.
Unless acted upon, the number of sports-based event contracts
traded on the Derivatives/Futures market is only expected to grow,
ushering in growing reason for concern for Tribal gaming operators and
regulators across the United States. It will be crucial moving forward
for Tribal governments to closely follow this matter as it evolves in
the CFTC and in the courts.
Enforce Existing Law and Reinforce the CEA
On October 24th, President Trump nominated Mike Selig to serve as
Chairman of the CFTC. Selig currently serves as Chief Counsel of the
SEC's Crypto Task Force and Senior Advisor to SEC Chairman Paul Atkins.
Selig was nominated just weeks after the Trump Administration pulled
the nomination of Brian Quintenz to serve as the CFTC Chair. The Senate
Agriculture Committee approved his nomination by a vote of 12-11 on
November 20, 2025.
During his nomination hearing, Mr. Selig failed to commit to
enforcing existing laws or regulations that clearly prohibit use of the
CFTC marketplace for gambling and sports betting. Instead, Selig
repeatedly stated that he would wait for direction from the Federal
courts. (Note: there are 20+ cases challenging DCMs offering sports
betting through CFTC-approved platforms).
It will take years for the Federal courts to reach a final
determination in these cases, and even that decision may not fully
settle the question. In the meantime, DCMs will continue to flood the
market with products that threaten consumer protections and violate
Tribal, state, and Federal laws.
Congress must fill the regulatory vacuum. We urge Congress to
increase oversight of the CFTC, pressing the agency to enforce the CEA
and the agency's existing regulations. In addition, we ask Congress to
amend the CEA to reinforce the existing prohibition against CFTC-
approved DCM's issuing event contracts relating to sports betting or
gambling.
______
Submitted Letter by Hon. Gabe Vasquez, a Representative in Congress
from New Mexico; on Behalf of Hon. Leonard Forsman, Chairman, Suquamish
Indian Tribe
December 17, 2025
Hon. Glenn Thompson,
Chairman,
U.S. House Committee on Agriculture,
Washington, D.C.;
Hon. Angie Craig,
Ranking Minority Member,
U.S. House Committee on Agriculture,
Washington, D.C.
Re: Suquamish Tribe's Comments on CFTC Reauthorization
Dear Chairman Thompson, Ranking Member Craig, & Members of the
Committee:
On behalf of the Suquamish Indian Tribe, a signatory to the 1855
Treaty of Point Elliott, I write to share our views as the Committee
considers reauthorization of the Commodity Futures Trading Commission
(CFTC) and potential amendments to the Commodity Exchange Act (CEA).
While the Suquamish Tribe supports well-regulated derivatives markets
that serve legitimate commercial and risk-management purposes, we are
increasingly concerned that the CEA is being used to circumvent
Federal, state, and Tribal gaming laws by enabling sports wagering and
casino-style gaming through so-called ``event contracts.'' These
developments undermine the carefully negotiated legal framework
governing gaming in Indian Country.
Under the Treaty of Point Elliott, the Suquamish people expressly
reserved the right to self-govern, manage our own affairs, and protect
the well-being of our community, including through the exercise of
gaming rights as defined and protected under Federal law. Event
contracts marketed and traded under CFTC oversight risk encroaching
upon these rights by creating de facto gambling products outside the
jurisdiction and safeguards of the Indian Gaming Regulatory Act (IGRA).
The Tribe's concerns were heightened by recent testimony before the
Senate during consideration of a nominee for CFTC Chairman. In response
to questions regarding potential conflicts between the CEA and IGRA,
the nominee declined to acknowledge those conflicts and stated that his
primary obligation would be to defend the Commodity Exchange Act above
all else. This testimony raises serious questions about the future role
of the CFTC in areas that directly intersect with Tribal gaming and
signals a troubling disregard for the Federal trust responsibility,
treaty obligations, and Congress's role in safeguarding Tribal rights.
As Congress considers CFTC reauthorization, it must carefully
evaluate the consequences of any expansion of the CFTC's regulatory
authority into areas that intersect with IGRA and Tribal gaming. Tribal
gaming is not simply a commercial endeavor. It is a fundamental
exercise of Tribal sovereignty conducted pursuant to IGRA and carefully
negotiated Tribal-state gaming compacts approved by the Secretary of
the Interior. Revenues generated from Tribal gaming provide essential
government services and programs for our community.
To everyday consumers, ``event contracts'' or ``prediction
markets'' are not perceived as federally regulated commodities
products, but as indistinguishable from traditional forms of gaming,
including sports wagering. Permitting the nationwide expansion of these
products without clear Congressional direction risks undermining Tribal
sovereignty and destabilizing the regulatory balance carefully
established by IGRA.
The Suquamish Indian Tribe respectfully urges the Committee to
address existing regulatory ambiguities and to consider targeted
amendments to the CEA that prohibit, or deem contrary to the public
interest, event contracts and similar instruments that function as
casino-style games. The Tribe further recommends that the Committee
clarify that CFTC may not approve, permit, or facilitate contracts that
constitute sports wagering.
I appreciate the Committee's leadership in modernizing the
oversight and regulation of commodity futures and derivatives markets.
Thoughtful and proactive action during CFTC reauthorization will
preserve the integrity of those markets while honoring Congress's
commitments to Tribal nations.
The Suquamish Indian Tribe stands ready to work with the Committee
as it considers this important reauthorization. Thank you for your
attention to these comments.
Respectfully,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Leonard Forsman,
Chairman.
CC:
The Honorable Emily Randall, U.S. House of Representatives
The Honorable Patty Murray, U.S. Senate
The Honorable Maria Cantwell, U.S. Senate
______
Submitted Statements by Hon. Gabe Vasquez, a Representative in Congress
from New Mexico; on Behalf of:
Statement 1
david bean, chairman, indian gaming association
Chairman Thompson, Ranking Member Craig, and Members of the
Committee, on behalf of the Indian Gaming Association (``IGA''), thank
you for holding this hearing to receive stakeholder perspectives for
the reauthorization of the Commodities Futures Trading Commission. My
name is David Bean, and I serve as the Chairman of the Indian Gaming
Association.
Founded in 1985, IGA is a national association of federally
recognized Indian Tribes united behind the mission of protecting Tribal
sovereignty and preserving the ability of Tribal governments to attain
economic self-sufficiency through gaming and other forms of economic
development.
We appreciate this timely opportunity to provide testimony for your
hearing to examine the need to reauthorize the Commodity Futures
Trading Commission (``CFTC''). We share the views expressed by
witnesses and Committee Members during the hearing that as Congress
considers the CFTC reauthorization it must also revisit the Commodity
Exchange Act (``CEA'') itself.
Inaction by the CFTC has led to the explosion of prediction market
platforms offering event contracts that are in fact nationwide online
sports gambling sites. In January of 2025, prediction markets initially
offered simple ``yes'' or ``no'' bets on the outcomes of a single
sporting event. However, the CFTC's complete lack of oversight or even
questioning of swaps or transactions relating to sporting events has
emboldened prediction markets to offer a wider range of gambling
options, including parlays, individual player proposition bets, and
more.
Just yesterday, KalshiEX LLC, notified the CFTC that it has self-
certified contracts on whether college athletes will enter the transfer
portal. The move drew immediate condemnation:
``The NCAA vehemently opposes college sports prediction
markets . . . It is already bad enough that student-athletes
face harassment and abuse for lost bets on game performance,
and now Kalshi wants to offer bets on their transfer decisions
and status. This is absolutely unacceptable and would place
even greater pressure on student-athletes while threatening
competition integrity and recruiting processes. Their decisions
and future should not be gambled with, especially in an
unregulated marketplace that does not follow any rules of
legitimate sports betting operators.'' a *
---------------------------------------------------------------------------
\a\ https://www.espn.com/college-football/story/_/id/47341610/
prediction-market-kalshi-intends-offer-trading-portal.
* Editor's note: references annotated with are retained in
Committee file.
It is crystal clear that prediction markets will not stop at sports
gambling. They will continue to push the envelope as long as the CFTC
continues to turn a blind eye.
This activity represents a direct threat to Tribal governments,
state governments, the public, and the very integrity of American
sports. We respectfully urge Congress to amend the CEA to reinforce
these existing prohibitions and ask that you conduct thorough oversight
of the CFTC to ensure that the agency is enforcing its own laws and
regulations.
The Importance of Indian Gaming to Tribal Government Economies
When the United States formed, it acknowledged Indian Tribes as
sovereign governments, entering into hundreds of treaties with Tribal
governments to establish commerce and trade agreements, form alliances,
and preserve the peace. The U.S. Constitution affirmed these treaties
and the sovereign authority of Indian Tribes as separate governments.
The Constitution's Commerce Clause expressly provides that ``Congress
shall have power to . . . regulate commerce with foreign nations, and
among the several states, and with the Indian Tribes.'' \1\
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\1\ In addition, the U.S. Constitution refers to Tribal citizens in
the Apportionment Clause, as ``Indians not taxed'', excluded from
enumeration for Congressional representation. The 14th Amendment
repeats the original reference to ``Indians not taxed'' and
acknowledges that Tribal citizens were not subject to the jurisdiction
of the United States. The Constitution also acknowledges that treaties
are the Supreme law of the land.
---------------------------------------------------------------------------
A handful of Tribal governments in the 1970's, tired of waiting on
the United States to fulfill its treaty and trust obligations to
Tribes, took measures to rebuild their communities by opening the first
modern Indian gaming operations. Tribes used the revenue generated from
Indian gaming to fund essential programs for reservation residents,
cover the Federal shortfalls, and to meet the basic needs of their
people. These acts of self-determination were met with legislative and
legal challenges lodged by states and commercial gaming interests.
In 1987, after years of contentious litigation, the U.S. Supreme
Court, in Cabazon Band of Mission Indians v. California, affirmed that
Tribal governments have full civil regulatory authority to govern
Tribal gaming activities on Tribal lands, exclusive of state government
regulation so long as state law did not criminally prohibit all forms
of gaming. On October 17, 1988, having been enacted by Congress,
President Reagan signed the Indian Gaming Regulatory Act (IGRA) into
law. IGRA divided gaming activities into three categories. Class I
gaming encompasses social and traditional forms of gaming conducted by
Tribes traditionally, assigning full regulatory oversight to Tribal
governments. Class II gaming encompasses bingo, lotto, and similar
games as well as non-house banked card games, assigning regulatory
oversight to Tribal governments and the newly established National
Indian Gaming Commission. Class III gaming encompasses all other forms
of gaming but requires the execution of a Tribal-state gaming compact
before a Tribal government may conduct Class III gaming. Sports betting
falls within Class III gaming, thereby requiring a Tribal-state gaming
compact before a Tribal government may conduct sports betting.
The NIGC is the first and only Federal agency created and
explicitly authorized by Congress to provide regulatory oversight in
relation to gaming activities. In fact, the Justice Department strongly
opposed IGRA in the years prior to its enactment on the grounds that as
a matter of policy the Federal Government should not be involved in the
direct regulation of gaming activities, which DOJ believed comes within
the province of the states. Like most legislation, IGRA is the product
of compromise between Federal, state, and Tribal interests. Congress
made clear that the purposes of IGRA are to: (1) provide a statutory
basis for the operation of gaming by Indian Tribes as a means of
promoting Tribal economic development, self-sufficiency, and strong
Tribal government; (2) provide a statutory basis for the regulation of
gaming by an Indian Tribe adequate to shield it from organized crime,
and to ensure that the Indian Tribe is the prime beneficiary of the
gaming operation; and (3) establish an independent Federal regulatory
authority for gaming on Indian lands, Federal standards for gaming, and
the NIGC to meet Congressional concerns regarding gaming and to protect
such gaming as a means of generating revenue.
To understand the significance of IGRA and why Congress was willing
to overlook the longstanding policy of leaving gaming regulation to
state governments, there are two key historic facts that must be
understood. The first is the special trust relationship between the
United States, which entails both moral and legal obligations to Tribal
governments. The second is that Tribal governments, like state
governments, are an integral part of the Constitutional framework of
the United States as reflected in Article I, Section 8 cl. 3 of the
Constitution itself.
Except in the few, rare cases where Tribes owned developable
natural resources, such as oil, gas, and other extractive minerals,
Tribal governmental revenues were largely insufficient to meet the
needs of Tribal citizens. Most Tribal governments were largely
dependent on Federal resources for basic governmental services and even
these were not sufficient fill the gap for even the most basic
services. Much of Indian Country lacked adequate education, law
enforcement, fire protection, water and sewage, doctors, clinics,
hospitals, schools, roads, bridges, and other basic infrastructure and
services. Even today, many Tribal citizens have no or limited access to
clean water and electricity, much less cellular and internet services.
IGRA reflects Congress' ``outside the box'' approach to addressing
these terrible conditions. For those Tribal governments that have been
able to use gaming as a means of generating governmental revenue, the
difference has been astounding. By any socioeconomic measure,
improvements have been dramatic from increases in life expectancy to
community health and public safety, to education to infant mortality
rates to jobs and employment, and the list goes on. Gaming revenues
serve as the tax base that Tribal governments previously never had.
Tribal gaming revenue builds and strengthens Tribal governments and
improves the quality of life in Indian Country. It does not enrich the
few; it builds nations. Indian gaming is the economic bloodline for 243
Tribal governments. Tribal governments use Indian gaming revenue to put
a new face on their communities, dedicating resources to improving
basic health, education, and public safety services on Indian lands.
Tribes use gaming revenue to improve infrastructure, including the
construction of roads, hospitals, schools, police buildings, water
projects, communications systems, and so much more.
In 2024, 243 Tribal governments in 29 states generated $43.9
billion in direct revenues through Indian gaming operations and $5.7
billion in ancillary revenues \2\ for a total of $49.6 billion in total
revenues. Without question, Indian gaming is the most successful tool
for economic development for many Indian Tribes in over 2 centuries.
---------------------------------------------------------------------------
\2\ Ancillary revenues include hotels, food and beverage,
entertainment, and other activities related to a Tribal government's
gaming operation.
---------------------------------------------------------------------------
For many Tribes, Indian gaming is first and foremost about jobs.
Nationwide, Indian gaming is a proven job creator. In 2024, our
industry generated more than 274,000 direct jobs. When indirect jobs
are included, Indian gaming employs more than 672,000 Americans. Indian
gaming has provided many Native Americans with their first opportunity
for work at home on the reservation. Because of Indian gaming,
reservations are again becoming livable homesteads, as promised in
hundreds of treaties. These American jobs go to both Indians and non-
Indians alike.
Tribal governments realize that none of these benefits would be
possible without a strong regulatory system to protect Tribal gaming
revenues and preserve the integrity of our operations. Tribes invest
more than $450 million annually, employing more than 6,000 regulators
to oversee Indian gaming operations daily.\3\ The regulatory system
established under IGRA vests local Tribal government regulators with
the primary day-to-day responsibility for regulating Indian gaming
operations. No one has a greater interest in protecting the integrity
of Indian gaming and our assets than Tribal governments. While Tribes
take on the primary day-to-day role of regulating Indian gaming
operations, IGRA requires coordination and cooperation with the Federal
and state governments to make this comprehensive regulatory system
work. Our comprehensive regulatory system ensures consumer protection,
fraud prevention, and local decision-making to address social
implications like problem and underage gaming.
---------------------------------------------------------------------------
\3\ NIGC Budget Justifications and Performance Indication FY2025 at
NIGC-1; https://www.doi.gov/sites/default/files/documents/2024-03/
fy2025-508-nigc-greenbook.pdf.
---------------------------------------------------------------------------
At the Federal level, Tribes work with the NIGC, the FBI and U.S.
Attorneys offices to investigate and prosecute anyone who would cheat,
embezzle, or defraud an Indian gaming facility--this applies to
management, employees, and patrons. 18 U.S.C. 1163. Tribal regulators
also work with the Treasury Department's Internal Revenues Service to
ensure Federal tax compliance and the Financial Crimes Enforcement
Network (FinCEN) to prevent money laundering.
This comprehensive multi-layered system of regulation is costly and
time consuming, but it has proven its worth year after year. The credit
for this system goes to the Tribal leaders who make the decisions to
fund this system and to the thousands of men and women who have devoted
their lives to protecting Tribal assets and the integrity of our
operations.
Gambling through the CFTC Violates Tribal, State, and Federal Laws
Sports betting that is being conducted through prediction markets--
Designated Contract Markets (``DCM'') licensed by the CFTC--violates
Tribal, Federal, and state laws, including the Indian Gaming Regulatory
Act, which expressly provides Tribal governments with exclusive
authority to regulate gaming on Indian lands in partnership with states
and the NIGC.
Background: Sports Betting in the United States
Historically, gambling in the United States has been subject to the
local decision making of Tribal and state governments. Where they chose
to legalize the activity, states and Tribes establish gaming
commissions and control boards to oversee the industry and enforce
local laws and regulations.
Gambling on the outcomes of sporting events has a more complicated
and relatively recent history. In 1992, Congress sought to prohibit all
forms of sports betting in the United States through enactment of the
Professional and Amateur Sports Protection Act (``PASPA''). While
several state governments were exempted from the nationwide
prohibition, gambling on sporting events was generally prohibited at
the Federal level for more than 25 years.
In May of 2018, the United States Supreme Court, in Murphy v. NCAA,
struck down PASPA as violating the Tenth Amendment's anti-commandeering
doctrine. Murphy returned oversight of sports betting to local Tribal
and state government policy makers. In the 8 years since the Murphy
decision, sports betting has grown slowly on a Tribe-by-Tribe and
state-by-state basis.
In the more than 7 years since Murphy, a number of states chose to
continue the prohibition against sports betting for religious, moral,
and other reasons. Two states, Utah and Hawaii, criminally prohibit
nearly all forms of gambling within their jurisdictions. Nine other
states--Alabama, Alaska, California, Georgia, Idaho, Minnesota,
Oklahoma, South Carolina, and Texas--prohibit sports betting.
Those jurisdictions that have legalized sports betting set
parameters that include age restrictions--with the great majority
restricting sports betting to persons 21 years old and older, problem
gambling measures, prohibitions against betting on local sports teams,
prohibitions against betting on high school and college sports,
prohibitions against player proposition bets, and some also require
operators to offer mandatory deposit limits and session time limits,
integrated with local problem gambling helplines and self-exclusion
systems.
Tribal and state regulatory systems ensure full transparency, work
with the leagues to protect the integrity of American sports and
maintain strict consumer safeguards and responsible gaming practices.
It's a proven framework that protects players and the public while
delivering resources to benefit local community.
Under this system, elected leaders in each Tribe and state decide
whether to allow sports betting, and in return, economic and tax
benefits flow directly back to their communities.
Under IGRA, Tribal governments use 100 percent of all revenue
generated from gaming, including sports betting, to Tribal programs and
services as well as contributions to state and local governments.
Pursuant to some Tribal-state gaming compacts, Tribes also share a
portion of their sports gambling revenue with state governments.
In 2024, state governments generated approximately $2.5 billion
from sports wagering. States use the revenue generated from sports
gambling to offset costs of regulation, employ problem gambling
programs, and direct remaining revenue towards local priorities,
including education and elder programs, property tax relief,
infrastructure and public services, and other initiatives.
There is an ongoing debate among Tribes and states that have
legalized sports gambling about whether to offer the activity on the
internet. To some, online sports betting poses added risks to underage
and problem gambling, heightened risks of addiction, mental health
concerns, and personal financial and other concerns.
Prediction markets that offer gambling on the outcome of sports
through event contracts completely sidestep these debates, ignoring the
consequences, and for nearly 1 year now, have forced their way into the
homes of every American family in direct subversion of Tribal and state
policy makers. Sports betting conducted pursuant to prediction markets
also circumvents the ability of states to generate revenue, offers no
local benefits, and offers none of the consumer protections or detailed
gambling regulations required by Tribal and state governments.
In addition, for Indian Country, prediction markets that offer
sports gambling directly violate Tribal sovereignty and IGRA.
Prediction markets offer their online gambling contracts nationwide in
all 50 states and on every Indian reservation in the nation. These
operators conduct gaming activities on Indian lands without Tribal
government consent, licensure, or regulatory oversight. This is a
direct violation of IGRA, which confers exclusive authority to Tribal
governments to regulate gaming activities on Indian lands. The
proponents of sports wagering contend that the activity is an
innovative use of the prediction market, but their advertising reveals
the truth. The wagering aspect can hardly be characterized as thinly
disguised. To grant these proponents a path around true regulatory
oversight abandons the interests of consumers and constitutes a
betrayal of Tribal governments to whom the United States holds the
highest duty of trust.
The CFTC Lacks the Capacity to Regulate Gambling
The CFTC was never intended to serve as a regulatory agency over
gaming activities and has neither the capacity nor the expertise to
provide regulatory oversight at the level needed to protect consumers,
prevent fraud and criminal infiltration, or protect against cheating
and corruption.
The CFTC is a statutory agency created under the Commodity Futures
Trading Commission Act of 1974, charged with the responsibility of
regulating futures and derivatives markets in order to promote market
integrity, protect market participants, and ensure the proper
functioning of price discovery and risk management mechanisms. Its
mission is essential to protect both market participants and the
broader public from fraud, manipulation, and systemic risk. As Congress
considers reauthorization of this agency, we urge you to address the
significant concerns raised by CFTC's recent willingness to allow
prediction markets to manipulate the authority of the CEA and the
CFTC's own regulations to offer event contracts that constitute illegal
sports betting primarily designed to avoid state, Tribal and other
Federal laws and regulations.
The CEA, codified at 7 U.S.C. 1 et seq., provides the CFTC with
jurisdiction over ``contracts of sale of a commodity for future
delivery'' and related derivatives. Congress has consistently
reaffirmed that the purpose of this jurisdiction is to regulate markets
that serve bona fide hedging and price-discovery functions that serve
an inherent economic interest, not to authorize speculative gambling on
the outcomes of events unrelated to economic commodities.
The Commodity Futures Modernization Act of 2000 (``CFMA'')
significantly deregulated derivatives markets, with an express goal of
limiting regulation of over-the-counter swaps and energy derivatives.
That law established a regulatory void that permitted the highly risky
credit default swap market to flourish, which proved a key factor in
the 2008 Financial Crisis.
Congress acted to fill the regulatory voids created by the CFMA
when it enacted the Dodd-Frank Act of 2010, which significantly
overhauled the CFTC.
While Dodd-Frank did not directly restore a broad economic purpose
test, it did empower regulators, especially the CFTC, to use public
interest standards, effectively bringing back aspects of the economic
purpose test for new derivatives, particularly event contracts, by
requiring evaluation for hedging/commercial uses versus pure gambling.
Dodd-Frank amended the CEA at 7 U.S.C. 7a-2 (``Common Provisions
Applicable to Registered Entities''), which included a special rule for
CFTC review and approval of event contracts and swaps. The special rule
provides that the CFTC may determine that ``agreement, contracts, or
transactions are contrary to the public interest if the agreements,
contracts, or transactions involve--activity that is unlawful under any
Federal or state law; terrorism, assassination, war, gaming or other
similar activity determined by the Commission by rule or regulation, to
be contrary to the public interest.''
On July 27, 2011, the CFTC published a regulation implementing the
special rule under 7a-2. The regulation expressly provides that ``[a]
registered entity shall not list for trading or accept for clearing on
or through the registered entity any of the following:
``(1) An agreement, contract, transaction, or swap based upon
an excluded commodity, as defined in Section 1a(19)(iv) of the
Act, that involves, relates to, or references terrorism,
assassination, war, gaming, or an activity that is unlawful
under any state or Federal law; or
``(2) An agreement, contract, transaction, or swap based upon
an excluded commodity, as defined in Section 1a(19)(iv) of the
Act, which involves, relates to, or references an activity that
is similar to an activity enumerated in 40.11(a)(1) of this
part, and that the Commission determines, by rule or
regulation, to be contrary to the public interest.''
17 CFR 40.11 Review of event contracts based upon certain
excluded commodities. As a result, the CEA and the CFTC's existing
regulations prohibit registered entities from listing transactions that
involve or relate to gaming--commonly defined as gambling. Despite this
clear prohibition, over the past year, the CFTC has permitted a growing
number of its registered entities to offer an ever-growing range of
gambling contracts on the outcomes of sporting events, including
moneyline bets on individual games, parlays on multiple games,
proposition bets on individual performance.
While the law and regulation are clear, prediction markets have
attempted to blur the lines between gambling and investing.
The most prolific DCM currently licensed by the CFTC that offers
gambling on the outcome of sports is KalshiEX LLC (``Kalshi''). Kalshi
has attempted to exploit the lack of defined terms in the CEA and CFTC
regulations to further complicate the issue of prediction market-sports
gambling in its legal filings and its lobbying efforts to oppose the
enforcement of existing laws and regulations that prohibit gambling
through financial exchanges.
Last year, in defense of its event contracts relating to the
outcomes of the 2024 Federal elections, Kalshi admitted that the CEA
and CFTC regulations did prohibit event contracts on the outcome of
sporting events. Below is a list of examples provided by Mr. Daniel
Wallach, a well-respected sports betting attorney, through a post on
LinkedIn, where Kalshi admits in court proceedings that event contracts
relating to the outcome of sports violate the CEA and CFTC regulations:
``Congress did not want sports betting to be conducted on
derivatives markets.''--Kalshi's Initial Brief filed in the
D.C. Circuit on Nov. 15, 2024, at p. 41
``Evidently, Congress sought to prevent exchanges from
facilitating casino-style or sports gambling.''--Kalshi's
Initial Brief filed in the D.C. Circuit on Nov. 15, 2024, at p.
45
``[C]ontracts relating to games--again, activities conducted
for diversion or amusement--are unlikely to serve any
`commercial or hedging interest.' ''--Kalshi's Initial Brief
filed in the D.C. Circuit on Nov. 15, 2024, at p. 45
``Congress was particularly concerned at the time it enacted
this statute about sports betting and that was probably what
they were getting at with the word `gaming.' ''--Kalshi to the
D.C. Circuit at the January 17, 2025 oral argument (at 49:50-
50:08)
``The `gaming' category reaches contracts contingent on
games--for example, whether a certain team will win the Super
Bowl. It thus functions as a check on attempts to launder
sports gambling through the derivatives markets.''--Kalshi MOL
in Support of MSJ, Jan. 25, 2024, at 16
``Football, horseracing and golf. They're all games . . .
It's something that has no inherent economic significance.''--
Kalshi's May 30, 2024 oral argument to the district court on
its motion for summary judgment, Dkt. # 40, at p. 15
``Contracts that involve games are probably not the type of
contracts that we want to be listed on an exchange, because
they don't have any real economic value to them.''--Kalshi's 5/
30/24 oral argument to the district court on its motion for
summary judgment, Dkt. # 40, at p. 15.b
---------------------------------------------------------------------------
\b\ See Daniel Wallach LinkedIn Post at https://www.linkedin.com/
posts/amanda-fischer-21877210_the-maryland-federal-court-is-right-to-
demand-activity-7335376474855661570-uib_.
In January of 2025, Kalshi completely reversed the positions listed
above by self-certifying event contracts directly related to the
outcomes of sporting events.
Kalshi and other prediction markets recognized enforcement
weaknesses at the CFTC and have quickly exploited them. The first sport
event contracts that CFTC inaction enabled were offered by DCMs in
January 2025. There was approximately $1.3 million in volume related to
Super Bowl LIX. Ten months later, in October of 2025, prediction
markets reported more than $4 billion in monthly volume related to
sport event contracts.
Because CFTC regulations allow prediction markets to self-certify
event contracts without pre-clearance from the agency, companies can
launch gambling products, generate profits, and then litigate in court
later. This litigation-driven business model has resulted in 26 pending
lawsuits to date, where states, Tribal governments, and individual
consumers argue that the prediction markets violate Federal, state and
Tribal law and exploit consumers.
While prediction markets argue in court that their contracts on the
outcomes of sporting events are not gambling, they openly advertise
that their contracts are ``legal'' gambling. Prediction markets have
spent millions of dollars to advertise their products as legalized
sports betting in all 50 states. One advertisement from January by
prediction market Kalshi stated that it is ``The First Nationwide Legal
Sports Betting Platform.'' Kalshi also ran advertisements during the
college basketball tournament in Texas and California--where all sports
betting is illegal--that said ``Make $ on March Madness'' and ``Legal
in Texas'' and ``Legal in California''. Another advertisement said
``Sports betting is officially legal in Texas with Kalshi. The first
federally regulated exchange where you can bet on real outcomes.''
Again, all sports betting is illegal under state law in Texas and
California. Thus, these prediction markets are offering contracts on
sport event outcomes and intentionally misleading consumers and
purposefully thwarting state laws.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
As noted above, this amounts to nationwide online gambling that has
deluged every corner of the United States. For decades, state and
Tribal governments have debated concerns about the impacts of online
gambling as it draws teenagers, poses added risks to problem gambling,
and heightens risks of addiction, mental health concerns, and personal
financial and other concerns. Prediction markets sidestep these debates
and ignoring the consequences.
Conclusion
It is no coincidence that the prediction market corporations
selected the CFTC as the financial regulatory agency to push out their
self-certified self-regulated online gambling platforms. The prediction
markets recognized regulatory weakness at the CFTC, and they have
actively exploited the agency's lack of capacity or lack of will to
enforce its regulations.
Complete inaction by the CFTC proves this point. Prediction markets
have offered sports betting for 11 months now. Just weeks ago, the CFTC
issued a statement that the agency ``has not, to date, made a
determination regarding whether'' these contracts involve a prohibited
activity. No legitimate Federal regulatory agency would publicly admit
that it has failed to even question activity that blatantly violates
the law and regulations directly under its charge.
The prediction market platforms are counting on continued inaction
from the CFTC. They will continue to push the limits of and blur the
lines between event contracts and gambling. Sports betting is only the
beginning.
We respectfully urge this Committee and Congress to put a stop to
this illegal activity by amending the CEA to reinforce the existing
prohibition against casino gambling in general and sports betting in
particular.
Statement 2
hon. kenneth choke, chairman, nisqually indian tribe
Chair Thompson, Ranking Member Craig, and Honorable Members of the
Agriculture Committee, thank you for the opportunity to submit this
testimony. My name is Ken Choke, and I have the honor of serving as
Chairman of the Nisqually Indian Tribe (``Tribe''), a signatory to the
Treaty of Medicine Creek of 1854. The Tribe resides on the Nisqually
Reservation, which was established by the treaty and represents a mere
fragment of the Tribe's ancestral lands. On January 20, 1856, an
executive order enlarged the reservation to 4,717 acres on both sides
of the Nisqually River.
The United States promised the Tribe that the Reservation would be
its forever. Unfortunately, in the winter of 1917 the U.S. Army moved
onto Nisqually lands and ordered our ancestors from their homes without
any warning. Later, Pierce County condemned 3,353 acres of Nisqually
land and transferred it to the Army to expand the Fort Lewis base,
which would become Joint Base Lewis-McChord (``JBLM'').
This condemnation deprived the Tribe of 70% of our lands and forced
our people to crowd on the remaining land on one side of the Nisqually
River. Today, the Tribe is bounded on one side by the Nisqually River
and surrounded by JBLM. Overcrowding is a major issue as the Tribe has
nowhere to expand to meet its growing population.
Under that treaty, the Nisqually Tribe reserved--not received--the
right to self-govern. That treaty is supreme law of the land, and it
carries with it a Federal trust responsibility to uphold promises made
by the United States to our people, including the protection of our
inherent rights to govern our lands, our economy, and our future.
I provide this testimony to share Tribal expertise and perspective,
and to offer caution as the Committee considers the reauthorization of
the Commodity Futures Trading Commission (``CFTC'').
The CFTC is a statutory agency established by Congress under the
Commodity Futures Trading Commission Act of 1974. Its mission is to
regulate futures, options, and derivatives markets that serve
legitimate economic purposes, including price discovery and risk
management, while protecting market participants and the public from
fraud, manipulation, and systemic risk. The Nisqually Tribe supports
the CFTC's core mission and recognizes the importance of clear and
modern Federal oversight of U.S. derivatives markets.
As part of the CFTC reauthorization process, the Nisqually Tribe
respectfully recommends that Congress address a growing issue that
needs additional statutory clarity. This past year, certain
``prediction markets'' have offered event contracts tied to the
outcomes of sporting events.
Operating within regulatory gaps, these products raise important
questions about the appropriate boundary between federally regulated
derivatives markets and gambling activities regulated under Tribal,
state, and Federal law.
These event contracts function in practice like sports betting.
Their rapid emergence has created uncertainty regarding the scope of
the Commodity Exchange Act (``CEA''), codified at 7 U.S.C. 1 et seq.,
the respective roles of Federal, state, and Tribal regulators, and the
expectations of consumers. Clear guidance from Congress would help
ensure consistent interpretation of the law and greater regulatory
certainty for all stakeholders.
Current CFTC regulations permit self-certification of new
contracts, a framework that has supported innovation in derivatives
markets. But at the same time, the introduction of sports-based event
contracts has highlighted challenges in applying existing regulatory
tools to novel products. These developments suggest that additional
direction from Congress would help ensure continued alignment with the
intent of the CEA.
Federal law, including the Indian Gaming Regulatory Act (``IGRA''),
establishes a cooperative framework requiring Tribal nations and states
to coordinate on certain gaming activities, including sports betting
where authorized. The Nisqually Tribe operates the Red Wind Casino, a
cornerstone of our self-sufficiency, which provides jobs, supports
vital programs, and generates revenue to support Tribal health care,
education, and housing. The regulatory framework of IGRA and the
carefully negotiated Tribal-state compacts that implement it, form the
foundation of that success.
IGRA ensures there is a comprehensive regulatory structure that
reflects deliberate policy choices made by Congress, Tribes, and states
and is designed to protect consumers and ensure accountability. As
Congress reauthorizes the CFTC, it is important that this process
reflect a clear commitment to the integrity of IGRA and the rights of
Tribal governments. Regulatory ambiguity poses a real and imminent
threat to both the U.S. derivatives market and Tribal economies.
As part of the CFTC reauthorization process, the Nisqually Tribe
respectfully encourages Congress to provide statutory clarity
confirming that the CFTC's jurisdiction is focused on regulating
contracts that serve legitimate hedging and price-discovery functions,
to provide express guidance in the Commodity Exchange Act regarding the
treatment of event contracts tied to sports outcomes, and to direct the
CFTC to apply enforceable standards that any permitted event contracts
serve a legitimate economic purpose and maintain public confidence in
regulated markets. Clarifying the treatment of sports-based event
contracts would support regulatory certainty, consumer protection, and
respect for existing Tribal and state governance structures.
The treaty our ancestors signed requires that our right to self-
determination be honored not only in law, but in practice. Today, that
right is being eroded by regulatory ambiguity that Congress has the
power to clarify and correct. We seek a path forward that protects U.S.
derivatives markets while honoring the Federal trust responsibility.
Thank you for the opportunity to share our concerns and for your
commitment to upholding treaty rights. The Nisqually Tribe looks
forward to working collaboratively with Congress, regulators, Tribes,
and stakeholders as these matters are considered.
Statement 3
hon. glen d. nenema, chairman and chief executive officer, kalispel
tribe
My name is Glen Nenema, and I serve as Chairman and CEO of the
Kalispel Tribe located in eastern Washington State. Thank you for the
opportunity to submit testimony for the record regarding the
reauthorization of the Commodity Futures Trading Commission (``CFTC'').
The CFTC is a statutory agency established by Congress under the
Commodity Futures Trading Commission Act of 1974. Its mandate is clear:
to regulate futures, options, and derivatives markets that serve
legitimate economic purposes, including price discovery and risk
management, while protecting market participants and the public from
fraud, manipulation, and systemic risk.
As Congress considers reauthorization of the CFTC, the Kalispel
Tribe raises an urgent concern. Over the past year, the CFTC has
permitted so-called ``prediction markets'' to exploit gaps and
ambiguities in the current regulatory framework to offer event
contracts that are, in substance and effect, illegal sports betting.
These products are deliberately structured to evade state, Tribal, and
other Federal laws governing gambling, and they undermine the integrity
of the Commodity Exchange Act (``CEA''), Tribal sovereignty, and
consumer protections.
The Commodity Exchange Act Does Not Authorize Sports Betting
The Commodity Exchange Act, codified at 7 U.S.C. 1 et seq.,
provides the CFTC with jurisdiction over contracts of sale of a
commodity for future delivery and related derivatives. Congress has
consistently affirmed that this jurisdiction exists to regulate markets
serving bona fide hedging and price-discovery functions, not to
authorize speculative sports wagering. The CFTC has historically
enforced this limitation and prohibited contracts based on unrelated
events such as terrorism, assassination, gambling, or other events
deemed inappropriate for regulated derivative markets. Despite this
history, over the past year, the CFTC has failed to prevent several
prediction markets from offering event contracts tied to sporting event
outcomes. These contracts are indistinguishable from sports betting and
are openly marketed as such.
Regulatory Loopholes Result in Litigation
Prediction markets are exploiting a weakness in the CFTC's
regulatory framework that allows self-certification of event contracts
without pre-clearance from the agency. Combined with limited agency
resources, this structure results in slow, reactive oversight, allowing
prediction markets to launch gambling products, generate substantial
profits, and force governments to challenge them after the fact through
litigation.
To date, this approach has resulted in 26 pending lawsuits brought
by states, Tribal governments, and individuals. These cases allege
violations of Federal, state, and Tribal law, as well as consumer
protection violations that disproportionally affect vulnerable
populations. While the Kalispel Tribe is not involved in litigation, we
are carefully monitoring all developments that may impact the Federal
Government's trust obligations to Tribes and Federal Indian law.
Tribal Governments Are Being Undermined
Federal law, including the Indian Gaming Regulatory Act (``IGRA''),
requires Tribal nations to coordinate with states regarding certain
gaming activities, including sports betting. At Kalispel, we held
sovereign-to-sovereign negotiations for our Tribal-state gaming compact
and implemented strong regulatory frameworks that include age
verification, responsible gaming programs, consumer protections, and
enforcement. Prediction markets offering sports event contracts do none
of this, reduce the value of these agreements, and threaten critical
services funded by gaming revenue.
Impacts to Tribal Economies
The Kalispel Tribe wholly-owns Northern Quest Resort & Casino.
Indian gaming, and Northern Quest Resort & Casino, have been a game
changer for the Tribe and our members. The Tribe went from being one of
the poorest communities in the country before Indian gaming to
utilizing our gaming revenue to support our government infrastructure,
housing, education, healthcare, and essential community services. Our
Tribal gaming operations are rigorously regulated by our Tribal
regulators, the National Indian Gaming Commission, and state partners.
These systems exist to protect consumers and address problem gambling.
Prediction markets lack comparable regulatory oversight and pull
revenue away from Tribal nations providing essential government
services to residents in our community. Any infringement into Tribal
sovereignty and Indian gaming is a direct threat on the Tribe's
infrastructure and future.
Recommendations for Congressional Action
The Kalispel Tribe strongly urges Congress to act decisively and
prevent prediction markets from further expanding illegal sports
betting and other forms of traditional gambling under the name of
``event contracts.'' To restore the integrity of the CEA and the CFTC's
mission, the Kalispel Tribe makes the following recommendations:
Clarify and reaffirm that the CFTC's jurisdiction extends
only to contracts that serve legitimate hedging and price-
discovery functions, not speculative wagering on sporting
events;
Amend the Commodity Exchange Act to expressly prohibit the
listing, trading, or clearing of event contracts based on
sports outcomes; and
Require the CFTC to adopt and enforce rigorous standards
ensuring that any permissible event contract advances
legitimate economic purposes and does not erode public trust in
regulated markets.
Conclusion
The CFTC's mission is to promote the integrity, resilience, and
vibrancy of the U.S. derivatives markets through sound regulation.
Allowing ambiguous event contracts based on sporting events stretches
the agency's mandate and entangles the CFTC in areas that belong within
state and Tribal gaming regulation. CFTC reauthorization presents an
opportunity for Congress to reinforce the agency's core mission,
protect consumers, and respect Tribal sovereignty by preventing the
unchecked expansion of unregulated gambling. The Kalispel Tribe
appreciates the opportunity to submit this testimony and looks forward
to working with the Committee.
Statement 4
thora w. padilla, president, mescalero apache tribe
Thank you, Chairman Thompson, Ranking Member Craig, and Members of
the Committee, for the opportunity to submit testimony for the record
for the Committee's December 11, 2025 hearing on efforts to reauthorize
the Commodity Futures Trading Commission (``CFTC'').
My name is Thora Walsh Padilla, and I am honored to serve as
President of the Mescalero Apache Tribe (``Mescalero'' or ``Tribe'').
The Tribe shares the views expressed by witnesses and Committee Members
during the hearing that as Congress considers a reauthorization for the
CFTC it must also revisit the Commodity Exchange Act (``CEA'') itself.
Inaction by the CFTC has led to the explosion of prediction markets
offering event contracts that are in fact nationwide online sports
betting sites.
Just yesterday, KalshiEX LLC, notified the CFTC that it has self-
certified contracts on whether college athletes will enter the transfer
portal. The move drew immediate condemnation:
``The NCAA vehemently opposes college sports prediction
markets . . . It is already bad enough that student-athletes
face harassment and abuse for lost bets on game performance,
and now Kalshi wants to offer bets on their transfer decisions
and status. This is absolutely unacceptable and would place
even greater pressure on student-athletes while threatening
competition integrity and recruiting processes. Their decisions
and future should not be gambled with, especially in an
unregulated marketplace that does not follow any rules of
legitimate sports betting operators.'' a *
---------------------------------------------------------------------------
\a\ https://www.espn.com/college-football/story/_/id/47341610/
prediction-market-kalshi-intends-offer-trading-portal.
* Editor's note: references annotated with are retained in
Committee file.
It is crystal clear that prediction markets will not stop at sports
gambling. They will continue to push the envelope as long as the CFTC
continues to turn a blind eye.
This activity represents a direct threat to Tribal governments,
state governments, the public, and the very integrity of American
sports. We respectfully urge Congress to amend the CEA to reinforce
these existing prohibitions and ask that you conduct thorough oversight
of the CFTC to ensure that the agency is enforcing its own laws and
regulations.
Importance of Indian Gaming to Tribal Government Economies
Mescalero has strived to achieve economic self-sufficiency. Indian
gaming has proven to serve as the most reliable tool for Tribal
governments nationwide to achieve this goal. The Inn of the Mountain
Gods is the primary economic engine of the Mescalero Apache Tribe. Our
gaming operation provides hundreds of jobs for our citizens and those
in nearby communities. It fuels revenue for our Tribe to provide
essential services to Reservation residents in the form of enhanced
education, health care, fire suppression, conservation law enforcement,
and critical infrastructure.
Fourteen Tribal governments in the State of New Mexico carefully
negotiated gaming compacts pursuant to the Indian Gaming Regulatory Act
(``IGRA'') that carefully balance the economic interests of Tribes and
the state with social and moral concerns raised by gambling. For thirty
years now, Tribal governments have offered casino gambling at brick-
and-mortar operations. Tribes share a portion of this revenue with the
State of New Mexico to offset regulatory costs incurred by the New
Mexico Gaming Control Board and fund the state's problem gaming
programs.
Tribal governments realize that none of these benefits would be
possible without a strong regulatory system to protect gaming revenues
and preserve the integrity of our operations. Tribes nationwide invest
more than $450 million annually, employing more than 6,000 regulators
to oversee Indian gaming operations daily.\1\ Our regulators work with
the New Mexico Gaming Control Board, the National Indian Gaming
Commission, the FBI, the IRS, the Financial Crimes Enforcement Network,
and other agencies.
---------------------------------------------------------------------------
\1\ NIGC Budget Justifications and Performance Indication FY2025 at
NIGC-1; https://www.doi.gov/sites/default/files/documents/2024-03/
fy2025-508-nigc-greenbook.pdf.
---------------------------------------------------------------------------
Since the Supreme Court's 2018 Murphy decision that struck down the
Federal prohibition against sports betting, several Tribes, including
Mescalero, began to offer sports wagering at Indian gaming operations.
To protect the integrity of our sporting events, we ensure that our
operations comply with our gaming compact, which includes a strict 21
year age restriction and problem gambling measures.
Our regulatory system ensures full transparency, working with the
leagues to protect the integrity of American sports and maintain strict
consumer safeguards and responsible gaming practices. It's a proven
framework that protects players and the public while delivering
resources to benefit local communities.
The State of New Mexico and Tribes continue to prohibit sports
betting on the internet. After much debate, we view that online sports
betting poses added risks to underage gambling and problem gambling,
heightened risks of addiction, mental health concerns, and personal
financial and other concerns.
Prediction markets that offer gambling on the outcome of sports
through event contracts violates this local decision, ignores the
consequences, and for nearly 1 year now--they have forced their way
into the homes of every New Mexican family in direct subversion of our
voters and elected Tribal and state leaders.
The CFTC Lacks the Capacity and Will to Regulate Online Gambling
The CFTC was never intended to serve as a gambling regulator and
has neither the capacity nor the expertise to provide regulatory
oversight at the level needed to protect consumers, prevent fraud and
criminal infiltration, or protect against cheating and corruption.
The CFTC is a statutory agency created under the Commodity Futures
Trading Commission Act of 1974, charged with the responsibility of
regulating futures and derivatives markets to promote market integrity,
protect market participants, and ensure the proper functioning of price
discovery and risk management mechanisms. Its mission is essential to
protect both market participants and the broader public from financial
manipulation and systemic risk.
The CEA, codified at 7 U.S.C. 1 et seq., provides the CFTC with
jurisdiction over ``contracts of sale of a commodity for future
delivery'' and related derivatives. Congress has consistently
reaffirmed that the purpose of the agency's authority is to regulate
markets that serve bona fide hedging and price-discovery functions that
serve an inherent economic interest, not to authorize speculative
gambling on the outcomes of events unrelated to economic commodities.
Prediction markets recognized enforcement weaknesses at the CFTC
and have quickly exploited them. The first sport event contracts that
CFTC inaction enabled were offered by designated contract markets in
January 2025. There was approximately $1.3 million in volume related to
Super Bowl LIX. Ten months later, in October of 2025, prediction
markets reported more than $4 billion in monthly volume related to
sport event contracts.
Because CFTC regulations allow prediction markets to self-certify
event contracts without pre-clearance from the agency, companies can
launch gambling products, generate profits, and then litigate in court
later. This litigation-driven business model has resulted in 26 pending
lawsuits to date, where states, Tribal governments, and individual
consumers argue that the prediction markets violate Federal, state and
Tribal law and exploit consumers.
While prediction markets argue in Federal court that their
contracts on the outcomes of sporting events are not gambling, they
openly advertise that their contracts are ``legal'' gambling
intentionally misleading consumers and purposefully thwarting Tribal
and state laws. Prediction markets have spent millions of dollars to
advertise their products as legalized sports betting in all 50 states.
One advertisement from January of 2025 by prediction market Kalshi says
it is ``The First Nationwide Legal Sports Betting Platform.''
As noted above, this amounts to nationwide online gambling that has
deluged every corner of the United States. For decades, state and
Tribal governments have debated concerns about the impacts of online
gambling as it draws teenagers, and poses added risks to problem
gambling, heightened risks of addiction, mental health concerns, and
personal financial and other concerns. Prediction markets sidestep
these debates and ignore the consequences.
Unless Congress reaffirms the boundary between legitimate
derivatives markets and gambling activity, these prediction markets
will continue to expand their illegal sports betting into other
traditional gambling activity. Congress must take immediate action to
reaffirm the integrity of the CEA and CFTC, restore the proper balance
between Federal and state-Tribal authority, and protect consumers from
predatory, unregulated online gambling offered by prediction markets.
Conclusion
It is no coincidence that the prediction market corporations
selected the CFTC as the financial regulatory agency to push out their
self-certified self-regulated online gambling platforms. The prediction
markets recognized regulatory weakness at the CFTC, and they have
actively exploited the agency's lack of capacity or lack of will to
enforce the CEA and its own regulations.
Complete inaction by the CFTC proves this point. Prediction markets
have offered sports betting for 11 months now. Just weeks ago, the CFTC
issued a statement that the agency ``has not, to date, made a
determination regarding whether'' these contracts involve a prohibited
activity. No legitimate Federal regulatory agency would publicly admit
that it has failed to even question activity that blatantly violates
the law and regulations directly under its charge.
The prediction market platforms are counting on continued inaction
from the CFTC. They will continue to push the limits of and blur the
lines between event contracts and gambling. As evinced by Kalshi's
recent foray into the college athlete transfer portal, sports betting
is only the beginning.
We respectfully urge this Committee and Congress to put a stop to
this illegal activity by amending the CEA to reinforce the existing
prohibition against casino gambling in general and sports betting in
particular.
______
Submitted Letter by Hon. Jonathan L. Jackson, a Representative in
Congress from Illinois; on Behalf of James B. ``JB'' Mackenzie,
President, Robinhood Derivatives, LLC; Vice President and General
Manager,
Futures and International, Robinhood Markets, Inc.
Dear Chairman Thompson, Ranking Member Craig, and Members of the
Committee,
Robinhood Derivatives, LLC appreciates the opportunity to provide
comments on the record for the House Committee on Agriculture's
December 11th, 2025 hearing on ``CFTC Reauthorization: Stakeholder
Perspectives.''
We submit the attached policy paper on prediction markets. At
Robinhood, we view prediction markets as a powerful mechanism for
aggregating dispersed information, and a tool that can help decision-
makers seek the best possible insights to navigate the future.
Robinhood Derivatives, LLC operates a Prediction Markets Hub where
customers can trade on real-life events. Our goal is to enable anyone,
anywhere, to trade, invest or earn any financial asset and conduct any
financial transaction through Robinhood. With an emerging asset class
like event contracts, we recognize an opportunity to better serve our
customers as their interests converge across the markets, news,
economics, sports, and entertainment.
We hope that our policy paper can help provide more information on
our position and our support for this emerging asset class. Please
contact us if you have any questions or comments. Thank you for this
opportunity to contribute.
Sincerely,
JB Mackenzie,
President,
Robinhood Derivatives, LLC;
Vice President and General Manager, Futures and International,
Robinhood Markets, Inc.
attachment
March 2025
Prediction Markets
Prediction markets offer a powerful mechanism for aggregating
dispersed information, allowing participants to hedge and speculate
based on their beliefs about future events. Because prediction markets
incorporate diverse perspectives and involve institutional and retail
participants putting their own capital behind their predictions, these
markets can produce highly accurate forecasts, often outperforming
expert analysis and other traditional sources of news and information.
By allowing individuals to buy and sell contracts tied to specific
outcomes--known as ``event contracts''--prediction markets help reduce
uncertainty by providing real-time probabilities that reflect the
collective wisdom of participants. In other words, prediction markets
can enhance the economic value of information itself, allowing
businesses and individuals to make better decisions which, in turn,
creates a variety of benefits.\1\ Prediction markets can be
particularly valuable in fields such as finance, politics, and
technology, among others, where decision-makers seek the best possible
insights to navigate an unpredictable future.
---------------------------------------------------------------------------
\1\ Consider, for example, a manufacturing business that is able to
commit substantial capital toward building a new plant and hiring
thousands of workers in the U.S. because it has access to more accurate
information about expected macro- or micro-economic and political
conditions generated by prediction markets.
---------------------------------------------------------------------------
Another key advantage of prediction markets is their ability to
serve as a risk management tool. Businesses and investors can use these
markets to hedge against uncertain events and associated risks, such as
election outcomes, regulatory changes, or economic shifts. By taking
positions in these markets, they can offset potential losses elsewhere
in their portfolios. On the other side of the trade are the speculators
who provide important liquidity in these markets by attempting to
profit from price changes in futures contracts. This is no different
than those speculators and retail participants who buy or sell futures
contracts in agricultural products such as corn or wheat.
Additionally, prediction markets have educational value, as they
encourage critical thinking and data analysis skills. Participants must
assess probabilities, interpret trends, and understand how new
information affects market prices, fostering a deeper understanding of
decision-making under uncertainty.
The combination of risk mitigation, information aggregation,
speculation, and learning potential makes prediction markets a valuable
economic and informational tool for businesses and individuals alike.
Background on Event Contracts
``Event contracts'' are the most common tool in prediction markets,
allowing participants to trade on the likelihood of specific outcomes.
These contracts function as simple binary (or ``yes-or-no'')
predictions on events including, but not limited to, elections,
economic indicators, commodity price movements, weather, and sports.
Prices can fluctuate based on market sentiment and new information,
reflecting the collective probability assigned to each outcome. Event
contracts are straightforward and adaptable, and therefore, widely used
for forecasting, risk management, and speculation across various
industries and products. Event contracts are traded directly in
orderly, transparent, two-sided markets on federally regulated
platforms. Types of event contracts include, among other things:
Political events, like elections;
Economic events, such as corporate earnings releases and
macroeconomic data releases;
Commodity price movements;
Weather events; and
Sports and entertainment events.
General Benefits of Prediction Markets
Prediction markets can provide many benefits to market
participants, including:
Hedging: Prediction markets allow businesses and individuals
to hedge risks associated with various events. For example, a
small manufacturing business might use political event
contracts to hedge risks related to elections. Event contracts
can also be used to hedge risks in financial portfolios.
Moreover, because they are smaller in size than futures
contracts, event contracts can allow for a more accurate hedge
to be created. Larger futures contracts can lead to investors
being over-hedged which can be just as risky and harmful as
being under-hedged. By providing liquidity to the markets,
retail trading generally facilitates the ability of market
participants to effectively hedge risk.
Customer Protection: Prediction markets and event contracts
are regulated at the Federal level by the Commodity Futures
Trading Commission under the Commodity Exchange Act. Federal
regulation provides a number of customer safeguards and market
integrity measures. For example, the exchanges that provide
prediction markets via event contracts, as well as the firms
that provide customers access to those markets, are required to
safeguard customer funds by segregating them from the firms'
own proprietary business activities. These firms also are
required to prevent manipulative trading activity to help
ensure the integrity of predictions markets, instilling greater
confidence in the usefulness and predictive value of the event
contracts.
Information Aggregation: Prediction markets are a powerful
predictive tool that can aggregate diverse opinions and sets of
information into accurate forecasts. Prediction markets often
exhibit lower statistical errors than professional forecasters
and polls, and can be more reliable than other traditional
sources of news and information. As a result, prediction
markets can enhance the economic value of all types of
information.
Reduce Uncertainty: The prediction markets generally reflect
the ``best estimate'' of the probability of an event occurring.
Prediction markets can reduce uncertainty about the likelihood
of future events and can be an effective tool in predicting the
outcome of those events. For example, prediction market event
contracts can generate information that is useful for
businesses when planning their future operations, as well as
information that is useful for an individual's portfolio and
how the outcome of events can impact the pricing of financial
instruments.
Speculation: Like traditional securities, options, and
futures markets (e.g., corn and wheat), prediction markets can
be used by market participants, including retail investors, to
profit from price movements. In doing so, speculative investors
provide important liquidity to prediction markets.
Educational Value: Prediction markets create a financial
incentive for market participants to be better informed about
the likelihood of future events occurring. By making
information publicly available, prediction markets can
democratize access to information.
Types of Prediction Markets and Event Contracts
As noted above, there are several types of prediction markets and
event contracts including, but not limited to:
Politics. Political prediction markets and event contracts
allow businesses to hedge risks associated with political and
electoral factors. Companies and individuals can hedge against
risks stemming from or speculate on the partisan composition of
government, or from the uncertainty of which political party
will control Congress, which can impact the probability of
legislation impacting a company or individual. Moreover, by
providing an unbiased and market-based mechanism for viewing
and understanding complex issues, political event contracts can
strengthen the democratic process and improve public analysis.
Economics. Economic prediction markets and event contracts
enable market participants to hedge risks related to
macroeconomic announcements, such as unemployment rates,
payroll data, and the Federal funds rate. These contracts allow
participants to hedge exposure to specific events without
sacrificing the upside of their instruments and can
revolutionize the hedging process. For example, event contracts
can augment the utility of hedging by allowing participants to
directly hedge macroeconomic risks before the data is released.
Weather. Prediction markets and event contracts for weather-
related events and patterns allow market participants to hedge
risks related to future weather events, associated government
policies, and related activities carried out by market
participants (for example, insurers). They can protect an
investor from risks related to the degree to which weather
events impact the economy and particular industries. These
contracts can also be created around specific weather-related
events such as drought, sea level rise, polar ice volumes, and
agricultural yields, providing a more refined hedge. Weather
event contracts can also provide information that will be
valuable to policymakers. For example, an event contract based
on the rise of sea level would provide policymakers with
valuable information on the potential future costs of the
government programs like the National Flood Insurance Program.
Sports. Sports prediction markets and event contracts are
one subset of the broader predication markets that have
recently gained popularity. Unlike sports gambling, in which
there is a ``House'' and oddsmakers, sports event contracts are
binary products traded directly between buyers and sellers in
open, transparent, two-sided markets on federally regulated
exchanges (known as ``designated contract markets''). Various
commercial entities, including team sponsors, media outlets,
and vendors, can use sports event contracts to manage risks
related to team performance. For example, team sponsors could
hedge their risk of a team having a losing season. Consumer-
focused businesses near a sports stadium may want to hedge the
possibility of cancellation or lower attendance that would
impact their revenue for the day. Similarly, the price
discovery provided by these prediction markets can result in
more accurate and valuable information which would, for
example, enable consumer-focused businesses to better predict
the labor and material resources they might need to
successfully serve customers.
The Path Forward
Policymakers should adopt policies that continue to recognize that
the prediction markets, including event contracts related to economic
events, commodities, weather events, sporting events, and political
events, have economic value and are generally in the public interest,
as they can provide legitimate hedging, risk-management, speculative
and informational benefits for individuals and businesses of all sizes.
Moreover, policymakers should avoid rules that prohibit retail
customers from taking advantage of the same opportunities available to
institutional investors.
______
Submitted Letter by Hon. Chellie Pingree, a Representative in Congress
from Maine
December 19, 2025
Hon. John Boozman, Hon. Tim Scott, Hon. Glenn Thompson,
Chairman, Chairman, Chairman,
Hon. Amy Klo[b]uchar, Hon. Elizabeth Warren, Hon. Angie Craig,
Ranking Minority Ranking Minority Ranking Minority
Member, Member, Member,
Senate Committee on Senate Committee on House Committee on
Agriculture, Banking, Housing, and Agriculture,
Nutrition, and Urban Affairs, Washington, D.C.
Forestry,
Washington, D.C.; Washington, D.C.;
RE: Stop Illegal and Unregulated Gambling Occurring on Prediction
Markets from Encroaching on Tribal Nations' Sovereign
Rights
Dear Chairs Boozman, Scott and Thompson and Ranking Members
Klobuchar, Warren, and Craig:
On behalf of the United South and Eastern Tribes Sovereign
Protection Fund (USET SPF), we write to express urgent concern about
sports event contracts and the illegal and unregulated gambling
occurring on prediction markets, including by entities such as Kalshi,
Crypto.com, and Robinhood. These entities are being unlawfully
permitted by the Commodity Futures Trading Commission (CFTC) to engage
in online sports gambling under the guise of ``event contracts''
pursuant to the Commodity Exchange Act (CEA). These entities are
encroaching on Tribal Nations' exclusive rights as sovereign
governments to regulate and conduct gaming occurring on our Indian
lands-gaming we rely upon to generate revenue to fund our governments.
USET SPF is a nonprofit, inter-Tribal organization advocating on
behalf of thirty-three (33) federally recognized Tribal Nations from
the Northeastern Woodlands to the Everglades and across the Gulf of
Mexico.\1\ USET SPF is dedicated to promoting, protecting, and
advancing the inherent sovereign rights and authorities of Tribal
Nations and in assisting its membership in dealing effectively with
public policy issues. Tribal Nations are inherently sovereign
governments that predate the arrival of Europeans, which the United
States acknowledged early on. U.S. Const. art. I, 8, cl. 3; Worcester
v. Georgia, 31 U.S. 515 (1832). The United States has also recognized
Tribal Nations' inherent and exclusive sovereign rights to regulate
gaming activities occurring on our Indian lands. California v. Cabazon
Band of Mission Indians, 480 U.S. 202 (1987).
---------------------------------------------------------------------------
\1\ USET SPF member Tribal Nations include: Alabama-Coushatta Tribe
of Texas (TX), Catawba Indian Nation (SC), Cayuga Nation (NY),
Chickahominy Indian Tribe (VA), Chickahominy Indian Tribe-Eastern
Division (VA), Chitimacha Tribe of Louisiana (LA), Coushatta Tribe of
Louisiana (LA), Eastern Band of Cherokee Indians (NC), Houlton Band of
Maliseet Indians (ME), Jena Band of Choctaw Indians (LA), Mashantucket
Pequot Indian Tribe (CT), Mashpee Wampanoag Tribe (MA), Miccosukee
Tribe of Indians of Florida (FL), Mi'kmaq Nation (ME), Mississippi Band
of Choctaw Indians (MS), Mohegan Tribe of Indians of Connecticut (CT),
Monacan Indian Nation (VA), Nansemond Indian Nation (VA), Narragansett
Indian Tribe (RI), Oneida Indian Nation (NY), Pamunkey Indian Tribe
(VA), Passamaquoddy Tribe at Indian Township (ME), Passamaquoddy Tribe
at Pleasant Point (ME), Penobscot Indian Nation (ME), Poarch Band of
Creek Indians (AL), Rappahannock Tribe (VA), Saint Regis Mohawk Tribe
(NY), Seminole Tribe of Florida (FL), Seneca Nation of Indians (NY),
Shinnecock Indian Nation (NY), Tunica-Biloxi Tribe of Louisiana (LA),
Upper Mattaponi Tribe (VA), and Wampanoag Tribe of Gay Head (Aquinnah)
(MA).
---------------------------------------------------------------------------
Congress enacted the Indian Gaming Regulatory Act (IGRA) to provide
a comprehensive Federal regulatory framework for such gaming. Pub. L.
100-497, 102 Stat. 2467 (Oct. 17, 1988) (codified at 25 U.S.C. 2701-
2721). IGRA mandates that Tribal Nations ``have the exclusive right to
regulate gaming activity on Indian lands.'' 25 U.S.C. 2701(5); see
also 24 U.S.C. 2710. IGRA controls all gaming activity occurring on
Indian lands, including placement of wagers that are then received off
Indian lands. W. Flagler Assocs., Ltd. v. Haaland, 71 F.4th 1059, 1061
(D.C. Cir. 2023), cert. denied, 144 S. Ct. 2671, 219 L. Ed. 2d 1292
(2024).
Tribal Nations' gaming activities, among other economic development
activities, have been integral to generating funding for our government
coffers so that we may provide essential government services for our
communities. The United States took the lands and resources with which
we traditionally cared for our communities without ever fully funding
its resulting trust and treaty obligations. We now face convoluted
legal precedent that siphons revenue away from Tribal lands and
prevents us from collecting taxes like other governmental entities do,
all while the Federal Government strictly regulates the development
activities we attempt to undertake on our lands.
Congress recognized these realities when it enacted IGRA,
acknowledging many Tribal Nations already engaged in gaming ``as a
means of generating Tribal governmental revenue,'' 25 U.S.C. 2701(1),
and that one purpose of IGRA was ``to provide a statutory basis for the
operation of gaming by Indian Tribes as a means of promoting Tribal
economic development, self-sufficiency, and strong Tribal
governments,'' 25 U.S.C. 2702(1). For this reason, Congress made
clear in IGRA that Tribal Nations must ``have the sole proprietary
interest'' in gaming occurring on our lands. 25 U.S.C. 2710(b)(2)(A).
And Tribal Nations and states have negotiated through IGRA compacts for
revenue sharing payments from Tribal Nations to states in exchange for
Tribal Nations' rights to exclusively offer certain types of gaming
throughout those states without competition--benefiting Tribal Nations
and states alike. 25 U.S.C. 2710(d); Rincon Band of Luiseno Mission
Indians of Rincon Rsrv. v. Schwarzenegger, 602 F.3d 1019 (9th Cir.
2010). Tribal gaming has succeeded as a tool for allowing Tribal
Nations to build our governance structures and care for our people.
Michigan v. Bay Mills Indian Cmty., 572 U.S. 782, 810 (2014)
(Sotomayor, J., concurring) (explaining that ``Tribal gaming operations
cannot be understood as mere profit-making ventures that are wholly
separate from the Tribes' core governmental functions'').
Despite the clear mandates of IGRA and Tribal Nations' inherent
sovereignty, entities engaged in sports event contracts and illegal and
unregulated gambling occurring on prediction markets argue their
activities are lawful because they fall outside the scope of IGRA and
Tribal jurisdiction. USET SPF believes this impingement on Tribal
sovereignty and economic development must be stopped. It is for this
reason we have joined amicus briefs in litigation attempting to rein in
these bad actors. See, e.g., Amicus Brief of Indian Gaming Association,
et al., Kalshiex LLC v. Flaherty, et al., No. 1:25-cv-2152 (June 17,
2025) (first of multiple amicus briefs we have joined). We now request
legislative affirmation and clarification that their actions are
unlawful.
Your committees are in the process of reviewing and revising the
authorities of the CFTC. We ask that you amend the CEA to reinforce
existing law and regulations prohibiting prediction markets from
offering event contracts on sport events or casino-style gambling
activities.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chief Kirk Francis, Kitcki A. Carroll,
President Executive Director
______
Submitted Letters by Hon. Chellie Pingree, a Representative in Congress
from Maine; on Behalf of:
Letter 1
hon. kirk francis, sr., chief, penobscot nation
Chairman Thompson, Ranking Member Craig and Members of the
Committee:
On behalf of the Penobscot Nation, located in what is now the State
of Maine, thank you for providing an opportunity to submit testimony on
the reauthorization of the Commodity Futures Trading Commission (CFTC).
We are very concerned about the failure of the CFTC over the past year
to prohibit prediction markets from offering event contracts based on
the outcome of sporting events. These contracts, which some prediction
markets are now calling swaps, are merely illegal online sports
wagering intended to thwart state and Tribal government laws and
regulations.
These illegal gambling activities have skyrocketed over the past 11
months with news reports indicating that the two leading prediction
markets--Kalshi and Polymarket--posted a combined trading volume of
almost $10 billion for November 2025.\1\ * This was a 32% month-over-
month increase for [Kalshi] and a 23.8% increase for Polymarket.\2\ The
vast majority of these increases are due to the companies expanding
their offerings of sports betting. There are now at least 26 lawsuits
between states and these prediction markets because they violate state
gambling laws. Yet, again, the CFTC remains silent on whether these
contracts based on outcomes of sporting events are illegal and the
incoming Chair of the CFTC says that he will defer to the courts. That
is exactly what these prediction markets want: a long drawn-out court
fight that will go on for at least 5 years so they can normalize this
illegal sports betting industry and get the CFTC to provide a Federal
mechanism that allows them to avoid state and Tribal government laws.
Congress needs to take immediate action to reaffirm that these
activities are gambling and should continue to be governed at the local
government level.
---------------------------------------------------------------------------
\1\ Kalshi and Polymarket Record Nearly $10 Billion in November
Trading Volume (https://www.sportsbookreview.com/news/kalshi-
polymarket-trading-volume-november-2025/).
* Editor's note: references annotated with are retained in
Committee file.
\2\ Id.
---------------------------------------------------------------------------
These prediction markets' illegal online sports betting products
directly harm the State of Maine, the Wabanaki Tribal Nations, and the
consumers located in Maine who cannot easily identify the difference
between legalized online sports betting and the illegal products
offered by prediction markets. These prediction markets pay no taxes to
the state, contribute nothing to problem gambling programs, and offer
no consumer protection. More, the legalized sports betting system in
Maine was specifically designed to provide economic development
opportunities for the Tribal Nations in Maine, who have long struggled
to meet the basic needs of our communities. Prediction markets offering
illegal sport event contracts within the state steal away from the
Tribal Nations monies we use for infrastructure, education, health
care, housing, law enforcement and other basic governmental services.
The Tribes in Maine worked with the Governor and state legislature
to develop a highly regulated system for legalized online sports
betting. Only the four federally recognized Tribal Nations have
licenses to conduct online sports betting within the borders of the
state. We are allowed to partner with companies who can meet the
suitability requirements set forth in state regulations, and any
vendors that we or our partners use must get licensed by the state's
gambling control unit. Licensees, operators and vendors must meet
extensive disclosure requirements about financial stability, gambling
history, and business reputation. Annual reporting requirements ensure
ongoing compliance with state regulations. State law includes robust
consumer protection measures, such as self-exclusion programs and
responsible gambling resources. Additionally, Maine law only allows
people 21 years of age and older to participate in sports betting, and
operators must employ systems to verify age and identity in order to
protect minors from gambling activities.
We and our vendors pay licensing fees to the state along with a 10%
tax on gross sports betting revenue. This revenue offsets the cost of
regulation and funds education and addiction prevention programs. Maine
law also requires operators to provide consumer protection tools, such
as self-exclusion options and make resources available promoting
responsible betting.
Maine law bans certain individuals from sports betting to maintain
sports integrity. Individuals with influence over sports events, such
as athletes, coaches, referees, and officials, cannot engage in sports
betting. Also, individuals with access to non-public information that
can influence betting outcomes are prohibited from participating in
sports betting. This includes team executives and medical staff. The
goal of restricting these individuals from participating in sports
betting is to prevent unfair advantages from privileged information and
protect consumers and the integrity of our sports systems.
Prediction markets that offer illegal contracts on sport events
follow none of these Maine law requirements. And they contribute
nothing to the Tribal Nations or local economy. Moreover, they offer no
meaningful consumer protection and contribute nothing to problem
gambling programs or resources. Prediction markets' illegal sports
betting is a scourge on our society, Tribal Nations, and consumers.
This Committee and Congress need to take quick action to stop this
harm.
Prediction markets offering contracts on sport event outcomes argue
that they are financial instruments and swaps regulated by the
Commodity Exchange Act. This is nonsense and you only need to look at
the way they advertise their products to consumers to understand that
they are marketing themselves as legalized sports betting. The leading
prediction market, Kalshi, has been aggressively advertising its
products as legalized sports betting since January. The company has
taken a national approach and focused on large consumer markets in
states that have refused to legalize sports betting. One advertisement
by prediction market Kalshi says it is ``The First Nationwide Legal
Sports Betting Platform.'' Kalshi also ran advertisements during the
college basketball tournament in Texas and California--where all sports
betting is illegal--that said ``Make $ on March Madness'' and ``Legal
in Texas'' and ``Legal in California.'' Another advertisement said
``Sports betting is officially legal in Texas with Kalshi. The first
federally regulated exchange where you can bet on real outcomes.''
Again, all sports betting is illegal under state law in Texas and
California. Thus, these prediction markets are offering contracts on
sport event outcomes and intentionally misleading consumers and
purposefully thwarting state laws.
Congress has long been concerned about consumers wagering on sport
events. In 1992, Congress sought to prohibit all forms of sports
betting in the United States through enactment of the Professional and
Amateur Sports Protection Act (``PASPA''). Only a few states that were
offering sports betting at the time were exempted from the nationwide
prohibition. In 2018, the United States Supreme Court, in Murphy v.
NCAA, struck down PASPA as violating the Tenth Amendment's anti-
commandeering doctrine. The Supreme Court's Murphy decision returned
the legalization and oversight of sports betting to state governments.
In the 8 years since the Murphy decision, sports betting has been
legalized on a state-by-state basis. Several states continue to
prohibit sports betting, and two states--Utah and Hawaii--criminally
prohibit nearly all forms of gambling within their jurisdictions.
Whether a state chooses to legalize sports betting is a local decision.
Yet, these prediction markets intentionally and purposefully are using
the Commodity Exchange Act and CFTC to avoid and bypass local
governments and citizens.
The CFTC is responsible for regulating futures and derivatives
markets in order to promote market integrity, protect market
participants, and ensure the proper functioning of price discovery and
risk management mechanisms. Its mission is essential to protect both
market participants and the broader public from fraud, manipulation,
and systemic risk. As Congress considers reauthorization of this
agency, we urge you to address the significant concerns raised by
CFTC's recent willingness to allow prediction markets to manipulate the
authority of the CEA and the CFTC's own regulations to offer event
contracts that constitute illegal sports betting primarily designed to
avoid state, Tribal and other Federal laws and regulations.
We ask that the Committee and Congress amend the Commodity Exchange
Act to reaffirm and clarify that the derivatives market cannot be used
for illegal sports betting or casino-style gaming. We ask that you take
the following actions:
Clarify that the CFTC cannot approve, permit, or otherwise
facilitate contracts that resemble sports wagering, including
contracts where the predominant purpose and practical effect is
consumer betting rather than bona fide hedging or commercial
risk management; and
Prohibit (or deem contrary to the public interest) event
contracts and similar instruments that function as casino-style
games or otherwise replicate gambling mechanics, regardless of
the label applied.
The legalized sports betting system in Maine was carefully
negotiated to protect consumers and sports, while providing a regulated
entertainment option that provides revenues to the Tribal Nations
within the state. Prediction markets offering sport event contracts are
purposefully violating state law and regulations and harming local
governments and consumers. We need the Committee and Congress to take
immediate action to stop this illegal activity.
Thank you for considering these comments.
Letter 2
rebecca george, executive director, washington indian gaming
association
Hon. Glenn Thompson,
Chairman,
House Committee on Agriculture,
Washington, D.C.
RE: Stop the Proliferation of Unregulated Sports Betting and Gambling
using Prediction Market Financial Platforms
Dear Chairman Thompson:
We write to express deep concern about certain financial platforms
engaging in unlicensed and unregulated online sports betting and
gambling under the guise of ``event contracts'' pursuant to the
Commodity Exchange Act (CEA). These financial platforms argue that they
are registered through the Commodity Futures Trading Commission (CFTC)
and the Securities and Exchange Commission (SEC), and thus, their
activities are outside the scope of state and Tribal government laws
and regulations. This argument is nonsensical and clearly not what
Congress intended when it last modernized the CEA.
We request that your Committee review and revise the authorities of
the CFTC and SEC, and reaffirm existing law and regulations prohibiting
these financial platforms from offering event contracts on sport events
or casino-style gambling activities. Your failure to do so allows these
companies to continue to ignore and avoid state and Tribal government
law and regulations, jeopardizing the public, who have unfettered
access to, and minimal protections from these illegal and aggressive
companies.
These companies are attempting to use the Federal courts to create
ambiguity in the CEA to circumvent state and Tribal law and offer
illegal gambling with no regulation or oversight. In less than 1 year,
these prediction market platforms have proliferated online even though
state and Tribal governments have informed these companies that they
are operating illegally. The leading company took in more than $1
billion in volume in October with 90% being from event contracts on
sports events.
Although sports betting is explicitly banned in many states, the
companies are aggressively advertising their products as ``legalized
sports betting in all 50 states.'' They pay no taxes and contribute
nothing to problem gambling programs. They ignore state laws that ban
such activities from being available at schools, colleges and churches
and refuse to comply with state and Tribal laws intended to prevent
harm to consumers and regulate gambling activities. Recently, Kalshi, a
leading Prediction Market, advertised that its platform is ``kind of
addicting.''
The proliferation and rapid expansion of these prediction market
financial platforms into gambling activities such as sports betting is
a public safety and health crisis. Because these companies can self-
certify these event contracts under existing CFTC law and regulations,
they go through no review or approval process at the CFTC or SEC before
being made widely available to anyone with access to the internet.
Although there are now 20 lawsuits pending across the country in
Federal and state courts, these operators have shown no willingness to
abide by state or Tribal laws and regulations and argue that only
Congress can provide clarity on the matter.
We need your committees to engage on this matter now, as it will
only continue to grow at rapid speed if quick action isn't taken by
Congress. Gambling activities have long been within the purview of
state, Tribal and local government authority and regulation, and
Congress and the Supreme Court have long recognized that. We need your
committees to reinforce this longstanding position and act now to
protect consumers and state, local and Tribal governments.
Thank you for your timely consideration of this matter.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Rebecca George,
Executive Director,
Washington Indian Gaming Association (WIGA).
On behalf of WIGA Member Tribes.\1\
---------------------------------------------------------------------------
\1\ Chairman Dustin Klatush, Chehalis Confederated Tribes; Chairman
Timothy Greene, Makah Tribe; Chairman Guy Miller, Skokomish Tribe;
Chairman Jarred Erickson, Colville Confederated Tribes; Chairman Ken
Choke, Nisqually Tribe; Chairman Kris Peters, Squaxin Island Tribe
Chairman William Iyall, Cowlitz Indian Tribe; Chairwoman RoseMary
LaClair, Nooksack Tribe; Chairman Eric White, Stillaguamish Tribe;
Chairman Leonard Forsman, Suquamish Tribe; Chairman Steve Edwards,
Swinomish Tribal Community; Chairman Nino Maltos, Sauk-Suiattle Tribe;
Chairwoman Darlene Hollum, Hoh Tribe; Chairman Guy Capoeman, Quinault
Nation; Chairman Glen Nenema, Kalispel Tribe; Chairman Anthony
Hillaire, Lummi Nation; Chairman Doug Woodruff, Quileute Tribe;
Chairman W. Ron Allen, Jamestown S'Klallam Tribe; Chairwoman Amber
Caldera, Port Gamble S'Klallam Tribe; Chairwoman Francis Charles, Lower
Elwha Klallam Tribe; Chairman Quintin Swanson, Shoalwater Bay Tribe;
Chairwoman Teri Gobin, Tulalip Tribes of Washington; Chairman Gerald
Lewis, Yakama Nation.
---------------------------------------------------------------------------
Letter 3
hon. teri gobin, chair, tulalip tribes
Chairman Thompson, Ranking Member Craig, and Members of the
Committee:
On behalf of the Tulalip Tribes, we thank you for the opportunity
to submit this statement for the record as the Committee considers
reauthorization of the Commodity Futures Trading Commission (CFTC) and
possible amendments to the Commodity Exchange Act (CEA).
The Tulalip Tribes support well-regulated derivatives markets that
serve legitimate commercial and risk-management purposes. However, we
are deeply concerned that the Commodity Exchange Act is increasingly
being used as a vehicle to facilitate widespread sports wagering--and
potentially casino-style gaming--through products marketed as ``event
contracts'' or similar instruments. These developments run counter to
Tribal interests and risk undermining the carefully balanced legal and
regulatory framework that governs gaming in Indian Country
In Washington State, we are already seeing companies expand
gambling-like products that directly compete with Tribal gaming
operations protected under Tribal-state gaming compacts and raise
serious and unresolved questions under state law. These developments
threaten the carefully negotiated balance reflected in those compacts,
which recognize Tribal exclusivity in certain forms of gaming in
exchange for robust regulatory oversight and public-safety commitments.
The Tulalip Tribes also raised concerns about the emergence of
sports-related ``event contracts'' offered by vendors such as Kalshi
and Crypto.com. Although these vendors characterize their products as
financial instruments regulated under the Commodity Exchange Act, in
practice they function as sports wagers and compete directly with
tribally regulated sports betting authorized under state-Tribal
compacts. As such, they not only undermine Tribal gaming exclusivity,
but also implicate Washington State gaming laws and regulatory
frameworks that were never designed to accommodate nationwide, unvetted
betting products.
Equally troubling is that these products operate outside the robust
consumer-protection regimes that govern lawful sports wagering,
including safeguards related to problem gambling, responsible play, and
age and location verification. Without those protections, unregulated
sports-style event contracts increase the risk of gambling-related
harms and make it more difficult to prevent access by minors under the
age of 18. Allowing these products to proliferate outside established
regulatory systems creates significant public-safety concerns and
undermines the protections that states and Tribes have deliberately
built into their gaming frameworks.
Our concern is heightened by both the scope and the speed of this
expansion. As outlined in our comments, these products are already
being offered across multiple states, with event contracts marketed and
made available nationwide--including on Tribal lands--without
meaningful review for compliance with state law, Tribal-state gaming
compacts, or established regulatory safeguards. This rapid
proliferation risks eroding compact-based protections, creating uneven
regulatory treatment, and allowing de facto sports betting to operate
outside the systems designed to ensure legality, accountability, and
consumer protection.
The CFTC Is Not a Gaming Regulator--and Congress Should Not Let the CEA
Become a Back Door for Betting
At the hearing, much of the testimony and many of the responses
focused on challenges related to the CFTC's limited resources and
capacity to regulate these products. To be clear, however, this is not
a resource issue. Regardless of funding or staffing levels, the CFTC
should not be vested with expansive authority to regulate sports
wagering or casino-style gaming through the Commodity Exchange Act.
The CFTC's mission and expertise are centered on derivatives market
integrity, risk transfer, clearing, and enforcement against fraud and
manipulation. The Commission is not designed--nor intended--to regulate
sports wagering or casino-style gaming, which raise distinct public-
interest concerns, including game integrity, consumer protections
specific to wagering, age and location controls, and safeguards against
gaming-related harms.
Without clear direction from Congress, the CFTC risks being
driven--through self-certification processes and increasingly
aggressive product design--into decisions that effectively establish
national gambling policy under the guise of commodities regulation.
Such an outcome would override state policy choices and erode the
Tribal-state compacting framework that upholds Tribal sovereignty and
supports essential governmental services in Indian Country.
Without Barriers, Vendors Will Predictably Design Contracts that Mimic
Casino-Style Games
The Tulalip Tribes urge the Committee to acknowledge the strong
commercial forces driving these products. If sports-style event
contracts are allowed to expand under the CEA, vendors will inevitably
evolve them into offerings that mirror casino-style gaming--featuring
short-duration outcomes, rapid repeat play, and contract structures
that operate as wagers rather than tools for risk management. Absent
clear statutory limits, so-called ``innovation'' will predictably lead
to increasingly gaming-like products with nationwide distribution,
operating outside established state and Tribal gaming oversight
Requested Congressional Action: Amend the CEA Establishing a Bright
Line Rule
We respectfully urge the Committee to incorporate targeted
amendments to the Commodity Exchange Act in any CFTC reauthorization
package that would:
1. Clarify that the CFTC may not approve, permit, or otherwise
facilitate contracts that constitute sports wagering,
including contracts where the predominant purpose and
practical effect is consumer betting rather than bona fide
hedging or commercial risk management.
2. Prohibit (or deem contrary to the public interest) event
contracts and similar instruments that function as casino-
style games or otherwise replicate gambling mechanics,
regardless of the label applied.
Conclusion
The Tulalip Tribes recognize and appreciate the Committee's efforts
to update and strengthen market oversight. At the same time, those
efforts should not erode Tribal sovereignty or disrupt the long-
standing gaming frameworks that Congress has consistently acknowledged
and upheld. We respectfully urge Congress to act to ensure that the
Commodity Exchange Act is not used as a pathway for sports wagering or
casino-style gaming--activities that directly conflict with Tribal
interests, undermine Tribal-state gaming compacts, and pose serious
risks to consumer protection and public welfare.
Thank you for the opportunity to submit these comments for the
record.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Teri Gobin,
Tulalip Tribes Chair.
______
Submitted Questions
Response from Hon. Dawn D. Stump, Principal, Stump Strategic LLC;
former Commissioner, Commodity Futures Trading Commission
Question Submitted by Hon. Eric A. ``Rick'' Crawford, a Representative
in Congress from Arkansas
Question. What is the tax treatment on premiums for puts and calls
for bona fide hedgers?
Answer. Assuming you are referring to the up-front premium payment
to initiate a call or put options contract, I am not familiar with the
tax treatment of such premiums and would recommend you seek an answer
from a tax professional.
If helpful, I am familiar with the tax treatment of the option
itself and can offer the following: Options on futures and broad based
indexes (generally non-equity options) are regulated by the Commodity
Futures Trading Commission and benefit from what is commonly known as
``60/40'' tax treatment: 60% of the gains/losses are taxed at the long-
term capital gains tax rate and 40% at the short-term capital gains tax
rate, as stipulated by Section 1256 of the U.S. Internal Revenue Code.
These contracts are marked-to-market each year regardless of how long
they are held or whether any benefit is realized. However, this mark-
to-market requirement does not generally apply to ``hedging
transactions'' so long as (1) the taxpayer properly identifies the
transactions as a hedging transaction, (2) the transaction occurs in
the normal course of the taxpayer's trade/business to manage certain
risks, and (3) the transaction results only in ordinary income/loss.
Rather all gains/losses from properly identified hedges are treated as
ordinary income/loss. Note, additional rules apply to straddles and
capitalized expenses.
If your question refers to puts and calls on equity options
regulated by the Securities and Exchange Commission (specifically
options on individual stocks and certain exchange traded funds), my
knowledge is limited.
Question Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question. Farmers and ranchers rely on futures markets to manage
risk and protect their livelihoods, yet these markets can be complex
and difficult to navigate without specialized knowledge.
How can the CFTC improve their educational efforts, outreach and
practical guidance to help farmers and ranchers navigate the futures
markets, ensuring they fully understand the tools available to manage
risk effectively?
Answer. The CFTC has historically hosted a Learning Resources page
on the agency's website. The range of topics is vast and lately focused
on identifying scams and fraudulent activity. Perhaps the agency could
look to the Agricultural Advisory Committee to identify more general
educational topics of specific interest to agricultural markets.
Thereafter, resources would need to be dedicated to developing such
materials to supplement the Learning Resources page.
Questions Submitted by Hon. Sharice Davids, a Representative in
Congress from Kansas
Question 1. During your tenure as Commissioner, how did the
Commodity Futures Trading Commission (CFTC) interpret its authority to
disallow ``gaming'' or public-interest-contrary contracts, and would
you view sports or contest-based event contracts as falling into those
prohibited categories?
Answer. As a Commissioner, I thoroughly examined Section
5c(c)(5)(C)--the relevant authority contained within the Commodity
Exchange Act (CEA), as enacted by Congress in the Dodd-Frank Act. I
concluded that this section of the CEA does not ban ``gaming''
contracts. Rather, my reading is that Congress expected the CFTC to
make a determination as to whether these contracts are contrary to the
public interest as a prerequisite to disallowing such. My
interpretation stems from use of the words ``may'' and ``if'' as
follows: By using the words ``the Commission may determine'' that these
types of contracts are contrary to public interest ``if the agreements,
contracts, or transactions involve . . . gaming''. Only if found to be
contrary to the public interest, may a contract then be prohibited. As
you know, the use of these words in legislative construction is
considered very intentional. There must be a reason Congress did not
use the word ``shall'' but rather chose ``may'' and conditioned it with
``if''.
As a Commissioner, it was my position that the CFTC was required to
apply a two-part process to (1) make an initial determination as to
whether the contract involved gaming and (2) subsequently apply a
public interest test before imposing the prohibition called for by the
Act. Unfortunately, in 2011, under then-Chairman Gensler, the CFTC
promulgated Rule 40.11 to implement this provision without developing a
process explaining how the CFTC would assess whether such contracts are
contrary to the public interest. As a Commissioner I repeatedly
recommended that we address this by revisiting the rule as I feared the
rule's application was vulnerable to legal challenge. Now, we have seen
how the lack of such a process may render the rule arbitrary and
capricious. At this point, the courts are heavily engaged in deciding
these questions.
Question 2. Would you agree that if the CFTC authorizes sports
event contracts with mass retail access, it risks creating a parallel,
competing sports betting regime that Congress never intended when it
carefully designed a structure for Tribal and commercial sports
wagering through the Indian Gaming Regulatory Act (IGRA) and state law?
Answer. I am unaware of any attempt by Congress to harmonize intent
between the Indian Gaming Regulatory Act (IGRA) of 1988 and the
subsequent changes to the Commodity Exchange Act (CEA), which the CFTC
must apply independently to event contracts. There is no specific
reference to the IGRA in the CEA, and a public interest determination
would only be triggered where explicit unlawful activity is proposed.
Question 3. Are you concerned or aware that when a platform uses
CFTC registration to offer sports-betting-like products nationwide, it
is effectively sidestepping the Tribal State Compact system that
Congress established for Class III gaming, including sports wagering?
Answer. My expertise is in regulating futures and swaps (including
event contracts) under the Commodity Exchange Act. I am unable to
compare such to the Tribal State Compact system of which my familiarity
is limited.
Questions Submitted by Hon. Jonathan L. Jackson, a Representative in
Congress from Illinois
Question 1. Securing U.S. critical mineral supply chains remains a
bipartisan priority for Congress and a key focus of the Trump
Administration. In May of this year the Energy and Environmental
Markets Advisory Committee of the CFTC released a report titled
``Considerations on the Evolution and Development of Critical Minerals
Markets'' * in which the authors recommend the CFTC continue to acquire
more knowledge of the critical minerals industry.
---------------------------------------------------------------------------
* The report referred to is located on p. 138; and is available at
https://www.cftc.gov/media/12436/EEMAC_CriticalMineralsMarkets0625/
download.
---------------------------------------------------------------------------
What steps should this Committee take to ensure CFTC staff have the
knowledge and experience necessary to oversee, police, and regulate the
growing but small critical minerals markets, as called for in the
report?
Answer. As you note, this is a developing market. As such it seems
the CFTC would benefit from evaluating fragmentation, liquidity, and
volatility factors. This is the type of analysis conducted by the
CFTC's Office of the Chief Economist (OCE). The Committee should
therefore ensure that OCE remains a significant component of the
agency's multi-functional system.
Question 2. Are any of you aware of what steps, if any, the
President's Acting CFTC Chair has taken to respond to this report.
Answer. I am unaware of any such actions.
Question 3. How can this Committee use the CFTC reauthorization
process to foster the development of critical minerals derivatives
markets that can enable critical minerals trading and risk management,
which could promote growth in this industry?
Answer. As stated in the report, ``the CFTC is poised to do the
most good by doing no harm''. The recommendations section of the report
suggests no new authority is needed at this time and in fact, cautions
against singling out the critical minerals market by asserting that
``the price discovery function of derivatives in mineral markets could
be significantly impaired if the CFTC took any action toward critical
mineral derivatives that was different from its oversight relating to
other underlying commodities . . . The temptation is strong to push the
boundaries of what one controls, but the CFTC can do the most good by
continuing to do what it does well within its authority''. Therefore, I
believe the Committee can best assist the development of this market by
ensuring existing functions are preserved and validated, such as that
of the Office of the Chief Economist (mentioned in my answer to
Question 1) and ensuring the CFTC's advisory committee work conforms to
best practices and remains sustainable.
Response from Edward F. Prosser, Senior Vice President, Special
Projects, Scoular Company; Member, Board of Directors,
Commodity Markets Council
Questions Submitted by Hon. Frank D. Lucas, a Representative in
Congress from Oklahoma
Question 1. The SEC and CFTC have pending applications for the
extension of cross-margining programs on Treasury derivatives to client
transactions. Can you speak to the risk-reducing benefits for firms if
these applications are approved across Treasury products?
Answer. Scoular does not directly use Treasuries, so we do not use
this cross-margining. In general, though, we support any action a
regulator takes to reduce strains on liquidity and allow market
participants to efficiently hedge their exposures.
Question 2. What happens to the broader U.S. food and agriculture
system if derivatives markets don't function well--if end-users can't
manage price and supply-chain risk through futures and options?
Answer. The U.S.-regulated derivative markets are where agriculture
and energy merchandisers go for price discovery and risk transfer, not
only here, but around the world. If the efficiency or accuracy of that
process is effected by thin liquidity, high costs of market access, or
a lack of confidence in the market, then the market would naturally
widen the bid/ask spread for transactions to account for the increased
risk each participant is taking, which will eventually bleed back into
the physical supply chain. In the agriculture business, this means
financing becomes more expensive, and it is harder for producers and
merchants both to make long-term contracts. Ultimately, this means that
I can pay the farmer less for their commodity and the end consumer at
the grocery store will pay more.
Question Submitted by Hon. Eric A. ``Rick'' Crawford, a Representative
in Congress from Arkansas
Question. What is the tax treatment on premiums for puts and calls
for bona fide hedgers?
Answer. I am not an accountant therefore I cannot give tax advice.
Speaking from my experience on my farm, these financial instruments are
hedges against real-world market risk, not speculative investments. The
Tax Code treats these bona fide hedges as income or expenses, not as
capital gains, which avoids me being punished for protecting against
risk.
Questions Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question 1. In her testimony, Ms. Fischer notes that the CFTC
recently requested comments on issues on perpetual futures and 24/7
trading but then let exchanges implement these changes before the
comment period closed.
Does this inspire confidence that the agency will act in a
deliberative manner and thoughtfully consider industry perspectives if
it is greenlighting projects supposedly still under review by the
agency?
Answer. I don't know the particulars of the incident you have
described or the Commission's internal decision-making process. Markets
and government regulation run at different speeds, and sometimes the
regulator is put in a position where it must grapple with where markets
are naturally moving. In the case of 24/7 trading, I also think that
different markets have different structures and different needs. I
would hope that, while the Commission may have deemed 24/7 appropriate
for certain markets, they would be very cautious in considering this
market structure for the traditional markets I trade. This is not an
indictment of the Commission's commitment to open, inclusive fact
finding before making regulatory decisions, but it is important that
new innovations for novel assets do not impede on traditional markets
that have functioned successfully for a long time.
Question 2. How does this meet the commitment of transparency,
public participation, and open debate in regulatory decision making you
are looking for, according to your testimony?
Answer. I look to my experience as a member of the Agricultural
Advisory Committee to the Chair of the CFTC. It has been my experience
that the Commission is deliberate about bringing all to the table to
have a say when weighing decisions. I fully expect consideration of
these novel structures will go through this same deliberative process.
Questions Submitted by Hon. Jonathan L. Jackson, a Representative in
Congress from Illinois
Question 1. Securing U.S. critical mineral supply chains remains a
bipartisan priority for Congress and a key focus of the Trump
Administration. In May of this year the Energy and Environmental
Markets Advisory Committee of the CFTC released a report titled
``Considerations on the Evolution and Development of Critical Minerals
Markets'' * in which the authors recommend the CFTC continue to acquire
more knowledge of the critical minerals industry.
---------------------------------------------------------------------------
* The report referred to is located on p. 138; and is available at
https://www.cftc.gov/media/12436/EEMAC_CriticalMineralsMarkets0625/
download.
---------------------------------------------------------------------------
What steps should this Committee take to ensure CFTC staff have the
knowledge and experience necessary to oversee, police, and regulate the
growing but small critical minerals markets, as called for in the
report?
Answer. While my knowledge of this specific commodity and Advisory
Committee is limited, I will say that fully funding and staffing the
CFTC will allow it the resources to hire the critical staff it needs to
evaluate questions such as this. Historically, each Commissioner at the
CFTC has sponsored an advisory committee, which is something Congress
should consider.
Question 2. Are any of you aware of what steps, if any, the
President's Acting CFTC Chair has taken to respond to this report.
Answer. I have no knowledge of this matter.
Question 3. How can this Committee use the CFTC reauthorization
process to foster the development of critical minerals derivatives
markets that can enable critical minerals trading and risk management,
which could promote growth in this industry?
Answer. The answer to how to promote a robust derivatives market
and growth is the same whether a new commodity or one that has been
around for a long time. We need to give the CFTC the authority and
resources it requires to foster an open, fair, equally-accessed market.
This is vital to cultivate an environment where all market
participants, both buyer and seller, can come together to discover a
fair and open price. If we cultivate that kind of CFTC, new products
will enjoy all the benefits that the USA derivatives markets have
enjoyed for years.
Response from Alicia Crighton, Global Co-Head of Futures, Head of OTC
and Prime Clearing, Goldman Sachs & Co. LLC; Chair, Board of
Directors, Futures Industry Association
Question Submitted by Hon. Frank D. Lucas, a Representative in Congress
from Oklahoma
Question. The SEC and CFTC have pending applications for the
extension of cross-margining programs on Treasury derivatives to client
transactions. Can you speak to the risk-reducing benefits for firms if
these applications are approved across Treasury products?
Answer. Institutional investors and end-users have access to an
array of financial products they can use to deliver an investment
strategy and hedge the risks of those investments. In the Treasury
markets, an end-user may want to hold a Treasury cash position and
hedge that risk in the futures market. Although these risks are
offsetting, investors and end-users cannot recognize those offsetting
risks without approved rules to do so because the cash and futures
products are regulated by two different agencies. FIA believes
expanding the scope of Treasury cross margining arrangements to include
customer transactions will incentivize prudent risk management and
hedging activity. Additionally, by providing the appropriate level of
risk offset, cross margining will enhance market liquidity both in
times of normal trading and in times of market stress. The CFTC and the
SEC have the authority to and should establish a coordinated process to
approve portfolio margining arrangements now, without waiting for
additional legislation to require them to do so. As discussed at the
recent CFTC-SEC joint roundtable and in other venues, portfolio
margining is one of the most critical harmonization initiatives before
the agencies. It is necessary to reduce barriers to risk management and
to rationalize a system that today too often fails to recognize the
offsetting risks of transactions in economically similar products,
solely because the products are under the jurisdiction of two different
regulators. As the SEC's Treasury clearing mandate approaches, which
will broadly impact the financial system, there is an ever-growing
demand and need for client portfolio margining of Treasury and repo
transactions with related futures transactions, to facilitate effective
risk management and improve market liquidity.
Question Submitted by Hon. Eric A. ``Rick'' Crawford, a Representative
in Congress from Arkansas
Question. What is the tax treatment on premiums for puts and calls
for bona fide hedgers?
Answer. As FIA Board Chair, I am not best positioned to answer this
question.
Questions Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question 1. There is a growing debate over the evolution of the
industry's market's structure. Issues like vertical integration of
previously separate market infrastructure, disintermediation, and
direct clearing, are raising new questions about the director of these
markets.
Does Congress need to address any of these issues in a
reauthorization bill?
Answer. FIA recognizes the growing market structure trend to
combine regulatory categories of registrants. Vertical integration
cannot, however, come at the cost of customer protection. Any
exploration of more vertically integrated business models should be
conditioned on robust, enforceable safeguards for market participants.
Vertically integrated firms should be required to, amongst other
things: (i) segregate customer and affiliate assets; (ii) implement
robust, principles-based governance and conflicts of interest controls,
including appropriate information barriers; (iii) meet prudential and
financial resource requirements that ensure a vested interest such as
having skin in the game and holding more capital and (iv) maintain
appropriate reporting, transparency, and auditability.
In particular, to ensure the integrity of the Commodity Exchange
Act's (CEA) system of self-regulation and promote confidence in market
integrity, Congress must preclude a scenario in which a registered
entity is the designated self-regulatory organization (``DSRO'') for
itself or an affiliate, or is permitted to grant an affiliated market
maker preferential exchange access or access to other market
participants' position or other data. Moreover, a registered entity
with an affiliate should not be the DSRO or SRO for competitors of that
affiliate. FIA urges Congress to establish a robust framework for
addressing the potential conflicts associated with vertically
integrated structures.
Similarly, disintermediated clearing models--allowing for retail
participants to directly access exchanges and clearinghouses--raise
market integrity and customer protection concerns. Where direct retail
clearing activity is conducted, CFTC-regulated intermediaries (futures
commission merchants) are not present to perform critical functions of
guaranteeing customer performance to the clearinghouse, monitoring for
money laundering and other risks to market integrity, and safeguarding
customer assets, among other functions. FIA recommends Congress
encourage the CFTC to consider how to update its regulatory framework
to take into account the risk profiles and loss events unique to
disintermediated clearing services.
Question 2. In your testimony, you mention that the Futures
Industry Association recommends that Congress consider authorizing the
CFTC to issue a rule to require financial resources that would be used
to manage a default for leveraged retail transactions be segregated or
separated from other default resources at clearinghouse.
Can the CFTC do this today or does it need new authority to achieve
this?
Answer. FIA believes the CFTC has existing authority to achieve
this.
Question 3. If they can do this now, should the Congress require
the agency to segregate these funds?
Answer. A unique aspect of the derivatives ecosystem is that in the
event a clearing member defaults, losses are mutually shared by the
remaining clearing members in what is known as default fund loss
mutualization. With the increase in leveraged retail transactions,
clearing members representing institutional end-users will now
participate in the same default fund as retail investors.
FIA recommends that Congress support the CFTC in using its
authority to issue rules or guidance to require that financial
resources that would be used to manage the default involving leveraged
retail transactions be segregated from other default resources in the
clearinghouse. Such separation could mitigate systemic risk concerns
and prevent contagion from spreading between retail investors trading
novel products and end-users and other traditional market participants
accessing the markets for hedging purposes.
Questions Submitted by Hon. Jonathan L. Jackson, a Representative in
Congress from Illinois
Question 1. Securing U.S. critical mineral supply chains remains a
bipartisan priority for Congress and a key focus of the Trump
Administration. In May of this year the Energy and Environmental
Markets Advisory Committee of the CFTC released a report titled
``Considerations on the Evolution and Development of Critical Minerals
Markets'' * in which the authors recommend the CFTC continue to acquire
more knowledge of the critical minerals industry.
---------------------------------------------------------------------------
* The report referred to is located on p. 138; and is available at
https://www.cftc.gov/media/12436/EEMAC_CriticalMineralsMarkets0625/
download.
---------------------------------------------------------------------------
What steps should this Committee take to ensure CFTC staff have the
knowledge and experience necessary to oversee, police, and regulate the
growing but small critical minerals markets, as called for in the
report?
Answer. FIA would defer to the Committee on how it can exercise its
oversight authority to encourage CFTC staff to fulfill the
recommendations of the report published by the CFTC's Energy and
Environmental Markets Advisory Committee.
Question 2. Are any of you aware of what steps, if any, the
President's Acting CFTC Chair has taken to respond to this report.
Answer. I am not aware of the former Acting CFTC Chairman's actions
in regard to this report.
Question 3. How can this Committee use the CFTC reauthorization
process to foster the development of critical minerals derivatives
markets that can enable critical minerals trading and risk management,
which could promote growth in this industry?
Answer. FIA supports market demand determining which derivative
contracts are offered to be bought and sold on regulated Designated
Contract Markets (DCMs).
Response from Robert A. Schwartz, J.D., Partner, Morgan, Lewis &
Bockius; former General Counsel, Commodity Futures Trading
Commission
Question Submitted by Hon. Eric A. ``Rick'' Crawford, a Representative
in Congress from Arkansas
Question. What is the tax treatment on premiums for puts and calls
for bona fide hedgers?
Answer. Unfortunately, I lack the expertise in tax law to answer
this question.
Questions Submitted by Hon. Sharice Davids, a Representative in
Congress from Kansas
Question 1. Should Congress, in this reauthorization, clarify the
boundary between permissible event contracts and impermissible wagers
to reduce litigation risk and avoid placing the CFTC in the middle of
the national sports betting debate?
Answer. I believe Congress is better positioned than the courts to
decide the extent of the CFTC's jurisdiction in this respect.
Question 2. Should Congress include explicit language in CFTC
reauthorization stating that the CFTC lacks authority to approve event
contracts that violate IGRA, Tribal state compacts, or state gaming
law, even if those contracts might otherwise qualify as derivatives?
Answer. Your question reflects important policy issues, and I hope
Congress gives serious consideration to the perspectives of all
stakeholders.
Question 3. Should Congress play a more forceful role in
prohibiting products that function as illegal or unlicensed sports
betting when measured against existing Tribal State compacts that
tightly regulate where, how, and by whom sports betting can occur?
Answer. I believe that Congress is indeed best positioned to
resolve the conflict over the issues you raise.
Questions Submitted by Hon. Jonathan L. Jackson, a Representative in
Congress from Illinois
Question 1. Securing U.S. critical mineral supply chains remains a
bipartisan priority for Congress and a key focus of the Trump
Administration. In May of this year the Energy and Environmental
Markets Advisory Committee of the CFTC released a report titled
``Considerations on the Evolution and Development of Critical Minerals
Markets'' * in which the authors recommend the CFTC continue to acquire
more knowledge of the critical minerals industry.
---------------------------------------------------------------------------
* The report referred to is located on p. 138; and is available at
https://www.cftc.gov/media/12436/EEMAC_CriticalMineralsMarkets0625/
download.
---------------------------------------------------------------------------
What steps should this Committee take to ensure CFTC staff have the
knowledge and experience necessary to oversee, police, and regulate the
growing but small critical minerals markets, as called for in the
report?
Answer. The CFTC is badly understaffed. It has reduced enforcement
staff to a level well below what I believe is required, and either lost
or forced out some of the most experienced and knowledgeable people at
the agency, including in the Division of Market Oversight and Office of
the General Counsel. It has also eliminated the Office of the Chief
Economist. All of these leave the CFTC in a very difficult position
when it comes to addressing new and emerging products within its
jurisdiction. The Committee should advocate forcefully for adequate
funds and the hiring of experts to address the challenges such as you
have raised.
Question 2. Are any of you aware of what steps, if any, the
President's Acting CFTC Chair has taken to respond to this report.
Answer. I am unaware of what steps the agency may have taken in
response to the report.
Question 3. How can this Committee use the CFTC reauthorization
process to foster the development of critical minerals derivatives
markets that can enable critical minerals trading and risk management,
which could promote growth in this industry?
Answer. The Committee should consider restoring the Office of the
Chief Economist and advocate for sufficient staffing across the board.
Response from Benjamin L. Schiffrin, J.D., Director of Securities
Policy, Better Markets, Inc.
Question Submitted by Hon. Eric A. ``Rick'' Crawford, a Representative
in Congress from Arkansas
Question. What is the tax treatment on premiums for puts and calls
for bona fide hedgers?
Answer. I am not a tax expert and therefore respectfully decline to
answer this question.
Questions Submitted by Hon. Alma S. Adams, a Representative in Congress
from North Carolina
Question 1. In 2010, the CFTC briefly approved movie box-office
futures before Congress banned them in Dodd-Frank over concerns about
insider trading, manipulation, and the view that such receipts weren't
true commodities.
Now, after dropping its appeal in the Kalshi case, the agency is
allowing political-event contracts--markets that let traders bet on
outcomes like the 2028 presidential nominees and key state races.
Kalshi has even added Donald Trump, Jr., the President's son, as a
strategic advisor, raising conflict-of-interest concerns.
Given this landscape, what tools does the agency have to police and
prevent insider trading and manipulation in event contracts?
Answer. CFTC Rule 180.1 prohibits fraud and manipulation, including
insider trading, in connection with transactions under its
jurisdiction,\1\ but the provision hasn't yet been applied to event
contracts.\2\ * However, given event contracts like those referred to
are under the CFTC jurisdiction, this rule would appear to clearly
apply, and the CFTC should enforce it. While we do not think it's
necessary in light of this rule, the CFTC could also write a rule that
directly addresses insider trading in event contracts. The larger
problem relates to policing and enforcing Rule 180.1 to event
contracts. The CFTC simply does not have the budget, personnel,
technology, experience, or expertise to supervise, regulate and enforce
the law regarding political event contracts. Moreover, the CFTC appears
to have no desire to apply the law to event contracts as indicated by
its baseless capitulation in the Kalshi litigation and continuing
refusal to regulate event contracts.
---------------------------------------------------------------------------
\1\ https://ecfr.io/Title-17/Section-180.1..
Editor's note: the hyperlink is to a pdf creator website. The eCFR
site is at: https://www.ecfr.gov/current/title-17/chapter-I/part-180.
\2\ Ian McGinley, Andrew Sioson, and Nathan Howell, Prediction
Markets Must Go All In On Training, Compliance, Bloomberg Law (Oct.
16, 2025), https://news.bloomberglaw.com/legal-exchange-insights-and-
commentary/prediction-markets-must-go-all-in-on-training-compliance.
* Editor's note: references annotated with are retained in
Committee file.
Question 2. Is the CFTC supposed to monitor sporting events and
elections now and watch for people trying to manipulate event contracts
related to these things?
Answer. Yes, given that event contracts on elections and sporting
events, among a wide range of other things, fall under the CFTC's
jurisdiction, it is mandated to monitor for fraud and manipulation in
those contracts just as it is as to other contracts under its
jurisdiction. Former CFTC Chair Rostin Behnam, when proposing rules
that would have clarified that event contracts on the outcome of a
political contest such as an election could not be listed or traded on
a CFTC-registered exchange, expressed concern that allowing such
contracts would ``place the CFTC in the position of monitoring such
markets for fraud and manipulation in elections themselves.'' \3\ Chair
Behnam had said previously that allowing these contracts ``would
require the CFTC to exercise its oversight and enforcement authorities
in the manner of an election cop.'' \4\ As stated above, the CFTC
simply does not have the budget, personnel, technology, experience, or
expertise to supervise, regulate and enforce the law regarding these
types of event contracts.
---------------------------------------------------------------------------
\3\ Statement of Chairman Rostin Behnam Regarding Proposed Event
Contracts Rulemaking, (May 10, 2024), https://www.cftc.gov/PressRoom/
SpeechesTestimony/behnamstatement051024.
\4\ Statement of Chairman Rostin Behnam Regarding CFTC Order to
Prohibit Kalshi Political Control Derivatives Contracts, (Sept. 22,
2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/
behnamstatement092223.
Question 3. As financial markets evolve--especially with the rise
of new derivatives like those tied to crypto assets--the challenge for
regulators is balancing innovation with the core mission of
safeguarding market participants, their ability to hedge risk and the
real economy, like agriculture and energy production.
What steps can ensure that innovation in derivatives, including
crypto-based products, doesn't come at the expense of consumer
protection?
Answer. First, Congress should ensure that any crypto related
legislation has clear and express consumer protection requirements
covering investors, traders, and customers involved in any crypto
related activity. Second, it should amend the Commodity Exchange Act to
provide the CFTC with an express and clear investor protection mandate
with a particular focus on retail investors. New Chair Mike Selig
noted, in the press release announcing his swearing-in, that ``retail
participation in the commodity markets is at an all-time high.'' \5\
Yet the CFTC lacks the express investor protection mandate that exists
for the SEC in the securities markets.\6\ This is because the
derivatives and commodities markets regulated by the CFTC have
traditionally been dominated by large institutions. As retail
participation in those markets increases, Congress should ensure that
retail investors are protected by including in the CFTC's mandate an
express responsibility for investor protection that is similar to the
one the SEC has for investors in securities markets. Third, the CFTC
has been chronically underfunded for years and doesn't even have the
budget necessary to fulfill the many duties Congress has already
mandated. Adding more mandates and duties in the crypto space (as well
as the prediction markets space) without significant more funding will
be a fraud on the public, making the public think the CFTC is a cop on
the crypto beat when it will not be. The CFTC needs a budget that will
enable it to have the personnel, technology, experience, and expertise
necessary to properly supervise and regulate crypto so that innovation
can flourish while consumers, investors, and customers are protected.
---------------------------------------------------------------------------
\5\ Mike Selig Sworn In as 16th CFTC Chairman, (Dec. 22, 2025),
https://www.cftc.gov/PressRoom/PressReleases/9164-25.
\6\ Seven Questions on the Pro-Crypto, Anti-SEC Financial
Innovation and Technology for the 21st Century Act (FIT 21), Better
Markets (June 11, 2024), https://bettermarkets.org/wp-content/uploads/
2024/06/Better-Markets-Crypto-FIT-21-Fact-Sheet-6.11.24.pdf; Benjamin
Schiffrin and Cantrell Dumas, An SEC-CFTC Merger Would Not Save Money
and Would Endanger Main Street Families, Better Markets (Mar. 11,
2025), https://bettermarkets.org/wp-content/uploads/2025/03/Better-
Markets-Fact-Sheet-SEC-CFTC-Merger-3.11.25.pdf.
Question 4. And how can we continue to protect traditional markets
and market participants, like farmers and ranchers, as derivatives
markets expand and new products emerge?
Answer. As stated above, the most important thing Congress can do
is ensure that the CFTC is properly funded, which will enable it to be
properly staffed and have the right technology to fulfill its mandates.
The agency is already underfunded and understaffed. And it appears that
it will now be asked to oversee crypto markets and prediction markets.
The only way it will be able to fulfill those new responsibilities,
while still protecting traditional markets and market participants like
farmers and ranchers, is if Congress significantly increases its budget
and if the agency hires significantly more staff to enable it to
oversee all of the markets under its purview.
Question 5. I'm sure you know, section 342 of Dodd-Frank authorizes
Offices of Minority and Women Inclusion (OMWI) at all other Federal
financial regulators, including the SEC where you previously worked.
The only Federal financial regulator without a statutorily authorized
OMWI is the CFTC.
Do you think it would make sense for Congress to statutorily
authorize a CFTC OMWI program as part of any CFTC reauthorization bill
to ensure that OMWI's good work can continue?
Answer. Yes. Statutory authorization for the CFTC's OMWI would mean
that CFTC leadership could not unilaterally determine to disband the
CFTC's OMWI. A statutorily authorized OMWI similar to that at the other
Federal financial regulators would also be required to provide an
annual report to Congress, which would increase accountability and
transparency in the agency's diversity efforts.
Questions Submitted by Hon. Jonathan L. Jackson, a Representative in
Congress from Illinois
Question 1. Securing U.S. critical mineral supply chains remains a
bipartisan priority for Congress and a key focus of the Trump
Administration. In May of this year the Energy and Environmental
Markets Advisory Committee of the CFTC released a report titled
``Considerations on the Evolution and Development of Critical Minerals
Markets'' * in which the authors recommend the CFTC continue to acquire
more knowledge of the critical minerals industry.
---------------------------------------------------------------------------
* The report referred to is located on p. 138; and is available at
https://www.cftc.gov/media/12436/EEMAC_CriticalMineralsMarkets0625/
download.
---------------------------------------------------------------------------
What steps should this Committee take to ensure CFTC staff have the
knowledge and experience necessary to oversee, police, and regulate the
growing but small critical minerals markets, as called for in the
report?
Answer. Congress simply must significantly increase the CFTC's
budget so that the CFTC can hire the staff that it needs to oversee the
markets that it regulates--large new markets such as crypto and
prediction markets, large traditional markets such as derivatives and
commodities futures, and small but growing markets such as mineral
markets. The CFTC report says that it is ``critical for the CFTC to be
staffed with employees who have a strong economics and financial
training related to minerals,'' both to conduct responsible market
oversight and to be well versed ``in the necessary dialogue with market
participants in a growing and complex industry.'' \7\ That will be
impossible unless and until Congress significantly increases the CFTC's
budget.
---------------------------------------------------------------------------
\7\ Considerations on the Evolution & Development of Critical
Minerals Markets, CFC Energy andEnvironmental Markets Advisory
Committee (May 2025), https://www.cftc.gov/media/12436/
EEMAC_CriticalMineralsMarkets0625/download, at 1.
Question 2. Are any of you aware of what steps, if any, the
President's Acting CFTC Chair has taken to respond to this report.
Answer. The public record does not indicate that the former Acting
Chair took any steps to respond to this report and I am not aware of
any steps she took to respond to the report.
Question 3. How can this Committee use the CFTC reauthorization
process to foster the development of critical minerals derivatives
markets that can enable critical minerals trading and risk management,
which could promote growth in this industry?
Answer. Congress should require that the CFTC study the rapidly
growing critical minerals market to understand which factors are
driving volatility and pricing in these commodities and to guard
against manipulation or excessive speculation. Congress should also
require the CFTC to work with exchanges on listing standards related to
sourcing and location of production.\8\ The CFTC should work to
increase price transparency and should work with exchanges to address
the physical challenges of trading these minerals, which could enhance
market depth and liquidity.\9\ As discussed above, that will require
the CFTC to have a budget that will enable it to hire and retain
personnel with the experience and expertise necessary to fulfill these
functions as well as the technology to back them up and identify
manipulation and excessive speculation.
---------------------------------------------------------------------------
\8\ See Statement of Commissioner Christy Goldsmith Romero: The
Role of Copper and Other Metals inthe Electrification of America,
(June 27, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/
romerostatement062723.
\9\ Reese Epper, Brad Handler, and Morgan Bazilian, Revitalizing
the future economy: Critical mineralderivatives could bring stability,
World Economic Forum (Apr. 29, 2024), https://www.weforum.org/stories/
2024/04/revitalizing-the-future-economy-a-critical-mineral-derivative-
market-could-bring-stability/.
---------------------------------------------------------------------------
attachment
Considerations on the Evolution and Development of Critical Minerals
Markets
May 2025
Prepared by: Members of the Role of Metals in Transitional Energy
Subcommittee of the CFTC Energy and Environmental Markets Advisory
Committee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
This report has been approved by the Role of Metals in
Transitional Energy Subcommittee within the CFTC Energy and
Environmental Markets Advisory Committee (EEMAC). The views,
analyses, and conclusions expressed herein reflect the work of
the Subcommittee, and do not necessarily reflect the views of
the EEMAC, the Commodity Futures Trading Commission or its
staff, or the U.S. Government. Reference to any products,
services, websites, organization, trade, firm, or corporation
name is for informational purposes only and does not constitute
endorsement, recommendation, or favoring by the U.S.
Government.
Commissioner Summer K. Mersinger, Sponsor
Christopher Lucas, Chief of Staff, Office of Commissioner Summer K.
Mersinger, CFTC
Dr. Ian Lange, Chairman of the Subcommittee on the Role of Metals
in Transitional Energy
Lauren Fulks, Secretary of the Committee, Office of Commissioner
Summer K. Mersinger, CFTC
JonMarc P. Buffa, Alternate Secretary of the Committee, CFTC
Table of Contents
I. Executive Summary
II. Mineral Markets Overview
A. Trends and Implications
B. Evolution of Critical Mineral Production
C. Mining, Permitting, and Processing Investment Process
III. Lessons and Linkages from Energy Markets to Consider
A. Capitalizing on Lessons Learned from the Energy Industry
B. Encouraging the Natural Expansion of Market Types
IV. Recognizing that Physical and Financial Commodity Markets are
Connected
V. Functional Links between the Energy and the Critical Minerals
Industries
A. Link 1: Shift in asset portfolios creates a new reliance on
critical minerals
B. Link 2: Energy industry growth segment is reliant on critical
minerals
VI. The Role of Traded Markets
A. The Importance of Benchmarks in Commodity Markets
B. Lack of Commonality: Fragmentation
C. Price Discovery and Market Integrity
D. How Exchanges are Responding to the Current Market
VII. Key Issues in Mineral Investments and Supply Chain Management
A. Geopolitics and Mineral Markets
B. Friendshoring and Onshoring Responses
VIII. Current U.S. Policy Framework Impacting Critical Mineral Markets
A. Permitting Reform
B. Impacts of Tariffs on Critical Minerals
C. Tax Credits and Incentives
D. Critical Mineral Lists
E. Key Takeaways
IX. Recommendations and Issues to Consider
A. Recommendations for Regulatory Considerations
B. Recommendations for Market Participant Considerations
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Members of the Role of Metals in Transitional Energy Subcommittee of the
CFTC Energy and Environmental Markets Advisory Committee
Name Affiliation
Ian Lange (Chairman) Special Government Employee and
Colorado School of Mines
Robert Anderson Committee of Chief Risk Officers
Sneha Bagri OTC Global Holdings LP
Greg Broussard Cargill Inc
Jin Chang CME Group
William McCoy Morgan Stanley
John Murphy Mizuho Securities USA LLC
Jamila Piracci Life:Powered
I. Executive Summary
Mineral markets have seen an increasing role in industrial policy
over the last 5 years. This is largely due to supply chain, national
security, and energy policy concerns. In addition, domestic mineral
sourcing eases the onshoring of the industrial base, to bring jobs and
economic activity to areas that have fallen behind.
In a market economy, price discovery and methods of risk management
are crucial to foster large scale investment. Because of the critical
role of derivatives in price discovery and risk management, this report
seeks to inform the Commission of key features of minerals markets and
related derivatives, as well as provide recommendations for the
Commission's consideration.
To assist the Commission, this report reviews the mineral industry,
as well as the evolution of critical mineral production. Because
derivatives are best understood when viewed in light of the underlying
assets to which they relate, this report also describes the mining and
refining process, supply chain management, mineral investments, as well
as the stages of development that lead a deposit of minerals to an
operating mine. The report also shares lessons learned from energy
markets, including linkages between physical and financial sectors and
the role of traded markets. Finally, the report discusses the current
U.S. policy framework impacting critical mineral markets.
The main recommendation this sub-committee provides is that the
CFTC is poised to do the most good by doing no harm. Making policy just
to be able to say that something was done is not suggested. Picking
winners and losers by expanding the authority given by Congress to the
CFTC will ultimately hurt consumers and industrial firms. That said,
these growing but still small mineral markets can be prone to
manipulation. Given the power of a small group of market participants,
it is crucial that the CFTC vigorously enforce rules against fraud and
market manipulation. Moreover, it is critical for the CFTC to be
staffed with employees who have a strong economics and finance training
related to minerals, both to conduct responsible market oversight and
to be astute in the necessary dialogue with market participants in a
growing and complex industry.
II. Mineral Markets Overview
A. Trends and Implications
Over the past 5 years, industrial policy has increasingly centered
on minerals markets. This shift is driven by factors such as their
concentration of production, supply chain concerns, and the anticipated
rise in clean energy technology installations. As a result, many
countries have developed critical mineral lists and strategies to
safeguard their economies and national security.
Minerals that are now classified as ``critical'' have been used for
decades or even centuries as inputs to products society has demanded.
The economic importance of a given mineral changes as technology and
markets evolve. For example, if critical mineral lists existed 150
years ago, they would have included iron ore, metallurgical coal, and
lead--minerals now considered base minerals. The current focus on
critical minerals reflects changes in economic activities and
geopolitical priorities rather than the intrinsic importance of these
minerals.
The mining process involves separating the suite of minerals in the
[E]arth from the overburden and from each other to produce a usable
product. The main product of a mine is typically the mineral with the
highest profitability or abundance. The main product of most mines is a
precious or base metal like gold or iron ore. A mine will classify
specific minerals as a byproduct based on the economic value and tax
treatment of its production. Critical mineral lists globally feature
several common minerals, including antimony, cobalt, and gallium, that
are often classified as byproducts of base metal mining.
The mineral industry is divided into three sectors:
1. Upstream: This sector involves locating mineral deposits, mapping
their properties, designing mines, and conducting
preliminary ore separation. It is often what people
envision when they think of mining--large-scale excavation
or underground mining.
2. Midstream: In this sector, ores and dirt are separated and
processed into relatively pure products. This may include
further refinement into the form needed for consumer
products. Midstream operations resemble manufacturing
sites, where heat and chemicals are used to process ore-
rich dirt.
3. Downstream: The downstream sector uses refined ores or
concentrates to manufacture goods. Major companies in this
sector include household names like General Motors,
Panasonic, and Lockheed Martin.
Although mineral markets are becoming increasingly significant,
they remain relatively small compared to other commodity markets. The
largest mineral markets, such as those for base metals like iron ore,
copper, and bauxite (aluminum), are still an order of magnitude smaller
than the oil and gas markets, with oil and gas market size in trillions
of dollars compared to tens of billions for most critical minerals.
Battery minerals that are expected to see substantial growth
include lithium, cobalt, nickel, manganese, and graphite. Other
minerals anticipated to rise in demand due to their role in specific
technologies include neodymium (used in rare earth magnets), gallium
(for semiconductors), and iridium (for electrolyzers). While these
minerals are projected to experience significant growth, their current
market sizes are very small compared to other commodities.
As mineral markets gain importance, understanding the dynamics of
these sectors and their growth potential is crucial. For example, wind
and solar technologies use critical metals like tellurium for
electrical converters and neodymium for electric motor magnets The
ongoing development of clean energy technologies and evolving
industrial policies will continue to shape the demand for various
minerals. Despite expected growth, the overall market size for minerals
will remain modest compared to larger commodity markets.
B. Evolution of Critical Mineral Production
After World War II, the United States was a leading producer of
what are now classified as critical minerals. This success was driven
by efforts from the United States Geological Survey (USGS) and the
private property rights system, which encouraged investment in domestic
mineral resources. However, starting in the 1990s and continuing into
the 2000s, U.S. mining and refining capacities for minor metals, such
as rare earth elements, gallium and antimony, declined. This reduction
in minor metal production was due to the closure of low-value-added
production processes.
During the same period, China invested heavily in the midstream
sector--specifically in the refining and processing of minerals. This
investment was part of a broader strategy to support the rapidly
expanding manufacturing base that would propel its economy forward. By
the mid-2010s, China had concentrated much of the global mineral
production and processing within its borders. Though deposits of
minerals are well spread throughout the world, the midstream (refining
and processing) sector is not. China not only has mineral deposits
within its borders but also has used development mechanisms, such as
the Belt and Road Initiative (BRI), to increase its firms' decision-
making authority over upstream production. Currently, most minerals
that the U.S. and other Western countries define as critical are
overwhelmingly mined by Chinese firms and processed in China before
being sold to downstream firms either in China or elsewhere.
The critical shift in governments' thinking on mineral markets
emerged following China's rare earth export restrictions to Japan in
2011. This event caused prices for a subset of those minerals to surge
by over 1,000%. Given their use in motors from wind turbines to car
window mechanisms, downstream manufacturers in the Western world
sounded the alarm about the concentration of mineral production.
In response to these market dynamics, there has been a renewed
focus on the mineral industry in the past decade. Most Organization of
Economic Cooperation and Development (OECD) countries have initiated
critical mineral lists to identify minerals that need more investment
and strategic focus. The U.S. has many such lists: the USGS, Department
of Energy (DOE), and the Department of Defense (DOD). Additionally,
Canada, the UK, the EU, Australia, and Japan have developed their own
critical mineral lists and strategies. International efforts, such as
the Department of State's Mineral Security Partnership, are also
underway to promote mineral production across OECD countries and other
allied nations.
C. Mining, Permitting, and Processing Investment Process
The stages of development that lead a deposit of minerals to an
operating mine are many, including considerable effort in government
permitting. The current process often starts with an exploration
company using information from state or national geological surveys,
such as the USGS to determine where high quality deposits are found.
They raise capital to fund operations that sample the deposit to
understand the shape of the deposit and expected mineral content
within, sometimes including information on byproducts that are
currently critical minerals. Depending on land ownership, permits may
be needed to explore the deposit.
Once a good amount of information is available, the company
exploring the site can sell the deposit to a larger mining firm or try
to move the deposit forward to becoming a mine. At this stage most
companies undertake a preliminary economic assessment (PEA) to begin
the financial process of developing a mine. PEAs have basic information
on expected capital cost, production, and net present value of a mine
operation. The goal of the information gathered is to develop a mine
plan, which would layout the excavation and operation of the mine.
Next, a feasibility study is undertaken with further delineation of
the size and scope of the mine. It is at this point that the permitting
process becomes a larger issue for the company to consider. Most mining
projects in the United States have a Federal nexus, either through the
deposit being on Federal land or the need for a Federal water quality
permit. This starts the National Environmental Policy Act (NEPA)
permitting process to ensure that the proposed mine minimizes its
negative impact on the environment and local communities. A mine will
also have to obtain permits from any relevant state and local
jurisdiction.
While the PEAs and feasibility studies are being undertaken, public
companies are required to share this information with investors as part
of Securities and Exchange Commission requirements. This requirement
was updated in 2018, known as S-K 1300, to require more complete
information be provided on mineral estimates within a deposit.
The mining company uses the information contained in their
feasibility studies to acquire funding from investors through a number
of possible mechanisms. There is traditional bank financing where a
bank provides a loan to the mining company for capital expenses that
will be paid back with interest from the sale of mineral concentrate.
Streaming is a financing mechanism where money is provided up front for
a percentage of the value of the concentrate that is produced at the
mine. A number of private equity firms will invest in a mine for a
share of the equity in the mining company.
How one values the mines production is more difficult than in many
of the energy markets. A large percentage of critical minerals do not
have a standard product traded on an exchange that helps market
participants learn of future prices. In fact, many critical mineral
markets have no exchange they are traded on and thus market
participants require specialized consulting services to provide
estimates of prices that are occurring in bilateral contracts. The rest
of this report will detail what we can learn from the experience in
energy markets, the role that futures markets play, and the current
policy framework for the mineral industry. The report concludes with
some recommendations.
III. Lessons and Linkages from Energy Markets to Consider
Negative impacts on our energy industry's financial health can
significantly impact our wider economy. As our energy industry
continues to transition away from hydrocarbon reliance and increases
emphasis on renewables and alternative energy sources, risk management
of exposures to critical minerals becomes increasingly important. As a
result, access to healthy markets for critical minerals is becoming
increasingly vital to the energy industry and our economy overall. It's
true that compared to critical minerals markets today, energy markets
are much larger in terms of physical market value,\1\ and much more
liquid in terms of traded market churn rate.\2\
---------------------------------------------------------------------------
\1\ Sources: IEA Gas Market Report, Q12024; EIA.gov Natural Gas
Statistics; Abbax & CCRO Analysis.
\2\ Churn Rate is ratio between the derivatives volumes and
physical market size. Sources: https://www.fastmarkets.com/insights/
the-rise-of-the-lithium-futures-market/; IEA Gas Markets Report, Q1
2024; https://www.cmegroup.com/education/articles-and-reports/the-
global-rise-of-henry-hub-liquidity.html.
Market Value \1\ Market Churn Rates \2\
2022, $B 2019 to 2023, range & avg.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
A. Capitalizing on Lessons Learned from the Energy Industry
Notwithstanding these challenges at hand, looking forward at the
widely forecasted growth in markets for critical minerals, there are
several noteworthy parallels with energy markets to consider. These
parallels highlight opportunities for critical minerals markets to
benefit greatly from lessons learned in the energy industry over the
last 2 decades. These lessons learned could be important to the CFTC
because they address both advancing the industry's opportunities for
risk management and assuring the integrity of markets.
B. Encouraging the Natural Expansion of Market Types
As the energy industry continues to develop new ways to deliver the
types of energy sources in demand, new products and markets have
emerged. For each market, we see that a natural expansion of market
types is needed to support industry progress. In the energy world, we
have seen that market types will expand from physical only to physical
and financial across these broad groups:
1. ``Bilateral'' markets--where counterparties transact directly
with each other. Terms are bespoke.
2. ``Third-Party Facilitated'' markets--brokers and electronic
transaction platforms facilitate counterparty discovery and
more frequent transactions. Some standardizations with
retention of some of the bilateral transaction
flexibilities.
3. ``Exchange'' markets--highly liquid, highly standardized
products, with financial clearing. Provides greatest
transparency into forward prices, within the carefully
defined products, commodities, and geography.
It is important to note that in gas and power, the CFTC has played
an important role in encouraging the developments needed to support the
growth in bilateral markets and exchange markets. The encouragements
have ranged from supporting comments directed at constructive industry
initiatives, to regulatory mandates that make a market development step
inevitable. The CFTC could consider encouraging companies that are
minerals market participants to increase their activity in bilateral,
third-party facilitated, and exchange markets, even as market
innovators first present them to the industry.
IV. Recognizing that Physical and Financial Commodity Markets are
Connected
In the last 2 decades, experience with dramatic missteps in trader
behaviors at some energy companies has helped clarify that a linkage
exists between physical and financial energy markets. Armed with this
understanding, the CFTC was able to establish jurisdiction and drive,
via the physical market regulator (the Federal Energy Regulatory
Commission), new requirements designed to reduce the threat of
cascading credit risks and the potential for market manipulation. For
example, consider new requirements for the risk management capabilities
of market participants in power markets. Similar compliance standards
might be appropriate given a similar linkage between physical and
financial markets for critical minerals.
------------------------------------------------------------------------
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ISO's have generally converged on a similar set of eight risk mgt.
principles for market participants, paraphrased:
1. . . . The risk mgt. framework is documented in a risk
policy . . .
2. . . . organization . . . clearly . . . segregates trading and
risk mgt. functions
3. . . . authority over the types of transactions (to be
traded) . . .
4. . . . traders have adequate training relative to their
authority . . .
5. . . . risk limits are in place to control risk exposures
6. . . . Reporting . . . ensures [risks] and exceptions are
communicated . . .
7. . . . qualified independent review of trading activities
8. . . . periodic valuation or mark-to-market of risk positions
------------------------------------------------------------------------
By reducing the risks of cascading credit risks and the potential
for market manipulation, confidence in markets can increase, which in-
turn encourages new market entrants, and strengthens market liquidity.
V. Functional Links between the Energy and the Critical Minerals
Industries
A. Link 1: Shift in asset portfolios creates a new reliance on critical
minerals
As energy company asset portfolios become increasingly
characterized by renewable generation and associated segments of our
industry, the industry's reliance on critical minerals markets is
growing. Recent discussions with Committee of Chief Risk Officers
(CCRO.org) members have found a growing interest among energy companies
in monitoring and engaging in critical minerals markets for risk
modeling and management purposes.
B. Link 2: Energy industry growth segment is reliant on critical
minerals
Power market independent system operators have shared that they are
seeing a significant increase in new market participants coming from
the rapid-growth renewables industry. Many of these are innovative but
higher-risk companies that are funded and structured in ways that
challenge traditional methods for assessment of creditworthiness. In
addition, their risk management capabilities are often limited. All
this, given that the nature of their business demands protection from
potential volatility of critical minerals pricing and power market
prices is creating a risk concentration challenge for power markets to
address.
VI. The Role of Traded Markets
A. The Importance of Benchmarks in Commodity Markets
In order for any commodity to form the basis of contracts that are
traded in a liquid and transparent market, it must have a reliable
benchmark price to serve as a standard reference point reflecting the
commodity's current value.\3\ Specifically, ``benchmarks are crucial in
determining the spot value of crude oil, setting prices for term
contracts, supporting hedging and risk management, and attracting
managed money to oil markets.'' \4\
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\3\ https://www.argusmedia.com/en/methodology/key-prices/argus-
benchmarks.
\4\ https://www.ice.com/why-the-world-needs-benchmarks-and-
characteristics-of-benchmarks.
---------------------------------------------------------------------------
Highly traded commodities often have well-established benchmarks.
Market participants may use these benchmarks for trading contracts on
other commodities that share a similar quality and location to that of
the commodity that is the subject of the benchmark.\5\ For example,
natural gas contracts in the U.S. typically rely on the Henry Hub as
the relevant U.S. benchmark indicating natural gas supply and demand,
because of its strategic location and significant interconnections with
other U.S. markets.\6\
---------------------------------------------------------------------------
\5\ http://www.mckinseyenergyinsights.com/resources/refinery-
reference-desk/benchmark-
price/.
\6\ https://www.naturalgasintel.com/why-is-the-henry-hub-important-
in-relation-to-natural-gas-prices/.
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A market can benefit significantly when transactions reference a
single transparent price published by a regulated benchmark
administrator. For example, in the precious metals markets, the
industry can look to the LBMA Gold and Silver Prices as homogeneous
products governed by LBMA definitions.\7\
---------------------------------------------------------------------------
\7\ Precious Metals Benchmark Statement, the ICE Benchmark
Administration, Date of publication, 14 May 2018, last updated, 23
October 2023, p. 5.
---------------------------------------------------------------------------
In the metals markets, established benchmarks include the London
Metal Exchange (LME) for non-ferrous metals like aluminum, copper,
zinc, nickel, lead, and tin, and the Chicago Mercantile Exchange (CME)
for base metals. The LME and CME publish settlement and futures prices
for these metals, providing reliable references for pricing and
trading.
However, for larger critical metals such as cobalt and molybdenum,
there is currently no internationally recognized benchmark that firms
can rely on. While there are published price sources for these critical
metals, none have yet achieved the status of a global benchmark.
B. Lack of Commonality: Fragmentation
Unlike prices for commodities that trade in global, highly liquid
and transparent markets, such as oil, gold and silver, prices for
critical metals can be vulnerable to fragmentation. Some of the factors
that may be the cause of such fragmentation include concentrated
production, the limited substitutability of both supply and
consumption, and the vital role some of these critical metals play in
the technologies for the transition to renewable energy. Fragmentation
of these markets is heightened as a result of recent geopolitical
conflicts. During a panel discussion in October 2023 hosted by the
Atlantic Council, IMF economist Martin Stuermer said that ``in a
fragmented world, the prices of critical minerals like copper, nickel,
cobalt and lithium would be 300% higher than in a world with fully
integrated markets. And those higher costs, he said, would cause
roughly 30% less investment in renewables and electric vehicles in
fragmented markets, compared with integrated markets.''\8\
---------------------------------------------------------------------------
\8\ https://www.spglobal.com/commodityinsights/en/market-insights/
latest-news/oil/100323-fragmented-markets-from-geopolitical-conflict-
threaten-to-throw-energy-transition-off-track.
---------------------------------------------------------------------------
Strong and stable correlation between spot and futures commodity
prices is a key factor for the efficiency of hedging strategies. The
absence of correlation or sudden changes in the level of correlation
may have detrimental implications for a market participant's ability to
hedge and conduct effective risk management.\9\ For commodities for
which there is not a highly liquid and transparent futures market, the
need to understand correlations between the prices of different
commodities at different time and place is of greater import.
---------------------------------------------------------------------------
\9\ Nikos Nomikos, Nikos Papapostolou, Panos Pouliasis, Analysis of
Volatility and Correlation for CME Steel Products, Report
CME_Steel_Correlations (cmegroup.com)
---------------------------------------------------------------------------
When an existing correlation breaks down, market participants must
face the problem that any risk protection proffered by portfolio
diversification is undermined or lost completely.\10\ Gold and silver
have historically exhibited a positive correlation of close to 0.89.
The prices of platinum and copper also exhibit a strong positive
correlation with gold and silver.\11\ Because of the lack of reliable
benchmarks for most critical metals, however, it is challenging to
identify any strong correlation among the prices of these metals and
thus whatever correlation may exist, is vulnerable to breakdown.
---------------------------------------------------------------------------
\10\ Correlation-Breakdowns-Spread-Positions-and-CCP-Margin-Models-
20210131.pdf (https://www.eachccp.eu/wp-content/uploads/2021/02/
Correlation-Breakdowns-Spread-Positions-and-CCP-Margin-Models-
20210131.pdf) (eachccp.eu)
\11\ https://www.tastylive.com/news-insights/metals-dont-overlook-
platinum-and-copper.
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C. Price Discovery and Market Integrity
Price discovery varies significantly among metal groups. Precious
metals and many base metals traded on established futures exchanges
like CME and LME are largely viewed as liquid and transparent. In
contrast, contracts for other metals that are primarily traded over-
the-counter (OTC) bilaterally or through the broker market are seen as
less liquid and less transparent. These OTC markets may be
significantly smaller and face challenges in the collection of reliable
and comprehensive price information. The price integrity of these niche
markets may also be questioned due to the lack of a governing body that
oversees the collection and publication of such prices.\12\ This lack
of reliable price discovery due to the size of the market and the
limited open interest of exchange traded contracts may be evidenced in
the niche markets of a number of critical metals, including cobalt and
lithium.
---------------------------------------------------------------------------
\12\ Five Minutes with Marc Dulin D John Lothian News https://
johnlothiannews.com/marc-dulin-five-minutes/.
---------------------------------------------------------------------------
Even in the case of an LME contract, such as class 1 nickel, there
can be concerns regarding the reliability of the contract as a pricing
source. During the year following the LME's suspension of trading in
nickel following its dramatic price increases, some market participants
have shifted to alternative pricing mechanisms for the metal. For
example, there are indications that Chinese producers of nickel are
increasingly using Chinese renminbi prices linked to nickel sulphate
prices for nickel produced in Indonesia for the electric vehicle
industry. This change has been attributed to developments where nickel
pricing has increasingly been referenced to China's OTC market as
opposed to the LME and other conventional exchanges and has also
contributed to greater volatility in LME nickel prices. In addition,
although nickel and cobalt chemical prices have historically been
determined by reference to their respective finished metal prices,
there is evidence that market participants are more frequently
determining the price of the unfinished chemical metals
independently.\13\
---------------------------------------------------------------------------
\13\ Are the nickel and cobalt chemical markets shifting away from
traditional pricing mechanisms? D S&P Global Commodity Insights
(spglobal.com).
---------------------------------------------------------------------------
The significant increase in nickel contract prices on the LME in
March 2022 was reportedly due to a large short position held by a large
stainless steel producer with substantial processing operations in
Indonesia. One contributing factor to this volatility in nickel was the
fact that settlement against LME contracts requires delivery of an
approved brand of the LME, which is mostly Class 1 high-purity nickel
produced by large western and Russian producers. Much of the nickel
from Indonesia, which is the form of nickel pig iron, ferronickel,
nickel matte and mixed hydroxide precipitate (MHP), a common form of
nickel feedstock used by the battery industry, is not eligible for
delivery into the LME. While MHP for the battery industry was
historically priced with reference to LME nickel prices, increasingly
market participants have priced MHP on the basis of the Chinese nickel
sulphate price, minus the cost to convert MHP to sulphate.\14\
---------------------------------------------------------------------------
\14\ A year after LME nickel chaos, battery supply chain seeks
alternative prices D Benchmark Source (benchmarkminerals.com).
---------------------------------------------------------------------------
D. How Exchanges are Responding to the Current Market
The CME has seen growing activity in the minor metals/battery
metals space, having launched financially settled contracts on Cobalt
Metal (2020), Lithium Hydroxide (2021), Molybdenum Oxide (2023), Cobalt
Hydroxide (2023) and Lithium Carbonate (2023) as well as options on
Lithium Hydroxide and Cobalt Metal (2023). As of September 25, 2024,
these contracts have a combined open interest of over 50,000 metric
tons, demonstrating the adoption of these contracts by the physical
market as suitable hedging tools.
In July 2023, the Guangzhou Futures Exchange (GFEX) launched a
lithium carbonate futures contract. Unlike the CME's lithium hydroxide
futures contract, which is financially settled against Fastmarkets
reference spot prices for the North Asian market (China/Japan/South
Korea), the GFEX's lithium contract is physically settled. However, it
has also been the subject of significant volatility prompting the GFEX
to exercise a series of measures such as expanding trading bands,
capping new positions, raising fees and approving additional
warehouses.\15\
---------------------------------------------------------------------------
\15\ https://www.bloomberg.com/news/newsletters/2023-12-18/china-s-
lithium-trading-success-has-been-a-wild-ride.
---------------------------------------------------------------------------
The LME, owned and managed by HKEX, the Hong Kong Exchange, has
launched several contracts relating to battery production over the
years. Physically delivered Cobalt and Molybdenum (both launched in
2010), were the first to be listed, followed by financially settled
Cobalt (2019), financially settled Molybdenum (2019--replacing the
physically settled version) and financially settled Lithium Hydroxide
(2021). As of September 25, 2024, these contracts have a combined open
interest of 180 metric tons, with the financially settled contracts
having yet to trade.
Lithium hydroxide has a limited shelf life, meaning it can only
remain in storage for a limited period (12 months or less) before its
quality deteriorates. In addition, high purity (battery-grade) lithium
hydroxide from a specific supplier needs to be extensively tested
before being permissioned to be used in the manufacturing of a
particular lithium-ion battery type. Therefore, battery manufacturers
are typically not able to switch to an alternative supplier of lithium
hydroxide prior to testing the material extensively. These challenges
also apply to lithium carbonate, but to a somewhat smaller extent.
Since its launch, the GFEX contract has attracted more volume than
the CME and other established exchanges. Although the CME's lithium
contract has not attracted as much volume as GFEX the cash settled
lithium hydroxide contract has drawn increased activity, with 2024 YTD
volumes at over 66,000 tons traded versus 20,000 tons the year prior.
It is worth recalling that these two contracts differ in
substantial ways: GFEX is a domestic Chinese exchange, while CME is a
U.S. regulated exchange. The GFEX contract allows for physical delivery
of lithium carbonate (either technical or battery grade) within
mainland China, while the CME Group is financially settled against an
import price for lithium hydroxide (battery-grade) in the North Asia
region (China/Japan/South Korea). For western market participants,
taking or making physical delivery in mainland China may create
significant legal, operational, and compliance challenges. Finally, it
is also worth considering the user base of each contract: Chinese
futures markets typically attract a high level of retail trader
participation while trading in the CME lithium hydroxide contract is
dominated by institutional traders, which includes bank commodity
desks, merchant traders active in the physical underlying, and
institutional funds.
In the cobalt space, CME's contract, which is indexed to
Fastmarket's assessment for cobalt metal in-warehouse Rotterdam, has
seen strong acceptance by the industry, with open interest extending
out to 2028. CME's lithium hydroxide contract has open interest out to
2026. Open interest in deferred months is typically a sign of a healthy
futures market, in which future sales or purchases of the underlying
physical material can be hedged against adverse price movements over a
long-time horizon.
As interest in battery and other critical minerals increases,
exchanges like the CME continue to engage all components of the supply
chain in determining which metals and specifications are best suited to
provide the most accurate and relevant hedging tools for the physical
marketplace.
VII. Key Issues in Mineral Investments and Supply Chain Management
A. Geopolitics and Mineral Markets
Renewable energy goals are expected to increase the demand for
critical minerals such as copper, lithium, and rare earth elements.
Because these minerals are essential for technologies driving energy
transition goals as well as continued technological advancements, they
have also become tools of geopolitical leverage.
China's control over the supply of critical minerals and its
efforts to dominate the market through initiatives like the BRI and new
futures contracts (e.g., lithium carbonate on the GFEX and nickel
sulfate on the Shanghai Futures Exchange (SHFE)) are raising concerns
about supply chain vulnerabilities and political manipulation. The
introduction of new metals contracts on Chinese futures exchanges
aligns with China's strategy to assert pricing power and control over
global metal markets. This expansion reflects China's broader agenda of
establishing dominance in the critical minerals space. Concerns exist
over access for foreign players and the impact of China's
interventionist market policies. China's substantial domestic market
and ability to influence global prices pose significant challenges for
international market stability. The LME is planning to launch new
metals contracts based on prices from the SHFE. This move reflects an
effort to integrate more closely with China's market but also raises
concerns about the extent of Chinese regulatory influence over global
prices.
B. Friendshoring and Onshoring Responses \16\
---------------------------------------------------------------------------
\16\ See The Economist on Friendshoring (https://www.economist.com/
the-economist-explains/2023/08/30/what-is-friendshoring); McKinsey on
Benchmarking Prices (http://www.mckinseyenergyinsights.com/resources/
refinery-reference-desk/benchmark-price/); S&P Global on Market
Dynamics (https://www.spglobal.com/commodityinsights/en/market-
insights/latest-news/oil/100323-fragmented-markets-from-geopolitical-
conflict-threaten-to-throw-energy-transition-off-track).
---------------------------------------------------------------------------
The interplay between onshoring, friendshoring, and geopolitical
strategies shapes the current landscape of mineral investments and
supply chains. While these strategies aim to enhance security and
reduce dependencies, they also introduce complexities related to cost,
efficiency, and geopolitical risks. As the global market for critical
minerals evolves, stakeholders must navigate these challenges while
adapting to shifting dynamics and maintaining supply chain resilience.
As described below, the U.S. approach to counter China's hold on
the supply chain combines both friendshoring and onshoring.
Friendshoring involves relocating parts of the supply chain or
manufacturing process to countries that are political or economic
allies. This strategy aims to reduce dependency on adversarial nations
and bolster regional economic ties. Onshoring refers to moving business
operations back to the country from which they were previously
relocated overseas. This approach aims to revitalize domestic
industries and reduce reliance on foreign supply chains.
There are a number of considerations relating to a friendshoring
strategy, including:
1. Efficiency vs. Geopolitics: Friendshoring might lead to less
efficient production due to geopolitical considerations
overriding economic efficiency. Balancing geopolitical
security with cost efficiency is a key challenge.
2. Economic Costs: Studies suggest that friendshoring could
negatively impact real GDP in America and Europe by 0.1-1%
and have even more severe effects on countries caught
between opposing economic blocks. The IMF and ECB have
highlighted significant potential economic costs associated
with friendshoring.
Similarly, an onshoring strategy comes with its own considerations
to weigh:
1. Environmental Protections: The U.S. enforces stringent
environmental regulations that might not be present in
other countries, potentially impacting the comparative
advantage of offshore production.
2. Transportation Costs and Carbon Footprint: Moving operations back
to the U.S. involves considering transportation costs and
associated carbon emissions, which can affect the overall
cost-benefit analysis.
3. Energy Use: The energy used in extraction and processing might
not be as clean in other countries, which could offset the
environmental benefits of onshoring.
4. Cost Factors: The economic incentive of lower costs in offshore
locations often outweighs the appeal of ``clean'' or
``green'' energy unless there is a significant price
differential.
5. Political Stability: The reliability of political alliances can
be unpredictable. Onshoring can reduce dependencies on
countries with questionable environmental or human rights
practices and enhance geopolitical leverage.
VIII. Current U.S. Policy Framework Impacting Critical Mineral Markets
A. Permitting Reform
As noted above, the permitting process is a major component of the
mining process. Given the challenges of the permitting process,
Executive Order 14241: Immediate Measures to Increase American Mineral
Production attempts to expedite this process. At the time of writing,
15 mineral projects have been added to the Federal Permitting
Improvement Steering Council's FAST-41 process.\17\ FAST-41 coverage
for projects provides transparent timetables and ensures collaborative
management of the Federal permitting process. Prior to 2025, one mining
project had been given FAST-41 coverage.
---------------------------------------------------------------------------
\17\ The 2015 Fixing America's Surface Transportation Act created
Title 41 (FAST-41) which established new coordination and oversight
procedures for infrastructure projects being reviewed by Federal
agencies. It has three goals: (1) improve early consultation and
coordination among government agencies; (2) increase transparency
through the publication of project-specific timetables with completion
dates for all Federal authorizations and environmental reviews; and (3)
increase accountability through consultation and reporting on projects.
See for more details: https://www.energy.gov/oe/fast-41.
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B. Impacts of Tariffs on Critical Minerals
As discussed previously, there are geopolitical concerns in
critical minerals markets. In an attempt to address Chinese market
power in minerals markets, the Department of Commerce has launched two
Section 232 investigations related to critical minerals in 2025.\18\
Section 232 investigations allow the executive branch to restrict trade
with countries that abuse their market power. The first, in February
2025, is for copper and the second, in April 2025, for rare earths and
critical minerals derivative products. Increasing the price of imported
minerals and derivative products would make it easier for domestic
producers to find investors and implement their projects.
---------------------------------------------------------------------------
\18\ Section 232 of the Trade Expansion Act of 1962 provides the
President with authority to impose trade restrictions, such as tariffs
or quotas, following an affirmative determination by the Secretary of
Commerce that certain imports threaten to impair U.S. national
security. See for more details: bis.gov/press-release/commerce-
launches-section-232-investigation-imports-processed-critical-minerals-
derivative-products.
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C. Tax Credits and Incentives
In addition to permitting reform and tariffs, governments across
the globe have placed their thumbs on the scale of mineral markets to
steer investments in line with current energy transition policy goals.
In general, subsidies, credits, and tax incentives create scaffolding
for markets that policy makers wish to see flourish notwithstanding a
prevailing imbalance between supply and demand. In the U.S., such
actions have ranged from local and state to Federal legislative
efforts. While state level actions are significant, this report focuses
on Federal efforts because of their high relevance to the CFTC's role
in derivatives market oversight. Within that context, we focus on
policies creating incentives related to the electrification of
buildings, vehicles and homes, along with the sourcing and production
of component minerals.
The most prominent pieces of recent legislation promoting
electrification, including the related infrastructure and sourcing of
battery components, are the Inflation Reduction Act (IRA) \19\ and the
Infrastructure Investment and Jobs Act (Jobs Act).\20\ With respect to
vehicles, the IRA provides tax credits to families for new and used
electric vehicles (EVs), subject to certain criteria, such as
manufacture of the vehicle and manufacture and assembly of battery
components in North America. A key component of the IRA is the Advanced
Manufacturing Production Credit, which supports domestic production of
solar and wind energy components, inverters, battery components, and
critical minerals.
---------------------------------------------------------------------------
\19\ https://www.congress.gov/117/plaws/publ169/PLAW-
117publ169.pdf; see also IRA Guidebook (https://www.whitehouse.gov/
cleanenergy/inflation-reduction-act-guidebook/).
\20\ H.R. 3684--117th Congress (2021-2022): Infrastructure
Investment and Jobs Act D Congress.gov D Library of Congress (https://
www.congress.gov/bill/117th-congress/house-bill/3684).
---------------------------------------------------------------------------
The tools used to promote the market for EVs began with a program
of tax credits for light-duty EVs under the Energy Improvement and
Extension Act.\21\ After some changes in the years since that program
was initiated, the IRA maintained the tax credits for new vehicles but
established U.S. sourcing requirements through the advanced
manufacturing investment tax credit, which supports domestic production
of solar and wind energy components, inverters, battery components, and
critical minerals.
---------------------------------------------------------------------------
\21\ H.R. 6049--110th Congress (2007-2008): Energy Improvement and
Extension Act of 2008 D Congress.gov D Library of Congress (https://
www.congress.gov/bill/110th-congress/house-bill/6049).
---------------------------------------------------------------------------
By subsidizing EVs containing a threshold percentage of critical
minerals extracted or processed in the U.S. or in a country with which
the U.S. has a free trade agreement, the IRA utilizes both onshoring
and friendshoring strategies to cultivate domestic and allied supply
chains and reduce reliance on countries such as China. While the credit
for critical minerals has become permanent, other aspects will phase
out between 2030 and 2032.
The most important tools for promoting the production of EVs in the
U.S. are the Corporate Average Fuel Economy (CAFE) standards and the
greenhouse gas (GHG) emissions standards for vehicles. Automakers have
been increasingly incentivized to manufacture EVs by rising CAFE
standards and a credit system that rewards EVs with 6.67 times as many
CAFE credits as their rated fuel economy would normally dictate.\22\
The combination of CAFE and GHG emissions credits are likely worth tens
thousands of dollars per EV sold.\23\
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\22\ https://www.federalregister.gov/documents/2024/03/29/2024-
06101/petroleum-equivalent-fuel-economy-calculation
\23\ https://www.texaspolicy.com/wp-content/uploads/2023/10/2023-
10-TrueCostofEVs-BennettIsaac.pdf
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Given the evolving policy environment, Federal subsidies for EVs
face an uncertain future. If they are reduced or eliminated, this would
reduce the incentive for automakers to produce and sell EVs in the
United States. If this occurs, automakers may respond by raising the
purchase prices for EVs and so U.S. demand will grow more slowly. With
production of and demand for EVs being more robust in China and Europe,
U.S. demand could be a relatively small contributor to global demand
for critical battery materials over the next several years.
D. Critical Mineral Lists
Multiple departments within the Federal Government publish critical
mineral lists with different frequency of updating and definitions of
critical. Two common ones are the Department of Energy (DOE) and the
Department of [the] Interior, undertaken by the United States
Geological Survey (USGS). These two lists are meant to help guide
research priorities across the government and define eligibility for
certain tax credits in the IRA. The lists can differ in the minerals
deemed critical as they have different time frames, scopes, and
definitions. For example, the USGS lists look at the current U.S.
economy while the DOE list is for clean energy technologies likely to
be utilized in the next 10 years.
Important to this report, it is enlightening to see changes in the
lists over time to understand how mineral market behavior may change.
Something that is deemed important today, and thus might benefit from
the initiation of a new traded product, can quickly become less
important as technology evolves. A prime example is that of europium,
used in compact florescent lighting (CFL). The 2011 DOE Critical
Materials Strategy listed europium as ``Critical'' for both the 2011-
2015 and 2015-2025 time frame due to the expected increase in CFL
technology in lighting.\24\ The 2023 DOE Critical Materials Assessment
does not consider europium as CFL technology has largely been overtaken
by light emitting diode (LED) technology.\25\
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\24\ DOE, Critical Materials Strategy, 2011,https://www.energy.gov/
sites/prod/files/DOE_CMS2011_FINAL_Full.pdf.
\25\ DOE, Critical Materials Assessment, 2023, https://
www.energy.gov/sites/default/files/2023-07/doe-critical-material-
assessmen_07312023.pdf.
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E. Key Takeaways
The costs and risk from future technologies do not disappear
depending on the type of market--they only move from one party to
another. Derivatives serve a valuable purpose in allowing risk to be
reallocated according to risk appetite, thereby lowering costs across
the board. The government curated drivers of critical mineral markets
may rewire the risk transfer and cost smoothing attributes of the
related derivatives.
The purpose of hedging for critical mineral markets is to protect
against a movement in value against one's expected risk profile for
those minerals. In a situation where the fundamentals of a product will
include the social implications of a curated path for what vehicles
should be produced, as well as the ultimate environmental outcome of
that path, hedging could be inordinately expensive until those factors
can be reliably modeled.
This leads to a few potential outcomes (not necessarily negative
but nonetheless foreseeable):
1. Because derivatives naturally serve as price discovery
mechanisms, they are a valuable window into the vibrancy
(or paucity) of an underlying physical market. If the
underlying market is weak, the derivatives market will
confirm it.
2. Since the underlying market for minerals is so technology
dependent, the derivatives market could suffer from shocks
and unusual volatility when changes occur that are not
expected.
3. To be useful for hedging, the derivatives market for critical
minerals may need to be quite bespoke, requiring OTC
derivative structures rather than exchange traded products.
IX. Recommendations and Issues to Consider
A. Recommendations for Regulatory Considerations
Legislation that chooses market winners and losers can have
unfortunate consequences. But at least the U.S. Congress is an elected
body authorized to make law, whether well or ill advised. In contrast,
the CFTC, as an independent agency within the Executive Branch, lacks
the authority to make law by favoring one market over another. Rather,
its role is to foster fair and efficient derivatives markets,
supporting innovation and market integrity. Moreover, although the CFTC
retains anti-fraud and anti-manipulation enforcement authority over the
physical commodity markets, the CFTC does not have the authority to
regulate the underlying physical markets; therefore, it has no more
right to fix the evolution of critical mineral markets than it has to
fix the evolution of established markets such as corn, oil, or
securities.
It is also not always the case that ``doing something'' is a
constructive course. Instead, the CFTC is poised to do the most good by
doing no harm--that is, not pressing the scales in favor of any one
market. Derivatives trading on critical minerals, whether nascent or
mature, fits within existing regulatory oversight mechanisms. Moreover,
given the role that derivatives play in price discovery and liquidity
enhancement for underlying commodity assets, it is critical that the
CFTC not choose commodity winners or losers by either lowering or
raising the bar in related derivatives markets. Importantly, the CFTC
does not possess discretionary authority to lend Congress an extra hand
in curating manufacturing incentives and consumer needs.
The CFTC should recognize the importance of allowing the markets it
oversees to develop and function properly. As described earlier in this
report, critical mineral markets are small, lack established benchmarks
and suffer from fragmentation. This is far from ideal for a mature
market; however, it is a reasonable start for a market whose importance
appears likely to grow. Although some would argue that such a set of
factors must be altered in order to support the aspirations of the
incentives and standards discussed above, the price discovery function
of derivatives in mineral markets could be significantly impaired if
the CFTC took any action toward critical mineral derivatives that was
different from its oversight relating to other underlying commodities.
What the CFTC should do in light of current energy policy affecting
mineral markets is continue to stop fraud and manipulation of the
derivatives markets it oversees, including as those markets evolve and,
even if they become the tool of geopolitics. The temptation is strong
to push the boundaries of what one controls, but the CFTC can do the
most good by continuing to do what it does well within its authority.
One recommendation is that the CFTC continue to acquire more
knowledge about the state of mineral markets and the underlying
technologies that drive demand for these minerals. As exchanges
increase their offerings related to minerals, it is important for CFTC
staff to have a strong economics and finance training related to
minerals. This will ensure proper functioning of these derivative
markets through informed regulatory and enforcement actions.
B. Recommendations for Market Participant Considerations
As metals continue to be mined, refined, and recycled in response
to supply and demand, exchanges must continue to adapt as well. This
ever-changing landscape offers opportunities to introduce new contracts
for risk management and also requires a continuous assessment of the
current trading and regulatory environment as well as the
specifications underlying these exchange traded derivatives. For
example, the LME nickel event in 2022 demonstrates the importance of
running an orderly market and aligning exchange deliverable product
specifications to physical market realities.
In the last 2 decades, the energy industry experienced dramatic
financial losses from past missteps, which motivated regulators to
force today's new requirements. However, before such undesirable
experiences in minerals markets force the regulator's hand, the CFTC
may be able to encourage similar requirements for critical minerals
markets on an industry-developed basis. Today, energy industry groups
like the Committee of Chief Risk Officers (CCRO.org), International
Energy Credit Association (IECA.net), National Petroleum Energy Credit
Association (NPECA.org), and others support the development and
adoption of new industry standards, and support compliance with
regulatory requirements. The CFTC might also encourage development of
critical minerals industry groups that could fill such a standard-
developer role for critical minerals trading and risk management.
Technological advances and consumer preferences continually alter
the needs of the firms to ensure a reliable flow of goods and services
to the market. Understanding when society is better served with a
formal trading contract is difficult but the task is best served in the
hands of private exchanges. The current situation around cobalt is a
prime example. The battery market at this stage is dominated by two
main chemistries: Nickel Manganese Cobalt (NMC) and Lithium Iron
Phosphate (LFP). As their names suggests, LFP batteries do not contain
cobalt while NMC batteries do contain cobalt. The Cobalt Institute's
2023 Cobalt Report has EVs accounting for 45% of total demand of cobalt
and batteries of all kind accounting for 93% of the growth in cobalt
demand for 2023.\26\ Should LFP batteries become the dominant chemistry
for batteries in the near future, the demand for cobalt would likely
subside along with the open interest in a futures contract.
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\26\ Cobalt Institute, Coblat Market Report 2023. https://
www.cobaltinstitute.org/wp-content/uploads/2024/05/Cobalt-Market-
Report-2023_FINAL.pdf.
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