CFTC approves notice to define "gaming" and bar certain event contracts; commissioners strip staff delegation

The Commodity Futures Trading Commission voted to approve and issue a notice of proposed rulemaking that would amend Regulation 40.11 to define "gaming" and identify categories of event contracts the agency preliminarily finds contrary to the public interest, including contracts tied to political contests, awards contests and some athletic events.

Chairman Benham opened the meeting by urging support for the proposal and thanking staff for drafting the text. "To be clear, that means that event contracts on the outcome of a political contest such as an election could not be listed for trading or accepted for clearing under the proposed rule," Benham said, summarizing the staff position that such contracts lack the hedging and price‑discovery utility of traditional futures.

The staff presentation, led by Nora Flood, chief counsel in the Division of Market Oversight, explained the changes the notice would make to 40.11: it defines "gaming" as staking something of value on the outcome of a contest or game (including an election), explains that contracts involving enumerated activities in CEA section 5(c) may be treated as contrary to the public interest, and sets out public‑interest factors the Commission would use in evaluating particular contracts. Flood said the changes aim to give exchanges clearer guidance and reduce the need for resource‑intensive individualized contract reviews.

Commissioners debated the scope and process for the rulemaking. Commissioner Johnson said the commission had received more than 1,300 comment letters on recent applications and described an effort to include an "appendix E" listing factors for public comment. "We explicitly welcome you to use the notice and comment period to help inform the decision that the commission will make," Johnson said.

Several commissioners voiced concern about enforcement and monitoring challenges for information‑based event contracts that lack an underlying cash market. Vince McGonigal, Director of the Division of Market Oversight, relayed a statement from the Division of Enforcement that enforcement would face significant detection and surveillance limits for such contracts and that staff resources would be strained.

Commissioner Mersingering dissented in part, arguing the proposal was overbroad and that the Commission lacks authority to make categorical public‑interest determinations for entire classes of contracts rather than evaluating contracts on an individualized basis. "The proposal's definition of gaming is grossly overbroad," Mersingering said, and warned that the approach could intrude on state gaming authority and federalism norms.

Commissioner Pham criticized the proposal's procedural and governance aspects and called for an independent Government Accountability Office review of the CFTC's rulemaking and internal procedures before expanding any jurisdictional reach. "A GAO study and recommendations for improvement will ensure that the commission has the internal operations, structure, technology, expertise, personnel, and funding to be effective," Pham said.

A narrow but pivotal amendment to the voting draft, proposed by Commissioner Mersingering and seconded by Commissioner Pham, struck language that would have delegated to the directors of the Division of Market Oversight and the Division of Clearing and Risk the authority to commence 90‑day contract reviews under 40.11(c). Supporters of the amendment argued such commencement decisions should rise to the five‑member Commission; supporters of the original draft said the delegation was intended only to allow staff to "raise their hand" to pause a self‑certified contract for review while final determinations would remain with the Commission.

Mr. Kirkpatrick called the roll on the amendment. Commissioners Pham, Mersingering and Goldsmith Romero voted "aye," Chairman Benham voted "no," and Commissioner Johnson abstained; the amendment carried. On the amended notice, the Commission approved issuance by a 3‑2 vote (ayes: Benham, Johnson, Goldsmith Romero; noes: Mersingering, Pham). The notice will be published and the Commission will solicit public comment as part of the notice‑and‑comment process.

What the rulemaking would do and what it would not do was a recurring theme: staff and proponents said the measure targets contracts that the agency preliminarily views as lacking economic hedging utility and posing manipulation or integrity risks; critics said the Commission should not make categorical judgments about categories of contracts without individualized review, and that relying on state gaming definitions could create preemption or clarity problems.

The Commission's action begins a formal notice‑and‑comment period during which market participants, exchanges and other stakeholders can submit views on the proposed regulatory text and on the public‑interest factors described in the proposal. The agency did not adopt final regulatory text at the meeting; any changes after public comment would be reflected in a subsequent final rulemaking.

Votes at a glance: the amendment to strike the proposed delegation passed (3 ayes, 1 no, 1 abstain); the amended notice of proposed rulemaking to amend Regulation 40.11 passed 3‑2. The Commission adjourned after brief closing remarks thanking staff and reiterating the solicitation of public comment.