Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 3: I'm Joe Wisenthal, and I'm Tracy Alloway.
Speaker 2: Tracy, did you watch the Super Bowl?
Speaker 3: No?
Speaker 2: I was going to ask that, didn't I knew it.
Speaker 3: Actually, I was going to start exactly the same way.
Speaker 3: I did watch the Super Bowl, And so I feel
Speaker 3: empowered to ask you a very controversial question. Oh yeah,
Speaker 3: not which halftime show you watched, but did Cardi be
Speaker 3: perform at the Super Bowl?
Speaker 1: Oh?
Speaker 2: Right, because this was a big thing. I forgot that
Speaker 2: there was, you know what, I'm aware of various sort
Speaker 2: of questions about prediction markets and things that people place
Speaker 2: bets on. Well, how did that resolve? What was what
Speaker 2: was the basic issue here?
Speaker 3: Again? So I think it's still being resolved in various ways.
Speaker 3: But Cardi b she was on set during Bad Bunnies
Speaker 3: Extravaganza and she was kind of like dancing and singing along,
Speaker 3: like mouthing words at least along with other people like
Speaker 3: Pedro Pascal and Jessica Alba.
Speaker 2: Yea Lady Gaga, well like singing right.
Speaker 3: So the only reason this matters at all is because
Speaker 3: of prediction Markets. So there was a bet will Cardi
Speaker 3: be perform? And now the question is does standing on
Speaker 3: stage and kind of bobbing your head and mouthing words
Speaker 3: count as a performance? Polymarket says it does, cal She
Speaker 3: says it doesn't.
Speaker 2: Oh interesting, Yeah, there you go call She and poly
Speaker 2: Markets split over whether Cardi b performed. That's a great tension.
Speaker 3: I like that.
Speaker 2: It was striking to me, setting aside that I actually
Speaker 2: somehow seem to have missed the specific thing like how
Speaker 2: much prediction markets are now just part of the consumption experience,
Speaker 2: you know, even you look at all these different things
Speaker 2: that people are talking about eighty Gaga going to show
Speaker 2: up somehow, like someone made a bet on it before
Speaker 2: it went public. But also just like with each score,
Speaker 2: you know, you check the line, it's like how much
Speaker 2: did this move the expectations of whether the Seahawks are leading?
Speaker 2: Like prediction markets are truly becoming part of like pop
Speaker 2: culture and how we interact with pop culture.
Speaker 3: There were some weird bets around, like color of gatorade
Speaker 3: that was going to get dumped on the coach. Yeah,
Speaker 3: lengths of like the national anthem being sung? Yeah, did
Speaker 3: you see that? Like I was tempted by some of those,
Speaker 3: but I stayed away.
Speaker 2: I've still I haven't used poly market or Kelsey probably was.
Speaker 1: You know.
Speaker 2: The interesting thing too, is like how much the mood
Speaker 2: has swung, right cause a few years ago, like I
Speaker 2: don't know, twenty twenty two, twenty twenty three, I think
Speaker 2: we did an episode like at that time, like there
Speaker 2: was almost nothing and the sort of like regulatory one
Speaker 2: to eighty. The degree to the liberalization of these markets
Speaker 2: has been pretty remarkable, even you know, going back to
Speaker 2: a year and a half go, there was just a
Speaker 2: polymarket and it was just the offshore version that you
Speaker 2: had to fund with stable coins, and now it's like exploded.
Speaker 2: At the time, you know, Kelshi was very limited. They
Speaker 2: didn't have US access, et cetera, or very curtailed US access. Anyway,
Speaker 2: they're here and everyone's trying to wrap their heads on
Speaker 2: where this is all going and stuff.
Speaker 3: Yeah, it feels like they're much more sanctioned, I guess
Speaker 3: than they used to.
Speaker 4: Yeah.
Speaker 3: Yeah, but that said, there are still some issues that
Speaker 3: people are trying to work out. You have ambiguous outcomes
Speaker 3: like did Cardi B actually perform? You have concerns around
Speaker 3: insider trading, No, not insider trading per se, because we're
Speaker 3: not talking about securities contracts, but maybe people with insider
Speaker 3: info who inadvertently disclosed something material. I was thinking about
Speaker 3: this actually, So you can also bet on which companies
Speaker 3: are going to run Super Bowl ads. Oh yeah, and
Speaker 3: a lot of people must know if a company is
Speaker 3: going to run an ad like that, you have like
Speaker 3: the agency and actors like everyone, And you could argue
Speaker 3: maybe that that's material non public information. Right, you run
Speaker 3: a Super Bowl ad, you get a bunch of attention.
Speaker 3: Maybe your share price goes up if you're publicly listed. Yeah,
Speaker 3: I don't know.
Speaker 2: There are so many things anyway, rather than us just
Speaker 2: keep talking about them because we can talk for an hour.
Speaker 2: We really do have the perfect guest. We're going to
Speaker 2: be speaking with Mike Selig. He is the new chairman
Speaker 2: of the CFTC, the main regulator for prediction markets, who's
Speaker 2: just sworn in in December. We're going to talk all
Speaker 2: about this, maybe some crypto as well. So, Mike, thank
Speaker 2: you so much for coming on out Locks, coming into
Speaker 2: the studio.
Speaker 4: Glad to be here.
Speaker 2: Why do you tell us a little bit about just
Speaker 2: broadly coming into this new role, like what are your
Speaker 2: goals here with the CFTC.
Speaker 5: Or really at a pivotal moment you mentioned prediction markets,
Speaker 5: crypto AI, all manner of new technologies and products that
Speaker 5: are impacting our markets. And the CFTC was really this
Speaker 5: kind of little known regulator before the Financial crisis, regulating
Speaker 5: the futures markets. It has expanded jurisdiction now or the
Speaker 5: swaps markets, counter derivatives markets, and now we see so
Speaker 5: much innovation in that space with things like prediction markets
Speaker 5: and crypto, with legislation on the perverge of hopefully being
Speaker 5: on the President's desk, and so the agency is really
Speaker 5: at this unique moment where it has the opportunity to
Speaker 5: shape the future of these new and emerging markets, and
Speaker 5: it's really exciting time to be in the seat.
Speaker 3: Do you have an opinion on whether Cardi B performed
Speaker 3: at the Super Bowl? I mean, it's funny, but it's
Speaker 3: also kind of irrelevant because I saw someone has actually
Speaker 3: filed a complaint to the Commission about Calshi's decisions specifically.
Speaker 5: Well, of course we're spending a lot of resources investigating
Speaker 5: whether Cardi B performed advocating. Really our focus here is
Speaker 5: on the market, so the unique thing that the great
Speaker 5: thing about the way that we regulate the markets is
Speaker 5: that the exchanges themselves, similar to on the security side,
Speaker 5: are self regulatory organizations. So each exchange has its own
Speaker 5: rule book that's been approved by the agency. It has
Speaker 5: its own requirements for contracts that are certified on the exchange.
Speaker 5: So of course the card contracts went through a self
Speaker 5: certification process and then they're settled in accordance with exchange rules.
Speaker 4: They go through a clearinghouse as well.
Speaker 5: So the exchanges each have these rule books and certain
Speaker 5: requirements around how the contracts are resolved and settled. And
Speaker 5: of course now we're seeing some differences amongst call She's
Speaker 5: rulebook and poly Market's rule book.
Speaker 4: But that's the great thing about our markets.
Speaker 5: And having the ability to build a business, to develop
Speaker 5: an exchange with some flexible guardrails on top that the
Speaker 5: agency oversees. But we don't prescribe exactly what has to
Speaker 5: be in the rule book. We have a principles based
Speaker 5: system of regulation.
Speaker 2: What is the basis for something like is CARDI B
Speaker 2: going to perform at the Super Bowl? Have time show?
Speaker 2: What is the basis for this being categorized as a
Speaker 2: true financial instrument regulated by the CFDC, because it certainly
Speaker 2: just feels like prop betting.
Speaker 3: Who has economic exposure they need to hedge to cardi
Speaker 3: b performing.
Speaker 5: There's a really interesting historical story around the definition of
Speaker 5: commodity and the markets that we regulate today, starting back
Speaker 5: in the thirties when the Commodity Exchange Act was first ratified.
Speaker 5: It was originally focused on grain, and over time we've
Speaker 5: had things.
Speaker 4: Like work values exactly. It's come a very long way.
Speaker 5: Of course, with the financial crisis, we got all manner
Speaker 5: of new products within our authority. But the definition of
Speaker 5: commodity is extraordinarily brought. It includes virtually everything except a
Speaker 5: few things have been carved out onions and motion picture
Speaker 5: box office receiscent, and that's a really important point to
Speaker 5: note that they were expressly carved out. So most things
Speaker 5: in our commerce today, even securities, are technically considered commodities
Speaker 5: under our act, and we have authority to regulate them.
Speaker 5: In the case of securities, we coordinate with the sec
Speaker 5: and have some joint authority. But for all other types
Speaker 5: of products services rights.
Speaker 4: In disease, people are going to hedge that risk.
Speaker 5: They're going to be in the market to speculate on
Speaker 5: those products, and so we don't merit regulate. We don't
Speaker 5: tell people what they should be entering into contracts on.
Speaker 5: We create rules and regulations around those markets to make
Speaker 5: sure that they have integ that they're resilient, that they're vibrant,
Speaker 5: and they have guardrails and in vexter protections. And so
Speaker 5: that's why going back to the exchange rule books and
Speaker 5: other control self certification being an important process. We're making
Speaker 5: sure that those markets are safe and secure. But we're
Speaker 5: not telling people whether to trade pork bellies or cardib
Speaker 5: contracts or anything else.
Speaker 3: So let's go to the insider trading question, because this
Speaker 3: is sort of top of mind for a lot of people.
Speaker 3: Technically it's not insider trading, but you know, it does
Speaker 3: look like some people have inside knowledge sometimes when they
Speaker 3: put on big bets on something that just happens to
Speaker 3: happen the next day. The CFTC hasn't, as far as
Speaker 3: I know, given a lot of guidance on this issue.
Speaker 3: How are you actually thinking about it?
Speaker 5: Well, from a legal standpoint, I think there's a bit
Speaker 5: of a misunderstanding about the insider trading doctrine at the CFTC.
Speaker 5: So the authority at the agency is very similar to
Speaker 5: the authority at the SEC Under our Anti Fraudience Manipulation Rule,
Speaker 5: we do have authority to police insider trading in the
Speaker 5: commodities markets. Now, the way that insider trading is carried
Speaker 5: out is oftentimes different from a situation where you have
Speaker 5: informational asymmetries relevant to a company. But there are situations
Speaker 5: where you have informational asymmetries related to the markets, placing
Speaker 5: a trade ahead of a customer, for example, or even
Speaker 5: in this situation now with prediction markets, and that's something
Speaker 5: we are thinking about and certainly on the beat and exploring.
Speaker 5: So we surveil the markets, we collect data, we have
Speaker 5: information about. For example, you know, our players participating in
Speaker 5: these markets are people associated with the sports leagues, etc.
Speaker 5: And so we are a cop on the beat in
Speaker 5: that regard. So the doctrine is not entirely different, but
Speaker 5: there are some nuances that we're aware of and making
Speaker 5: sure that we're policing.
Speaker 2: For would poly Market or Kelsey in your view, be
Speaker 2: allowed to live stream a video of a giant roulette
Speaker 2: wheel and let people trade futures on when it lands
Speaker 2: on red or black?
Speaker 5: Some of these types of gaming where it's really a
Speaker 5: game of chance and not a game of skill, there's
Speaker 5: definitely a difference. And I think when we look at
Speaker 5: what's a commodity, it's possible that you could construct some
Speaker 5: sort of contract an esotera derivative, but really the underlying
Speaker 5: and a game of skills very different. There's a clear
Speaker 5: economic risk associated for example, at the super Bowl.
Speaker 4: It's a good example.
Speaker 5: There's a ton of economic activity associated with that. There's
Speaker 5: hotel revenue that comes from it, there's vendors, there's activity
Speaker 5: within the city, tourism, all of that, and so there's
Speaker 5: a real reason to hedge that risk. With a game
Speaker 5: of chance, it's harder to say it's possible you can
Speaker 5: construct something, but it's less likely that that's a real underlying.
Speaker 2: Well, like what is like the difference because you know,
Speaker 2: let's say it's what is bad Bunny's first song going
Speaker 2: to be at the super Bowl? Like, what is the
Speaker 2: difference between that, which doesn't really seem any more economic
Speaker 2: than reultwel and whatever it is?
Speaker 5: Well, to be clear, there's no requirement in the act
Speaker 5: that there has to necessarily be some merit based result
Speaker 5: from a contract. I do think with a lot of
Speaker 5: these information markets, these prediction markets, where they're forecasting a
Speaker 5: potential outcome in the future, they produce a lot of
Speaker 5: useful information. We are seeing newsrooms incorporate prediction markets, We're
Speaker 5: seeing sports live broadcasts incorporate prediction markets. We're seeing the
Speaker 5: information use in particular. A great example is the election
Speaker 5: in twenty twenty four were the president had a very
Speaker 5: large victory and that was not necessarily forecast in many
Speaker 5: of the polls, but of course the prediction markets got
Speaker 5: that right. So it's something that I think is valuable
Speaker 5: to society. The question of having regulation around that's a
Speaker 5: separate question.
Speaker 4: I think that's an important one.
Speaker 5: We are certainly taking on that task and making sure
Speaker 5: that we don't let these markets languish or that we
Speaker 5: don't push them offshore, but we develop the right rules
Speaker 5: and regulations to develop investments and make sure that the
Speaker 5: markets are flourishing here in the United States.
Speaker 3: Since we're discussing prediction markets through the medium of the
Speaker 3: Super Bowl, and you mentioned players as well, looking at
Speaker 3: player behavior, if a player were to place a bet
Speaker 3: on I don't know, a specific play during the game,
Speaker 3: and then they did it themselves like something that they
Speaker 3: actually have agency over. Would that be something that you
Speaker 3: would investigate or look into.
Speaker 5: You know, I think it's all facts and circumstances, So
Speaker 5: we ne'd evaluate potentially to the extent that there's insiders
Speaker 5: that are involved in the markets, we get that data.
Speaker 5: We're actually talking to a lot of the sports leagues.
Speaker 5: We're talking to participants in the markets to make sure
Speaker 5: that we are on top of things, have information about
Speaker 5: who is able to be participating in these markets who's not.
Speaker 4: We do have at the exchange level.
Speaker 5: The exchanges are really the first line of defense, and
Speaker 5: they're surveilling the markets, they're doing KYC on their customers,
Speaker 5: and so that's certainly something we're on top of and
Speaker 5: we'd consider and evaluate on a case by case basis.
Speaker 2: Why isn't a trading sports derivatives gambling or betting or
Speaker 2: is it betting?
Speaker 4: Well, there really is an interesting history here.
Speaker 5: So if you go back to the thirties, national grain
Speaker 5: betting was a thing, right, and that was considered a
Speaker 5: national pastime. And so for as long as we've had
Speaker 5: derivatives markets, we've had these so called bucket shops which
Speaker 5: were you know, these these off exchange markets where people
Speaker 5: were just placing bets against the house on the future
Speaker 5: price of a commodity.
Speaker 4: On the other hand, you had organized exchanges.
Speaker 5: So the Chicago Board of Trade later CME and others
Speaker 5: had organized markets with market integrity. They had derivative instruments
Speaker 5: contracts where you actually were in a contract with another person.
Speaker 5: And then now in our markets, we have a clearinghouse
Speaker 5: novating and standing in the middle of those contracts. But
Speaker 5: you have a buyer for every seller. With the kind
Speaker 5: of booky model, that's not the case. You're betting against
Speaker 5: the house, and there's a lot of different rules. When
Speaker 5: you're betting against the house. You don't have the liquidity
Speaker 5: of being able to offset your position or sell out
Speaker 5: of your position. You're kind of stuck taking for the
Speaker 5: bookie's giving you, and some of the odds are very different,
Speaker 5: so you're actually facing the odds of the bookie as
Speaker 5: opposed to hear where the contracts go up and down
Speaker 5: a value based on actual market activity. And so over time,
Speaker 5: the Supreme Court actually blocked some of this bucket shop
Speaker 5: activity by saying you can't take the price quotations from
Speaker 5: the organized exchanges and use them in a bucket shop,
Speaker 5: but a lot of these bucket shops over the years
Speaker 5: have now moved into gaming and other things. We're seeing
Speaker 5: really the same phenomenon where we have casinos and other
Speaker 5: operations that are operating lawfully under state requirements and regulations,
Speaker 5: but they don't have the same sorts of controls. You know,
Speaker 5: we regulate a nearly five hundred trillion notional market with
Speaker 5: the swaps market. We have very stringent requirements and controls
Speaker 5: around our exchanges, and these contracts reflect that. They go
Speaker 5: through a very stringent process of self certification. They can't
Speaker 5: be readily susceptible to manipulation. We survey those markets, we've
Speaker 5: policed things like insider trading, and so it's a much
Speaker 5: more robust scheme on top of these markets, much higher
Speaker 5: stringent requirements, and so I I do think we're seeing
Speaker 5: a lot of parallels between the thirties and forties and today.
Speaker 5: But rest assure that we're on top of these markets
Speaker 5: and these have the same sorts of investor protections that
Speaker 5: you would expect in the securities markets and in our
Speaker 5: futures markets.
Speaker 3: Out of curiosity, how much of your time is split
Speaker 3: now between the new stuff, prediction markets crypto versus the
Speaker 3: I guess, the old boring futures exchanges.
Speaker 5: Yeah, oh five, Well, our day to day is really
Speaker 5: the traditional markets. So and when we talk about these
Speaker 5: new markets, many of the incumbents are getting into this
Speaker 5: space as well. We're seeing more and more of these
Speaker 5: products offered on our traditional dcms, But all of these
Speaker 5: are the same registration category, right. There are some nuances
Speaker 5: and how they're set up. There's some new action relief
Speaker 5: that's been given to some of these platforms historically, but
Speaker 5: this is not it's not, you know, our day to
Speaker 5: day bulk of work. That said, given that it's new,
Speaker 5: and given that there's so much that is changing, we
Speaker 5: have a lot more rulemaking and policy work to do
Speaker 5: in this space. So I do think it's a big
Speaker 5: piece because of that. But in terms of the actual
Speaker 5: size of these markets compared to our as I said,
Speaker 5: about five hundred trillion dollar notional swaps market forty trillion
Speaker 5: dollar notional futures markets, it's a smaller piece, but it's growing,
Speaker 5: and I think blockchain is going to really change, in
Speaker 5: particular how some of these existing exchanges operate, how they
Speaker 5: settle transactions and so forth, and so it's a really
Speaker 5: exciting time to be in the seat.
Speaker 2: So I get that there are some market structure differences
Speaker 2: between a futures exchange on sports versus the traditional house
Speaker 2: sets the odds and so forth, But from the perspective
Speaker 2: of the user or the person who's putting money on
Speaker 2: the line, like I think most people would say, like economically,
Speaker 2: they're very similar, and they're getting more similar because we
Speaker 2: know that to say, like the Kelshie and poly market
Speaker 2: they're trying to get into to do parlays and stuff,
Speaker 2: so like it's getting closer and closer. And you know,
Speaker 2: people have a lot of concerns about sports gambling, the
Speaker 2: effect that that has on young people and so forth.
Speaker 2: National legalization of these it defecta lowers the age in
Speaker 2: a lot of states because in a lot of states
Speaker 2: the legal age to gamble is twenty one and the
Speaker 2: legal age to trade a future is like eighteen. I
Speaker 2: believe do you think that's good that we've defacto lowered
Speaker 2: the age to bet on sports.
Speaker 4: Well, again, we're not merit regulators.
Speaker 5: We don't pass judgment on kind of the age requirements
Speaker 5: in our securities markets and our derivatives' markets. We have
Speaker 5: certain standards that have been upheld these markets. People are
Speaker 5: betting on any number of assets, right if.
Speaker 2: You want to call it these overwhelmingly sports.
Speaker 5: I mean I think that said you have the ability
Speaker 5: to make investments and trade options all manner of securities,
Speaker 5: all manner of commodities, and so the rules are not
Speaker 5: different based on being sports or this or that. I
Speaker 5: think this term betting has been used and thrown about
Speaker 5: in our securities markets and our derivatives markets as well,
Speaker 5: and I don't think it necessarily means anything in particular,
Speaker 5: but the notion is that you're able to make decisions
Speaker 5: at eighteen in our markets, and we uphold that. State
Speaker 5: by state, some of the standards have set even higher,
Speaker 5: and that is not something that you know, I have
Speaker 5: a particular opinion on.
Speaker 4: I think that's just the way.
Speaker 2: When you say, sure, what do you mean in state
Speaker 2: by say some of the standards.
Speaker 5: So some of the states have flexibility and what they
Speaker 5: set up for drinking or for you know, gambling, and
Speaker 5: then like this is financial market activity.
Speaker 4: These are not wagers. You're not betting against the house.
Speaker 5: We have significant overlay from a regulatory standpoint over these markets,
Speaker 5: and so we're not gatekeeping particular categories of markets, elections
Speaker 5: or sports and having different standards. That's not how we've
Speaker 5: typically done things, and so we don't intend to do
Speaker 5: that in this particular market.
Speaker 3: So you're not a merit based regulator, but you are
Speaker 3: a technical regulator. And as we've been discussing, there's a
Speaker 3: lot going on, lots of rulemaking to do, lots of
Speaker 3: potential enforcement actions. There's a barren story out today talking
Speaker 3: about how the CFTC apparently has no enforcement officers left
Speaker 3: in its Chicago office, and you used to have twenty,
Speaker 3: but everyone resigned. It seems. How are you balancing all
Speaker 3: these new markets which are growing really really fast and
Speaker 3: pose some very thorny questions that we've been discussing with
Speaker 3: more limited resources.
Speaker 5: Well, look, a lot of the folks that left that
Speaker 5: was before my tenure, and certainly you know it's not
Speaker 5: you know, they didn't leave it right after I joined, right,
Speaker 5: But no, I think that it's a serious question. Right,
Speaker 5: We've got to make sure that we have adequate staff
Speaker 5: to police the markets, and we do have a ton
Speaker 5: of staff throughout the country, and you know, to the
Speaker 5: point of our Chicago office, of course, it's important that
Speaker 5: we have folks within that office, but we don't have
Speaker 5: a Texas office, we don't have a Florida office, we
Speaker 5: don't have offices in every state.
Speaker 4: We have a handful of offices.
Speaker 5: We've got a critical mass in DC and a number
Speaker 5: of folks in New York as well, and those are
Speaker 5: two largest offices. We continue to fill those out, and
Speaker 5: we would love to have more people in Chicago, and
Speaker 5: you know, the door is always open for folks that
Speaker 5: want to come in and work for us, and we
Speaker 5: continue to build out the ranks there.
Speaker 4: But we have adequate resources.
Speaker 5: We have a ton of folks within each of our offices,
Speaker 5: and we're actually leveraging a lot of the new technologies
Speaker 5: like AI to make sure that we're surveilling the markets
Speaker 5: and that we're reviewing things like can started trading and
Speaker 5: bringing cases where it makes sense. We're also processing applications
Speaker 5: very quickly. We just processed, I think in a record
Speaker 5: time of two hundred days one of the more recent
Speaker 5: exchange applications.
Speaker 4: So we're really well staffed.
Speaker 5: But we're continuing to build that out and make sure
Speaker 5: that we have good people in the building who are
Speaker 5: competent and.
Speaker 4: Able to make sure that we protect our markets.
Speaker 2: So you have the funding to add headcount, and are
Speaker 2: you pursuing like building out the headcount. Do you need
Speaker 2: more funding?
Speaker 5: Absolutely, so we are actually staffing up, so one hundred
Speaker 5: percent we're building that out. We have adequate resources to
Speaker 5: do so. But I want to be clear that we
Speaker 5: have a very well staffed building and we're very much
Speaker 5: on top of things with and you know, these questions
Speaker 5: are out not enforcing and surveilling. You know, I think
Speaker 5: there's a little bit of face news there. We probably
Speaker 5: should put it up to a prediction market. But I
Speaker 5: do think that we're on top of things.
Speaker 3: So one thing I know about the Trump administration, they
Speaker 3: are big fans, seemingly of cutting costs, cutting spending, streamlining
Speaker 3: the federal government in some ways, and you know, sometimes
Speaker 3: cutting agencies altogether. This has been a really long running
Speaker 3: question in market structure world. But why don't we just
Speaker 3: combine the CFTC SEC.
Speaker 4: It's everybody's favorite question. Yeah.
Speaker 5: Look, the CFTC and SEC are very different regulators. So
Speaker 5: the SEC is a capital markets regulator. They're focused on
Speaker 5: somebody wants to go race capital for a great idea.
Speaker 5: Other people want to place that capital somewhere there needs
Speaker 5: to be some regulation over that. After the Great Depression,
Speaker 5: there was a lot of chaos in the markets, and
Speaker 5: the agency really was a great answer to that issue
Speaker 5: and has put a great regime in place to regulate
Speaker 5: all of that. The CFTC grew up actually at a
Speaker 5: different time. The original act was in the thirties, but
Speaker 5: later on and the safetc Was established in the seventies.
Speaker 5: But the purpose of the CFDC is to regulate risk mitigation,
Speaker 5: risk management very different areas. So there are firms that
Speaker 5: whether farmers, ranchers, energy producers. Now we have data centers
Speaker 5: in the AI space, but all manner of businesses have
Speaker 5: a bunch of risk related to the inputs for their
Speaker 5: business and ongoing operations and they need to hedge that risk.
Speaker 5: And there are other praditions that want to supply liquidity
Speaker 5: into those markets, make markets, or speculate, and the CFTC
Speaker 5: regulates that. So very different purpose for the regulator. There's
Speaker 5: not the same sort of disclosure regime that we have
Speaker 5: with the SEC, and so it makes sense to have
Speaker 5: two separate regulators. But what doesn't make sense and what
Speaker 5: Chairman Akins and I have been very clear on is
Speaker 5: the lack of coordination between the agency. So it's coordination,
Speaker 5: not consolidation. We need to harmonize the two regimes to
Speaker 5: make sure that there's not inconsistent and incompatible rules and
Speaker 5: that there's not gaps. So Chairman Akins is referred to
Speaker 5: this no man's land between the two agencies where you've
Speaker 5: got the bodies of all these dead products and services
Speaker 5: that otherwise could have been if the agencies could just
Speaker 5: figure out how to coordinate. Security futures is a great example.
Speaker 5: We have shared jurisdiction there, but we've really failed to
Speaker 5: work well.
Speaker 4: Together to get that off the ground.
Speaker 5: And so I think it's really a new day at
Speaker 5: both agencies where we're intending to work closely together on that.
Speaker 3: Yeah, this is exactly what I wanted to ask. So
Speaker 3: I've heard people talk about increased cooperation and coordination between
Speaker 3: the SEC and the CFTC basically ever since the financial crisis,
Speaker 3: and it hasn't really happened, or it hasn't happened to
Speaker 3: the degree that some people would like to see, what's
Speaker 3: your diagnosis of the actual problem there? And I would
Speaker 3: love to get into the weeds here, and you know, like,
Speaker 3: what does coordination look like between the two agencies.
Speaker 5: Yeah, I mean, I'm in a good position that I
Speaker 5: used to work for Tairman Akins, But you know, so
Speaker 5: I think we have a great relationship just getting off
Speaker 5: for the start. But a memorandum of understanding is something
Speaker 5: that we've committed to execute and we're looking to ext
Speaker 5: you very soon, and that really set all the ground
Speaker 5: rules for coordination between the staffs, and so not having
Speaker 5: that in place, I think is really hampered the two agencies.
Speaker 5: Because sharing information is really important. You need a framework
Speaker 5: for sharing that information. There's a lot of non public
Speaker 5: material that has generated in each building and so having
Speaker 5: rules for the sharing of that information is important. Having
Speaker 5: regular meetings between the staffs and coordination and sharing of
Speaker 5: market data related to registrants is really important. So if
Speaker 5: we've got dual registrants and we're collecting our own sets
Speaker 5: of information and we're ensuring that they're each complying with
Speaker 5: these two kind of separate fortresses of rules and regulations,
Speaker 5: how do we know who's doing what and what needs
Speaker 5: to be changed, And so having the information is really important.
Speaker 5: That's the first step, and then the staffs need to
Speaker 5: come together and figure out how to create substitute compliance.
Speaker 5: So certain rules are incompatible on both sides, we need
Speaker 5: to knock those out, or at least have a kind
Speaker 5: of default choice one agency versus the other. If you're
Speaker 5: a broker dealer and you're doing a very minimal amount
Speaker 5: of commodity derivatives activity, perhaps you should have a primary
Speaker 5: regulator at the SEC with some CFTC overlay to make
Speaker 5: sure that there's no gaps.
Speaker 4: So that that's an important piece.
Speaker 5: I think a lot of the general crypto related issues
Speaker 5: are really calling for joint rulemaking, joint work between the agencies,
Speaker 5: because we're seeing Nvidia tokens on chain and not necessarily
Speaker 5: within the US, but I think now with the DTC,
Speaker 5: we're going to start seeing a lot more of the
Speaker 5: tokenization of public equities, and then we're also seeing pitcoin
Speaker 5: ether things that are within our territory trading on chain,
Speaker 5: and those worlds are going to collide, and then they
Speaker 5: are in fact colliding today, and so having common ground
Speaker 5: between the agencies, figuring out what the ground rules are
Speaker 5: and making sure that we have similar standards for decentralized
Speaker 5: finance and for digital wallets and all of that's really
Speaker 5: important because if we set incompatible standards, then it's going
Speaker 5: to be a real disservice to the market, and that's
Speaker 5: going to harm all Americans.
Speaker 4: Kels.
Speaker 2: She had an ad recently. It said pov is a girl,
Speaker 2: and it said Puovy. I was about to be unable
Speaker 2: to pay my rent, but I got two years of
Speaker 2: rent through Kelshie's predictions. It's amazing. This seems more aggressive
Speaker 2: even than you know, the traditional sports betting and there's
Speaker 2: all kinds of sports betting ads, and then they have
Speaker 2: a thing where you're a problem gambler call this number.
Speaker 2: Should there be any limiting factor on how aggressively sports
Speaker 2: these prediction markets should be advertised.
Speaker 5: Well, that's one point that I think is worth double
Speaker 5: clicking on, in the sense that there are standards for
Speaker 5: futures commission mersions for the brokers within our markets, and
Speaker 5: some of those standards are like essentially the way that
Speaker 5: the Act and the regulations developed, where you have intermediation
Speaker 5: between the customer and the clearinghouse and the exchange typically
Speaker 5: in our markets.
Speaker 4: Now these no Act.
Speaker 5: Letters that started around two thousand that were given to
Speaker 5: some of the prediction markets back then. Yeah, as well
Speaker 5: as now other markets cut out the FCM cut out
Speaker 5: the broker, and so you had direct to the clearing house,
Speaker 5: direct to the exchange. And that model doesn't have all
Speaker 5: the same rules and regulations, and so something that we're
Speaker 5: thinking about is how do we make sure that we
Speaker 5: have consistent standards across both. Now I think this question
Speaker 5: of what sort of marketing and advertising either should be
Speaker 5: able to engage in as one that we're certainly geving
Speaker 5: to think about.
Speaker 2: Sorry, just to be clear, there are current rules on
Speaker 2: say a futures broker and how they can market. But
Speaker 2: when these no action letters were established that allowed the
Speaker 2: sort of the Future's entity itself to offer directly, they
Speaker 2: didn't have the rules. What are the rules and wouldn't
Speaker 2: add like these, like if a future is broker, like
Speaker 2: I don't know, I forget MF Global or something, They're like, oh,
Speaker 2: I couldn't pay my rent. But then now I'm you know,
Speaker 2: now might now I'll never have to work again because
Speaker 2: I traded whet futures. That seems a little weird and
Speaker 2: I've never seen an ad like that.
Speaker 5: Right, I mean, it really is this result of the
Speaker 5: way that these no action letters were handed down, as
Speaker 5: I said many many years ago, and this kind of
Speaker 5: regime that we have that really my view on a
Speaker 5: lot of this stuff is that we need clear rules
Speaker 5: of the road. We need to do things through notice
Speaker 5: and comment rulemaking, and actually think holistically about our markets
Speaker 5: and not focus on these little patchwork no action letters,
Speaker 5: which unfortunately has been the rule over many years. And
Speaker 5: so that's definitely something we're thinking about. We want to
Speaker 5: set clear standards. We want stakeholders out the table to
Speaker 5: figure out what these regimes should look like. And I'm
Speaker 5: not one necessarily to say what the marketing should look like.
Speaker 5: We want to hear from participants as to what sort
Speaker 5: of marketing they think's appropriate for these markets. But we're
Speaker 5: certainly thinking about that, and there are different standards. It
Speaker 5: really is just a result of the kind of ad
Speaker 5: hoc way that regulators in the past have gone about
Speaker 5: establishing exceptions for certain things in the markets.
Speaker 3: Well, on this note, do you maybe need new classifications
Speaker 3: because it seems like all these different worlds are kind
Speaker 3: of melding together, where you might have a crypto trading
Speaker 3: platform that's now offering derivatives and other things, and then
Speaker 3: you have like an old school exchange that is offering
Speaker 3: essentially bets like number go up, number go down. At
Speaker 3: the moment, I think your registration categories are pretty like
Speaker 3: standardized and you have three of them, is that right?
Speaker 3: Like futures, exchange, swap execution stuff like that.
Speaker 4: Oh, we've got too many, We've got many? Okay, anymore?
Speaker 1: All right?
Speaker 3: More than that? So could you create even more to
Speaker 3: sort of encompass the industry changes that we're seeing.
Speaker 5: Well, we certainly need to think holistically about what requirements
Speaker 5: we have on different participants. So these non intermediated exchanges,
Speaker 5: and we're also seeing a lot of vertical integration with
Speaker 5: a single business owning a clearinghouse, an FCM, the broker,
Speaker 5: and the exchange. We're seeing different models where there's the
Speaker 5: non intermediated As I said, we don't have an FCM
Speaker 5: at all, and then you have everything in between, and
Speaker 5: so we need to think about that. We need to
Speaker 5: make sure there's consistent standard. So we don't want a
Speaker 5: regulatory arbitrage where because you don't have the broker, you're
Speaker 5: able to do more. Now, the way that these have
Speaker 5: been set up under no action letters today, they do
Speaker 5: not allow for any margin, so they're fully collateralized. And
Speaker 5: so if you go directly to the clearinghouse as a customer,
Speaker 5: you're putting up full collateral, and so that's something as
Speaker 5: well where we're seeing more institutional interests in these markets.
Speaker 5: They would prefer to be able to put up margin
Speaker 5: and go through a broker, or have a model where
Speaker 5: you don't have the broker at all, but you're able
Speaker 5: to use margin. So we're thinking about all these things.
Speaker 5: It's a really interesting time, as I said, to be
Speaker 5: thinking about market structure for things that really just probably
Speaker 5: should have been done many years ago, and for whatever reason,
Speaker 5: people relied on these no action letters and really I
Speaker 5: guess it was more of an ankle biter at the
Speaker 5: time and didn't get a full regime.
Speaker 4: But we're thinking about all of that.
Speaker 2: Donald Trump Junior is an advisor to Kelsey. He's on
Speaker 2: the board of poly Market, and it looks like truth Social,
Speaker 2: which is largely owned by President Trump, is also going
Speaker 2: to launch something called truth predict. How should the public
Speaker 2: feel comfortable that these are well regulated markets given the
Speaker 2: very obvious sort of like stake that the president and
Speaker 2: his family has in this industry.
Speaker 5: These are designated contract markets like any other. We've regulated
Speaker 5: these markets for many, many years for decades, they have
Speaker 5: some of the most stringent regulatory requirements. As I mentioned,
Speaker 5: these are nearly five hundred trillion dollars notional markets that
Speaker 5: we regulate. We take it very seriously. We put these
Speaker 5: fraud and manipulation these markets. So I think everybody can
Speaker 5: rest asshore that we are on top of protecting the markets.
Speaker 5: And we think it's great that there's a broad swath
Speaker 5: of in the markets.
Speaker 2: But like so for example, when you're figuring out, like
Speaker 2: what is the appropriate level of advertising, going back to
Speaker 2: those kelshy ads, and you're thinking, like okay, like talking
Speaker 2: to market participants, like who is that? And like how
Speaker 2: should people feel comfortable that you're going to find that
Speaker 2: right line. Again, when the administration has like a very
Speaker 2: clear economic stake in this industry and having the industry.
Speaker 4: Grow, so we adhere to the law.
Speaker 5: I mean, the Commodity Exchange Act is our authorizing statute.
Speaker 5: We act in accordance with the Commodity Exchange Act, and
Speaker 5: we have very strict ethics and you know, government requirements,
Speaker 5: and as does I think everyone in this administration.
Speaker 4: So we take off that very seriously.
Speaker 3: So speaking of Trump, we should talk a little bit
Speaker 3: more about crypto because it's been having a pretty bad
Speaker 3: month so far, and I think one of the big
Speaker 3: hopes of the industry, the Clarity Act, seems to be
Speaker 3: stalled in Congress. What happens if that doesn't go through
Speaker 3: because you've sort of I feel like you've committed your
Speaker 3: self to being a crypto digital asset friendly regulator in
Speaker 3: many ways.
Speaker 4: Well thanks to the President's leadership.
Speaker 5: I really do think we're at a critical moment where
Speaker 5: we've got genius now as law regulation by enforcements done.
Speaker 5: We've got the Clarity Act that's really on the precipice.
Speaker 5: I think there's a few issues that are being ironed out.
Speaker 5: Actually as we speak, I know there's a meeting today.
Speaker 5: I'm more hopeful that that's going to get done. I
Speaker 5: think that's going to set a really future proof framework
Speaker 5: for crypto here in the US. We can't allow European
Speaker 5: countries and others to lead in this area without US involvement, leadership,
Speaker 5: and so we're committed to getting that done. I think
Speaker 5: we've got a really great bill that's that's almost at
Speaker 5: the finish line.
Speaker 4: If it doesn't get done.
Speaker 5: Look, I think there's a lot of authority that the
Speaker 5: agencies have, but it's important with low or Bright and
Speaker 5: some of the case law that takes a little bit
Speaker 5: of the agency's discretion over nuances in the statue and
Speaker 5: puts that back to Congress and the courts. I think
Speaker 5: it's really important to have more baked into the statute
Speaker 5: than not, and so we're hopeful that we'll get a
Speaker 5: statute in place.
Speaker 2: You know, one of the areas that crypto seems to
Speaker 2: have been at the forefront of is perpetual futures and
Speaker 2: you know, very popular. You see like you can get
Speaker 2: one hundred and one leverage trading the futures on some platforms.
Speaker 2: Do you see the more use of perpetual purpose in
Speaker 2: a sort of traditional finance? Could we have perpetual oil
Speaker 2: futures at some point? Like could you envision them?
Speaker 5: Well, right now we're thinking about it in crypto. I
Speaker 5: think they're real, Like, you.
Speaker 2: Know, trade it on chain like all futures. Like again,
Speaker 2: if we're like okay, crypto provides the infrastructure, but could
Speaker 2: you like why not trade an oil purp on chain?
Speaker 5: Look, if there's demand for these products, it's definitely something
Speaker 5: that we're all consider and look at. Right now, the
Speaker 5: overwhelming demand's been in the crypto space. We've seen some
Speaker 5: demand in precious metals gold and silver. We have to
Speaker 5: consider the susceptible of each contract to manipulation, So there
Speaker 5: might be unique considerations around a contract that doesn't have
Speaker 5: a physical delivery date for example pork bellies or other things,
Speaker 5: and that can create issues within the supply and liquidity
Speaker 5: for the futures contracts. So something we're thinking about. We're
Speaker 5: definitely excited about all this innovation. It's been too long
Speaker 5: that this stuff is only developed offshore, and we really
Speaker 5: want to bring it back with clear rules of the road.
Speaker 5: So it's really important that the US leads and that
Speaker 5: we set the standard that other countries are going to follow,
Speaker 5: rather than just allow this stuff to flourish offshore with
Speaker 5: potentially less regulation. As you all know, when you offer
Speaker 5: into various countries, there's different rules around offering directly in
Speaker 5: or solicitation verse solicitation, all of that. So we're certainly
Speaker 5: aware of that, we're thinking about it. We want to
Speaker 5: set really clear and kind of best in class standards
Speaker 5: for US markets.
Speaker 3: Just going back to prediction markets, I know you keep
Speaker 3: emphasizing that you're not a merit based regulator, right, so
Speaker 3: you're not making decisions on what people should be betting
Speaker 3: on or what they can bet on. But is there like,
Speaker 3: is there a line at some point that you wouldn't
Speaker 3: want to see private companies actually cross, Like if someone
Speaker 3: creates a contract for like someone's going to die, right,
Speaker 3: a violent death or something like that, that would seem problematic.
Speaker 2: Or a contract that this came up when we talked
Speaker 2: to Don Wilson in Chicago, the contract for whether people
Speaker 2: would throw sex toys onto the court during a WNBA game, which,
Speaker 2: of course the existence of the contract right illicit people
Speaker 2: to do it change their behavior, also kind of dangerous,
Speaker 2: Like where's the line?
Speaker 5: The latter seems highly at risk of, you know, being
Speaker 5: susceptible to pipulation, which we do have authority to reject.
Speaker 5: I think with other categories assassination and the like, there
Speaker 5: is authority within our statute to prohibit, so we would
Speaker 5: exercise that authority. You know, there's certain areas where we
Speaker 5: certainly would not want contracts being offered, but with others,
Speaker 5: look where we're not, as I said, a merit regulator,
Speaker 5: We're not going to go and say you can't have
Speaker 5: a contract in sports you can't have a contract in politics,
Speaker 5: but the details matter, and we are evaluating that.
Speaker 2: Just going back to you know, the sort of basic question.
Speaker 2: A lot of states attorneys generals are attorneys general? Did
Speaker 2: I say that I pluralize the attorneys attorney? A lot
Speaker 2: of states attorneys general. You know, there's a lot of
Speaker 2: court fights about this. And they look at this and
Speaker 2: like many people would, and they say, look, this is
Speaker 2: this is betting, this is this is gambling. This certainly
Speaker 2: looks like sports gambling. Kelsey himself ran ads that said
Speaker 2: sports betting is now legal in your stay, and I
Speaker 2: think they've pulled those back, et cetera. But from the
Speaker 2: perspective of the public, it certainly looks like by putting
Speaker 2: sports betting into this framework that it's undermined the ability
Speaker 2: of states to like set the rules about who can
Speaker 2: bet on one.
Speaker 5: Well, there's a great law journal article by professor's and
Speaker 5: he's a securities law professor. This must have been written
Speaker 5: in the early two thousand, but it was before the
Speaker 5: financial crisis. Comparing derivatives, futures, contracts, securities, insurance products, gambling.
Speaker 5: These are all products that you can take similar economic
Speaker 5: positions in, but they have different legal treatment, and it's
Speaker 5: because the products are structured different ways. So an insurance
Speaker 5: contract could be structured very similarly to a credit to
Speaker 5: false swap, but you have an ensurable interest. So the
Speaker 5: details do matter, and we are looking at that. So
Speaker 5: it's not the case that we're going into the casinos
Speaker 5: and saying you're offering legal off exchange swaps. But if
Speaker 5: the products are structured as swaps, then we have authority there.
Speaker 5: And so many of these platforms that are offering products
Speaker 5: that may have some similar economic attributes.
Speaker 4: But the details do matter.
Speaker 5: Right, As I mentioned, you can you have to go
Speaker 5: through a clearinghouse, the products can be offset, you can
Speaker 5: get in and out of your position.
Speaker 4: There are different they matter.
Speaker 2: I totally get that. But do they matter from the
Speaker 2: perspective of like a nineteen year old who's addicted to
Speaker 2: betting on sports.
Speaker 5: Well, I think that's a question for society as a whole,
Speaker 5: for Congress, right, I mean, to the extent we don't
Speaker 5: want a nineteen year old trading Nvidia stock options either.
Speaker 4: That's something that you can talk to Congress about.
Speaker 5: But the reality is that today we allow eighteen plus
Speaker 5: in our financial markets, and there's responsibility associated with that,
Speaker 5: they have to go through a broker. In many cases
Speaker 5: there is this nuance of the non intermediated model, but
Speaker 5: there's screening as well to be able to access those markets.
Speaker 4: And so we do have standards, we do have rules.
Speaker 5: Everything's done in accordance with an exchange rule book and
Speaker 5: we enforce that and we are policing those markets. But
Speaker 5: I think this more eternalistic question of what age should
Speaker 5: be the age to be able to.
Speaker 4: Participate in the markets.
Speaker 5: These people can be drafted, go off to war, and
Speaker 5: so a question of whether they can trade options on
Speaker 5: the outcome of the super Bowl, you know.
Speaker 4: I think that's not really for the regulator to decide.
Speaker 3: You know, you said you were ramping up staffing to
Speaker 3: you know, help regulate all these new markets. It's new
Speaker 3: and fast growing markets. What's the hiring process or the
Speaker 3: hiring experience actually like at the moment, because you know,
Speaker 3: thinking back to last year twenty twenty five, all the
Speaker 3: headlines when it came to government employment were you know, layoffs,
Speaker 3: mass firing, streamlining. What's what's that like for you now?
Speaker 3: Is it easy to get people in the door?
Speaker 5: Well, look, there are there to the extent there are
Speaker 5: areas where we need additional staff. We are evaluating based
Speaker 5: on competence and the highest quality. We do not want
Speaker 5: to just bring on bodies to bring on bodies. We're
Speaker 5: making sure that we're bringing on the right people for
Speaker 5: the rules, and in many cases we are very well staffed.
Speaker 5: I think there are some needs that we're looking to
Speaker 5: fill out, but again it's very much akin to hiring
Speaker 5: it a private company. We're looking to bring on the
Speaker 5: best and the brightest who really want to help revitalize
Speaker 5: the agency, fill out needs for the agency. And we are,
Speaker 5: as I mentioned earlier, relying a lot on technology as well,
Speaker 5: because there's just so much that many years ago really
Speaker 5: had to be done manually that can be done very
Speaker 5: quickly through new technologies.
Speaker 3: Well, this has been a perennial question, which is how
Speaker 3: government agencies actually compete with the private sector to get
Speaker 3: good people. How are you doing that at the moment
Speaker 3: given that, I mean, I imagine you have some form
Speaker 3: of budget constraint, and I would imagine that it's probably
Speaker 3: your budget is not as big as like, I don't know,
Speaker 3: CMEs or something like that. How do you actually compete?
Speaker 5: Well, look, I think part of that's the mission. We
Speaker 5: are really interested in making sure that these markets flourish
Speaker 5: here in the United States. It's an exciting time. Many
Speaker 5: people are interested in being able to contribute to that effort.
Speaker 5: We're really, as I said earlier, setting new market structure
Speaker 5: for this asset class as well as for blockchain based markets,
Speaker 5: and a lot of the things that needed to be
Speaker 5: fixed in the wake of Dot frank that frankly were
Speaker 5: never fixed. So I think it's in part mission impart
Speaker 5: people that are willing to serve and come in and
Speaker 5: maybe they don't don't get the salary that they get
Speaker 5: in the private sector, but that's not necessarily a bad thing.
Speaker 5: They get a lot of value out of being working
Speaker 5: for the government.
Speaker 2: Going back to the question of like marketing and again
Speaker 2: gambling marketing, there's always like some line or whatever about
Speaker 2: people who get addicted. Would you like Congress to come
Speaker 2: in and create rules? Should Congress come up with the
Speaker 2: rule about prediction market advertising.
Speaker 5: We've got a lot of authority to regulate our participants.
Speaker 5: I think there's sometimes a real need for Congress, maybe
Speaker 5: to the extent as you all mentioned, if you really
Speaker 5: want to set some sort of more paternalists stick rule
Speaker 5: around you have to be eighteen era twenty one to
Speaker 5: participate in the markets.
Speaker 4: That sort of thing.
Speaker 5: Sure, you can talk to Congress about with respect to
Speaker 5: the more nuanced pieces of how we regulate the markets.
Speaker 5: That's stuff that we handle. It's not typically baked into statute.
Speaker 5: We go through our notice and comment process and get
Speaker 5: input from the public on those sorts of things. So
Speaker 5: I don't necessarily think you need to kick everything to
Speaker 5: Congress within the details, but it certainly could be something
Speaker 5: that people.
Speaker 2: It's a lot of countries, you know, regard or sorry,
Speaker 2: a lot of states regard like okay under twenty one,
Speaker 2: like we don't want that right, And it sounds like
Speaker 2: you regard that as paternalism in action, which you know,
Speaker 2: I understand a lot of people share that view. But
Speaker 2: you know, it also seems like the CFTC. You know,
Speaker 2: people have different views, and it sounds like the CFTC
Speaker 2: is sort of undermining of value that a state might
Speaker 2: have about gambling.
Speaker 4: I don't view it that way.
Speaker 5: I do think our derivatives' markets are a separate area
Speaker 5: within government and within the law, as opposed to the state.
Speaker 4: Gambling and the.
Speaker 5: Rules and requirements that govern a state casino are very different.
Speaker 5: They can do a lot different things than what a
Speaker 5: regulated futures exchange can do, and so I do think
Speaker 5: there's some give and take, some for sure limitation on
Speaker 5: the age piece. But look, you can serve alcohol and
Speaker 5: a casino and allow people to bet on sport, or
Speaker 5: you can't do that necessarily at a digital exchange.
Speaker 4: Maybe somebody's got to beer on the side.
Speaker 5: But I do think there's a lot of different restrictions
Speaker 5: in a different environment in which people are trading, so
Speaker 5: it's not quite apple stables.
Speaker 2: Mike Seeling, thank you so much for coming on odd laws,
Speaker 2: a perfect guess at the perfect time.
Speaker 4: Thanks for having me.
Speaker 3: I enjoyed that conversation me too. However, there are a
Speaker 3: number of difficulties with regulating prediction markets, and I'm kind
Speaker 3: of trying to like zoom in on what I think
Speaker 3: might be the primary one. So Number one, the CFTC
Speaker 3: exists to regulate risk management, right, which is what Mike said.
Speaker 3: It is very doubtful to me that someone needs to
Speaker 3: manage their exposure to Cardi B performing on stage at
Speaker 3: the Super Bowl, So it's not even entirely clear to
Speaker 3: me that this is an industry that the CFTC should
Speaker 3: be regulating. Now that said, that's a big tension, yeah, right,
Speaker 3: And then just beyond that, you could certainly argue that
Speaker 3: by legitimizing prediction markets and helping them to grow, you
Speaker 3: are in fact introducing a new risk into the system
Speaker 3: because everyone's going to start gambling away I don't know,
Speaker 3: their college funds or whatever, you know.
Speaker 2: I think Mike made an interesting observation sort of near
Speaker 2: the end of the conversation that like, and it's totally true,
Speaker 2: like different market structures warrant different types of regulatory treatment, right, so,
Speaker 2: and I think that makes sense. I think what's interesting
Speaker 2: though about this conversation, particularly as it relates to sports betting,
Speaker 2: is that part of the reason that states have sort
Speaker 2: of in many cases either no sports betting or very
Speaker 2: stringent rules about who can engage in sports betting has
Speaker 2: nothing to do with financial risk and everything to do
Speaker 2: with a sort of like moral choice about who gets
Speaker 2: to sports bet And so, you know, on one head
Speaker 2: is like, okay, there's like traditional sports books, they have
Speaker 2: a house that sets the odds. It's definitely true that
Speaker 2: prediction market companies have like a different market structure, but
Speaker 2: from a sort of like why does society want to
Speaker 2: constrain the role of sports betting. It's not because of
Speaker 2: like any sort of like financial instability risk, because we
Speaker 2: don't want certain people like eighteen year olds, people who
Speaker 2: might still be in high school, having access to sports betting.
Speaker 2: And when the c OFTC says, like, you know, this
Speaker 2: is just this is a new type of financial instrument
Speaker 2: that should be regulated like a financial instrument, it sort
Speaker 2: of undercuts that sort of choice that the state has made.
Speaker 3: Yeah, exactly do you think sports betting is like the
Speaker 3: new monoculture?
Speaker 2: It is really incredible how pervasive it is, and it's
Speaker 2: really incredible. But also it's just incredible, you know, truly
Speaker 2: how pervasive betting on everything is. And you know, I
Speaker 2: should say like I am an enthusiastic consumer of the
Speaker 2: prediction market's data, you know, like I said at the
Speaker 2: very beginning, like I now on all kinds of things,
Speaker 2: including FED decisions. You know, Like I think it's very
Speaker 2: useful to say, like you look at like certain measures
Speaker 2: of like I don't know, you know, the FED fund
Speaker 2: swaps or whatever, like you just look at WORP. I
Speaker 2: love WORP too, but like as simple we have it
Speaker 2: on the Bloomberg now poly market. Will there be three
Speaker 2: rate cuts this year? That is also a useful instrument
Speaker 2: to have. But there are a lot of things that
Speaker 2: prediction markets have and again that a aren't that but
Speaker 2: I you know, I like a lot of them. I
Speaker 2: like looking at election ods. I like looking at whether
Speaker 2: the odds of like some company what they're going to say, Like,
Speaker 2: I think there's a lot of useful signal from them.
Speaker 2: It's also true that the platforms are largely sports betting
Speaker 2: at this.
Speaker 3: Point, right right, how much signal do you actually need
Speaker 3: about I don't know, the Super Bowl. I'm sure some
Speaker 3: people are really into it, but from a trading.
Speaker 2: Sort of from a financial regulation standpoint, it's a different
Speaker 2: question anyway. And it's also true, by the way, that
Speaker 2: the Trump family is very invested, quite literally into this space,
Speaker 2: and I think that quite reasonably. Should you know, raise
Speaker 2: some questions about like how policy is being made about
Speaker 2: the growth of this industry incentives?
Speaker 3: Yeah, for sure? All right, shall we leave it there.
Speaker 2: Let's leave it there.
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