CFTC Issues Warning Shot on Sports-Linked Event Contracts
On September 30, three CFTC divisions told the market to pump the brakes. An agency advisory warns that sports-related event contracts sit in legal crossfire and that firms must plan for state action, lawsuits, and forced position cuts, without assuming any federal green light.
What the Advisory Actually Says
The Market Participants Division, Division of Market Oversight, and Division of Clearing and Risk issued the notice to FCMs, IBs, DCMs, DCOs, and RFAs.
The headline: treat listing, trading, and clearing of sports-related event contracts as a legal risk, not a foregone conclusion. Build contingency plans. Update disclosures. Tighten risk controls.
The staff points to live state pressure. Examples include cease-and-desist letters out of Illinois and warnings in Ohio aimed at sports contracts listed on federally registered venues. Firms should expect more of the same and prepare before it hits.
State Law Can Trump the Trade
The advisory cites KalshiEX LLC v. Martin, where a federal court said the Commodity Exchange Act does not preempt state gambling, wagering, or gaming laws for sports-related event contracts. The court stuck with the ordinary meaning of “gaming”: playing games, and playing them for stakes. That reading gives states room to act even when a product sits on a CFTC-registered market.
Every sports-related event contract on a DCM today got there via self-certification. The Commission has not approved any such listings. It also has not ruled on whether specific contracts fall into banned buckets under CEA §5c(c)(5)(C)(i), which includes unlawful activity and “gaming.” Translation: listing by certification is not an endorsement, and the Commission can still say no.
What Firms Must Put In Their Playbook Now
FCMs and DCOs need clear liquidation and close-out procedures for these products and must explain how client funds and assets will be handled if positions end early. DCMs must keep filings accurate and complete and avoid omitting material facts.
All registrants should monitor legal developments, state by state. They should brief customers on risks that could lead to position termination, quickly and in plain language. Regularly refreshed disclosures aren’t optional here; they are the first line of defense when rules shift mid-season.
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