Comment Text:
RFC 1
The Commission requests comment on all aspects of its proposal to amend the language of §§ 40.11(a)(1)-(2) and 40.11(c) to more precisely track, in the description of “excluded commodities,” the text of CEA section 5c(c)(5)(C). In particular, the Commission requests comment on its interpretation that the reference to “section 1a(2)(i),” in the parenthetical in CEA section 5c(c)(5)(C)(i), is a typographical or drafting error, and that the intention was to refer to the excluded commodities described in CEA section 1a(19)(i).
Comment. I agree.
The Commission further requests comment on the examples provided of event contracts that the Commission believes would generally fall outside of the scope of CEA section 5c(c)(5)(C) and § 40.11. In particular, the Commission requests comment on the following questions:
Are there additional types of event contracts that should be explicitly identified by the Commission in the non-exclusive list of contract types that would generally fall outside of the scope of CEA section 5c(c)(5)(C) and § 40.11?
Comment. Yes, there are many. The CFTC’s conception of the statute is erroneous, and that error continues to its conception of the implementing regulations. The CFTC is creating significantly more uncertainty than it is solving. It is creating new definitions, inconsistencies, and questions and is actually making a working rule worse.
In order to remedy this CFTC-created confusion, the CFTC should list all event contracts that have ever been self-certified as contracts that fall outside the scope the statute and the regulation cited above.
What indices or measures are “other macroeconomic index[es] or measure[s]” for purposes of CEA section 1a(19)(i)? Are tax rates (e.g., corporate and capital gains tax rates) among such macroeconomic measures?
Comment: There are many such contracts. It is important that the CFTC consider its implicit bias on what it considers to be a valuable metric vs one that it dismisses. The Kalshi contract on the price of a Costco hotdog, for example, is a good measure of macroeconomic climate. Even though the attorneys and economists in the CFTC might not be familiar with this and similar ideas as macroeconomic measures, that is irrelevant. The CFTC’s familiarity, or even enthusiasm, is not the metric by which a measure becomes valuable. It is not the CFTC’s job, not their expertise, and not their purview to call people like Jenn McMillen liars, or ignore what she’s saying. I for one agree with her, and that it is sufficient to make this a valuable contract to me. Regardless of what the CFTC thinks about the wisdom of my beliefs, because that is not relevant, this, and similar contracts, are valuable macroeconomic indicators.
RFC 2
The Commission requests comment on all aspects of its proposal to amend § 40.11 to remove the terms “relate to” and “reference” wherever they appear, and to refer in the regulation only to event contracts that “involve” an Enumerated Activity or prescribed similar activity.
Comment: First, the proposed regulation fails to describe the impact of the proposed amendment, and fails to articulate a rationale for this amendment. The multiple columns of text (roughly three pages in the voting draft) devoted to this amendment, do not describe the impact of the amendment and do not provide a rationale for why it should be made. This is a per se violation of the APA, and the Commission cannot finalize this rule as proposed because of these failures.
Further, the text that the CFTC does include is an analysis of its foundational premise that a contract falls under 40.11 and the statute if the contract, taken as a whole, involves one of the enumerated activities (as opposed to the interpretation put forth by Kalshi exchange that the relevant inquiry is limited to the underlying event). In addition to being irrelevant to the change being discussed, it is wrong. The relevant inquiry is the underlying event. There have been numerous comments in the prior CFTC rounds which the CFTC references and which the CFTC has in its files, and also in the ongoing litigation with Kalshi exchange, and I incorporate those comments into mine by reference. I do not need to attach the files here, that would be duplicative, and the CFTC already has these files in its possession and has no excuse for ignoring them, as I am specifically referencing them in the context of this proposal. The CFTC’s approach, and all the implications of that approach, are incorrect and should not be finalized.
With regard to the proposed change that the RFC is referring to, in addition to being in violation of the APA, the change is certainly substantive. The original regulation added two words relate and reference to the word “involve”. There are only three choices here: Either i. The additional words have no meaning, in which case the change proposed here is not substantive, ii. The additional words expanded upon the word involve to be more expansive, or iii. The additional words restricted the meaning of involved. Choices i and ii impugn the original drafters as either careless, or in flagrant violation of the APA. Option iii makes sense.
Given this choice, it is not surprising that the drafters of this reg chose to hide the ball. Either they impugn their colleagues as bad drafters, or worse, or they have to admit that the reg as drafted is contrary to the position that they have dug in. No good choices there.
But this is to no avail. The CFTC is obligated to describe the substantive changes, and this proposed change is a major change, and the CFTC is required to provide its rationale, and it failed at both. This does not work. The CFTC has to either explain what the words were doing in the original reg in the first place and cogently demonstrate that they were superfluous (meaning, in plain English, the CFTC will be saying “Hey folks, our first reg we wrote was garbage, so we’re fixing it”), or not make this change in the final
RFC 3
The Commission requests comment on all aspects of its proposed definition of the term “gaming.” In particular, the Commission requests comment on the following questions:
Are there examples of activities that would constitute “gaming” that may fall outside of the proposed definition?
Comment: It is not clear what this question is asking. If the question is “is there a different definition of gaming that we should consider”, then why not just ask that? This would be textbook poor reg drafting. If the question is something else, it is illogical. I’ll assume that you’re asking if there is a different definition of gaming that you should consider, and the answer is yes. And if that is not what you’re asking, no great loss, because you need to consider this alternative anyway.
But first, I believe that your preamble explanation is deficient under the APA. You state that the proposal will bring regulatory clarity, but you cannot point to any instance of regulatory ambiguity you are solving. In fact, this claim seems to be disingenuous in the extreme. At least based on what is publicly known (ErisX RSBIX contracts, and Kalshi’s election contract), there is no ambiguity here. There is a disagreement. The CFTC interprets the law one way, and exchanges the other way. That is not ambiguity, that is a legal question. An alternative, and perhaps more honest way of saying this, is that you disagree with the legal interpretations that industry has taken and you want to codify your position in order to make it more difficult for industry to take an opposing position. Your position hides this, and therefore fails to satisfy your requirements regarding the proposal.
To answer the question, though, the definition of gaming is fundamentally flawed:
Relying on state law definitions is an odd choice for the regulator of an industry that is largely illegal under those very state laws.
There is no indication that Congress intended this definition. Additionally, as you note, you pick and choose between state laws that you like and that you don’t.
The definition of gaming in the proposed relies on the definition adopted in the Kalshi order, and also in the ErisX RSBIX (at least based on the CFTC statements issued about that). That definition is flawed, as explained in the CFTC statements on ErisX RSBIX and in the Kalshi law suit filings.
The CFTC in the proposal is, in what seems to be more disingenuity, playing a bit fast and loose with its dictionary. The CFTC, happy to rely on its dictionary when it suits it, seems to conveniently forget about it when it does not. The CFTC looked at the dictionary definitions for gaming to see that it matches gambling, and then seems to have shut the dictionary rather quickly, because in addition to using gaming and gambling “interchangeably” (an arguable point), the dictionaries actually do something more; they in fact, define both gaming and gambling, and it is here that apparently the dictionary lost the CFTC. Merriam-Webster online defines gaming, in the first definition, as “the practice or activity of playing games for stakes” and then associates gaming with gambling. Gambling is defined as “the practice or activity of betting : the practice of risking money or other stakes in a game or bet.” The Cambridge dictionary online defines gaming as “the risking of money in games of chance, especially at a casino.” The same dictionary defines gambling as “the activity of betting money, for example in a game or on a horse race.” Dictionary.com defines gaming with the single word “gambling”, and defines gambling as “the activity or practice of playing at a game of chance for money or other stakes.” All dictionary definitions have three things in common. First, they contain the concept of a “game”. Second, they are all ignored by the CFTC. Third, they are incompatible with the CFTC’s proposed definition of gaming. (Number 3 likely explains number 2).
The word “game” is also defined. There is greater variety in the definitions given for games, but the large majority of dictionaries easily accessible online are variations of Britanica’s definition, “a physical or mental activity or contest that has rules and that people do for pleasure” or dictionary.com’s “. What emerges from the normal, dictionary definitions of the word gaming and its component parts, is that gaming involves a entertainment, recreation, a passtime, or a game. Gaming requires a game. Simple.
