Former Senator Dodd challenges CFTC prediction markets proposal citing congressional intent

Former U.S. Sen. Christopher J. Dodd is pressing the Commodity Futures Trading Commission to abandon a proposed rule on prediction markets, saying it would depart from what Congress intended when it approved the Dodd-Frank Act after the 2008 financial crisis. 

His July 26 letter to CFTC Secretary Christopher Kirkpatrick argues the proposal could encourage gambling through regulated derivatives markets instead of preserving the law’s original purpose.

“In the past year, additional speculators have emerged promoting event contracts that are merely a substitute for gambling,” Dodd wrote. “The CFTC is now engaged in work to amend its regulations to facilitate gambling on derivatives exchanges.”

The former Connecticut senator said the proposed changes “contradict the language and intent of the Dodd-Frank Act” and “could well endanger consumers and promote speculation.” He also argued the rule would weaken state authority over gaming policy and “functionally amend the Indian Gaming Regulatory Act (IGRA), which could diminish tribal sovereignty.”

Dodd says CFTC prediction markets proposal conflicts with congressional intent

Dodd said lawmakers crafted the legislation to support legitimate hedging while stopping derivatives markets from becoming vehicles for gambling. “Congress recognized the importance of traditional risk-hedging in futures markets when we enacted Dodd-Frank,” he wrote. “We wanted to provide a framework for regulating companies trying to hedge their risk.”

He also stressed that Congress never meant to displace state gaming laws or rewrite existing federal gaming statutes.

“We did not amend the Commodity Exchange Act to override the established system for states to develop their own policies and laws regulating gaming,” Dodd wrote. “We had no intention of amending those laws.”

Pointing to a congressional colloquy, Dodd said legislators anticipated attempts to introduce gambling through event contracts using the law’s swap provisions. He cited the statement, “This provision will strengthen the government’s ability to protect the public interest from gaming contracts and other events contracts.”

Dodd added, “The term ‘gaming’ was included in the Special Rule to prevent things like sports wagering and other similar wagers through regulated ‘event contracts,'” and said the word is “a legal term of art that Congress has used in statutes when regulating what is commonly known as ‘gambling.'”

His arguments echo those made by former CFTC Chairman Gary Gensler in a June friend-of-the-court brief supporting Ohio regulators in litigation against prediction-market company Kalshi. Gensler wrote that Dodd-Frank never transformed the CFTC into a national sports betting regulator, saying, “This case boils down to the question of what, if anything, Congress did in Dodd-Frank with regard to sports betting.” He answered, “The answer—from someone who was there—is that Congress did nothing of the sort.”

Dodd closed by calling recent growth in sports-related event contracts “the type of rampant speculation we sought to prohibit with the Dodd-Frank bill.” He urged the agency to withdraw the proposal, writing, “The CFTC’s proposed regulations would undermine both the letter and the spirit of the law, infringe on state and tribal sovereignty, and pose grave risks to ordinary consumers.” He finished by asking the commission to “rescind its proposed rule and prohibit companies from engaging in illegal gaming on regulated exchanges.”

Featured image: Christopher Dodd, U.S. Senator via WikiCommons / Public domain

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