Representatives Moore, Carbajal Introduce Bipartisan Bill to Regulate Prediction Markets
WASHINGTON - Representatives Blake Moore (R-UT) and Salud Carbajal (D-CA) introduced bipartisan legislation to ensure event contracts can continue to serve legitimate business interests while protecting Americans from the safety and national security risks of dangerous or otherwise problematic event contracts.
Event contracts are longstanding financial instruments that many industries, particularly farmers, use to hedge against potential losses. In recent years, prediction markets have sponsored contracts related to topics that expose our country to national security, public safety, or insider trading risks by creating incentives for insiders to leak or profit from exclusive information, or for criminals to invest in contracts related to their own wrongdoing. The Event Contract Enforcement Act strengthens existing law to empower the Commodity Futures Trading Commission (CFTC) to prohibit the listing of contracts for sale related to terrorism, assassination, war, gaming (sports or athletic competitions), or illegal activity.
“Under-regulated prediction markets have exposed America to needless public safety and national security risks by allowing traders to invest in outcomes related to sensitive matters like terrorism, assassination, war, or elections,” Rep. Moore said. "Prediction markets also sponsor sports-related contracts against the wishes of many states, including Utah, that would otherwise prohibit these contracts if offered as traditional sports betting. I am excited to partner with my friend, Rep. Carbajal, on this nonpartisan issue to ensure event contracts can continue to serve legitimate business interests while protecting Americans from risk."
"Under-regulated prediction markets are creating an environment ripe for insider trading. The monetization of military activities or election processes threatens our national security and further erodes public trust in government,” Rep. Carbajal said. “The Event Contract Enforcement Act is a strong first step toward protecting consumers and upholding ethical standards across all levels of government. I am committed to working across the aisle to bring transparency and accountability to this under-regulated sector.”
Background:
In 1974, Congress created the CFTC to enforce and regulate the Commodity Exchange Act and oversee derivatives markets, which would eventually include prediction markets. Under current law, a designated contract market must self-certify that a contract or contract type complies with CFTC regulations before listing. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act clarified the CFTC’s authority to, at its own discretion, prohibit contracts involving terrorism, assassination, war, gaming, illegal activity (known as TAWGA, collectively), or other subject matter that the Commission may determine is contrary to the public interest. However, the CFTC is not required to enforce prohibitions against any event contract.
Event contracts based on each of the above topics present clear risks to public safety, national security, election integrity, insider trading, or U.S. service members’ safety. Contracts based on illegal activity create perverse incentives for criminals to commit crimes to trigger payouts. Contracts related to government or military activity create an incentive for insiders to “bet on” or leak sensitive information for profit. Election contracts create incentives to manipulate democratic processes. Contracts related to federal or state government functions create endless opportunities for insider trading on actions taken by elected officials, appointees, or other government personnel, in some cases exposing elected officials to safety risks.
Congress must require the CFTC to enforce against illicit contract types to mitigate these risks.
The Event Contract Enforcement Act:
- Requires the CFTC to prohibit event contracts based on TAWGA topics.
- Adds prohibitions on event contracts based on election outcomes or government activity.
- Creates a pathway for States to opt out of the enforcement of the gaming contract prohibition, allowing them to choose whether to allow sports-related contracts within their borders.
Read the full bill here.
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