Posted on: March 26, 2021, 10:30h.
Last updated on: March 26, 2021, 10:30h.
In a scathing assessment that reads like a dissenting opinion from a Supreme Court justice, Commodities Futures Trading Commission (CFTC) member Brian Quintenz slam’s the agency decision to reject a plan by Eris Exchange, LLC (ErisX) to introduce futures contracts related to NFL games.
Officially, the operator of a digital currency exchange and clearinghouse withdrew its effort, but the commissioner opines that happened in anticipation of the CFTC issuing an order stating NFL futures contracts constitute gambling, are barred by regulation and run “contrary to the public interest.”
Withdrawing the certification had the same functional effect on the ErisX NFL contracts that the order would have had — the contracts will not be listed,” writes Quintenz. “However, the withdrawal also meant the commission’s order will never be public.”
In a statement out earlier this week detailing its intent to temporarily halt the NFL derivatives effort, Chicago-based ErisX doesn’t throw in the towel entirely, implying it’s going to take time refine its pitch and ultimately bring the futures contracts to market.
Democracy Dies in the Shadows
Last December, ErisX sent a letter to the CFTC pursuing approval for “fully collateralized and financially settled contracts” tied to NFL moneylines, over/unders and point spreads. The bourse operator stated the audience for the derivatives would be sportsbook operators looking for additional revenue and to hedge risk – not individual investors.
In his dissent entitled “Any Given Sunday in the Futures Market” — a reference to the 1999 movie starring Jamie Foxx and Al Pacino — Quintenz doesn’t comment directly on the efficacy of the ErisX futures. Rather, he takes umbrage with the secrecy of the process that prevents the CFTC rejection order from becoming public.
“Secret agency law is anathema in our democracy and should only be tolerated where absolutely necessary,” he said. “The government can try to hide behind Freedom of Information Act (FOIA) exemptions, deliberative process, or prohibitions on disclosing ‘confidential information,’ but it shouldn’t be able to take the ball home in the middle of the fourth quarter when leading by a field goal.”
Citing the constitutionality of the statute leading to the order and the validity of the regulation, Quintenz says, not surprisingly, that he would have dissented from the order.
Events as Commodities? Quintenz Says ‘Yes’
The CFTC is the regulatory body for trading in assets such as gold, natural gas, oil and silver, among many more. Those are commodities.
Quintenz argues that events, such as elections, the Olympics and, yes, football games, are commodities, too.
“The statutory definition of a commodity includes ‘… an occurrence, extent of an occurrence, or contingency…that is 1) beyond the control of the relevant parties to the contract…and 2) associated with a financial, commercial, or economic consequence,’” writes the commissioner, citing the Commodities Exchange Act (CEA).
In calling the order “arbitrary and capricious,” the commissioner points out that the notions of investing in an event’s outcome is legally equivalent to gaming/gambling and that there’s no difference between gambling and speculating are notions that must be dispelled.
Quintenz adds that the CFTC’s primary role is to ensure safety and security in the markets it regulates — not to act as a substitute for Congress or as a “moral arbiter.”