Bloomberg Audio Studios, podcasts, radio news. It seems like anything everybody wants to talk about, or everything any you know, anyone wants to talk about, is prediction markets right now. Why do you think that is what is unique about this moment in time?
Well, I think we're really at this unique pivotal moment in our history where many have lost faith in traditional news media and traditional information sources. People are trusting and relying on social media, prediction markets, Twitter, so you know, all sorts of new media.
Sources, and that's not a bad thing.
I think as Americans we need to explore different avenues for getting our information. But prediction markets aren't new. They've been around for a long time. New exchanges are offering all manner of new informational products, from predicting sports to political events to the price of oil with all the activity going on in the golf, so I think that's a good thing for society.
You wrote this interesting op ed in the Wall Street Journal last month about how event contracts serve legitimate economic functions. They allow businesses and individuals to hedge even driven risks, enable investors to manage portfolio exposure, provide the public with information about the outcome of future events. I think that makes a lot of sense for people when they look at certain elements of prediction markets, when they look at the price of oil, or they look at interest rates.
But things that are sort of more consumables, more entertainment, like who's going to win Season fifty of survivor for example, like what's the legitimate economic function of a contract like that?
Well, look, people are hedging all sorts of different risks. As a regulator, it's not my job to tell them what's a hedge and what not to a hedge. That said, some of these products maybe are more for speculation, more for you know, entertainment. The markets aren't designed just for hedgers or just for certain things that have you risk management aspect to them.
Derivatives or derivatives.
We have broad authority over derivatives and we regulate the markets for derivatives. Each exchange, as an SRO, has the responsibility to evaluate the products that it lists. It has to ensure that those products are not readily susceptible to manipulation. It certifies that to us as a regulator, and we review that application to go and list in self surify a product, So a lot of the responsibility.
Of course, is on the exchange is to evaluate products.
We're not doing that as a kind of merit based regulator where we're picking winners and losers, but it is important that each product has integrity and that they're not susceptible to insider trading and manipulation.
Are there certain products or certain contracts that could be more susceptible to insider trading and manipulation.
Well, certainly there's a range of different products out there, and certain products. We just saw with call she listing a product related to mister Beasts and it brought an enforcement action against an employee of mister Bees who had information about when the videos would be posted and contents of the videos and was able to predict certain things and trade ahead of that. And insider trading is certainly a crime under our authority.
That said, other products, right, you have controls.
And you ensure that there's not the ability to misappropriate insider information and trade on it. You block certain, for example, players from trading in their own contracts or people with information about an employer that they can trade ahead on.
So it's important to enforce that in our markets.
We have the same risks in our securities markets, and you know you could have someone insider trading on a broker, trading ahead of a customer, for example.
So we do set rules and we enforce them.
And some products, of course, are more susceptible than others, and maybe those shouldn't be listed by exchanges as they're evaluating what's susceptible to manipulation.
When you're in school, when you were doing a training, did you ever think you'd be talking about mister based.
I did not. That was not you know, on the big go cred for sure. Hey what about sports?
Because our analysts a Bloomberg intelligence, they note that on these platforms like Kalashie, like polymarket, about ninety percent of what happens there eighty eight percent of US activity on prediction. It still sits squarely in sports markets. Why is betting on sports prediction market and not gambling.
Well, we've got all sorts of different products out there. You start with insurance, you have securities, you have derivatives, and yes there's gambling at the state level. They're all structured differently. These are different activities, different products. I can design an insurance contract that looks a lot like a derivatives contract, but there's different you know, economic variables that are at play, and the way that it's structured is documented differently.
All of that.
When you go into a casino and you make a bet with a bookie, the house usually wins. There's a different model of course, where the bet is price based on the house's own decisions and analytics, and of course you get paid out.
We lose. He wins too much. You often get kicked out. With derivatives.
We have a very standardized system where you have a contract that allows here for a binary option where you are paid out based on an outcome and you can get out of your position.
You can sell it.
You know, if the value of your contract goes up, you can liquidate, get out, recrup some of the costs, you can hold your position to the end, whatever you want to do. But we have certain rules around these products and their structure, very differently from for example, gambling. The underlying asset, I think is what you're pointing to, right, You've got a sports event at as the underlying to the derivative, as opposed to let's say pork.
Bellies as the underlying of the derivative. To us, we're agnostic.
We have a very broad definition of commodity under our statute, and so we're not picking. Okay, these sports products are gambling because they're you know, the underlying sports. We treat them the same. The underlying fundamentals of the contract are the same. The asset at the underlying base is different, but that doesn't mean it's treated differently under our regulatory framework.
I think a lot of people out there right now might be thinking it's kind of crazy that I can't use fan duel or DraftKings in every state in the US. I have to be twenty one to do that, But I can do the same thing to a certain extent on Calshi when I'm eighteen and anywhere. How do you make sense of that?
For like a normal person, It really is no different than I can go and you have a state regulatory regime for insurance. I can go get an insurance contract in my home state. I can go otherwise, go to the federal system and get a derivatives contract that gives similar economic protection risk management to myself as a company or as an individual. I really don't see any difference there.
There are different regulatory regimes for different products, and we have a federal system for derivatives, and so it does allow for those products to cross state lines and be access in places where maybe you couldn't access it otherwise. Just like with an insurance contract, they typically can't be offered across state lines. There's different regimes for insurance in each state, and we've got the same with gambling versus derivatives.
So I want to talk a little bit about sort of some recent events because there's this conversation happening about what should be constitute like a death market or not. In your speech yesterday, you said that regulated you're regulating philosophy is simple, Like the practice of medicine, our focus should be on finding and then administering the minimum effective dose.
How do you apply that minimum effective dose to geopolitical risk bets that seem to quickly devolve into death markets or death bets.
Well self FLA Regulatory organizations like exchanges have the obligation to evaluate the contracts that they're listening to make sure that they meet our standards. One of those standards, as I mentioned earlier, is not being readily susceptible to manipulation.
Another is our requirement that they have to be not on things like assassination or terrorism and so on and so forth, which are all restricted under our statute, and we as a regulator do have some authority to when it's in the public interests allow certain types of contracts. When you have a contract around a political event that isn't tethered or tied to, for example, an election, that does create a lot of risks that you could back into becoming in aassination market, or a terrorism market, or
a war market. That's something the exchangers have to think about. That's not you know, we're not in the business of going and rejecting contracts when we believe there's a potential risk if the exchanges are telling us they believe that these are consistent with our standards, but we have course exercise our enforcement authority where we think exchanges are violating the laws.
So it's an important question. It's one that the exchangers have to think about.
We may have a role in providing guidance there, and that's something I think folks should stay tuned on. But of course it's very important to tether some of these political contracts to an actual political event, and that cabins the risk of something turning into an assassination market. If you look at, for example, the twenty twenty four election contracts, there were assassination attempts on President Trump. There was a risk, for example, that could have turned into an assassination contract.
I think this risk is underlying with a lot of contracts. That doesn't make them assassination contracts themselves, but if you have one that's very open ended and isn't tied to a specific collection, that's really what they in theory, could become. And that's something that we as a regulator thinking about, and I encourage the exchanges to think about as well.
People often lump CALSHI and poly market together, but they are regulated differently. How is Polymarket International not covered by US regulatory oversight? It is an overseas platform, of course, but executives are here in the US. It's headquarters are in New York City. Americans can still access the platform with a VPN. Why is it not regulated by the US?
Well, the Biden administration actually drove poly Market out of the US through enforcement, had an action against the company, and as part of that enforcement action agreed with Calli Markets to keep the blockchain and the kind of the underlying exchange offshore. Now we've seen them come into the US and have a registered exchange with US under the Trump administration. That said, their offshore platform does not directly
offering to the United States. You know, I can't speak to whether the people are accessing it through a VPN or that sort of thing. As you point out, I'm not aware of this, but the platform itself is not available to the United States. Whereas the regulated platform, which we are the overseer of, is a self regulatory organization and has to meet our standards.
But is there a chance that we're sitting here maybe a year from now in polymarket is regulated by the CFTC.
Well, the poly Market US platform is regulated by the CFTC today, but.
What about polymarket international.
Well, I'd love to see blockchain based exchanges here in the United States. I think the potential of on chain markets is huge, and if you combine the decentralized truth aspects of a blockchain and prediction markets, I think that's going to be a really exciting thing to have here in the United States.
Well, speaking of the blockchain, what can you do further when it comes to digital assets? If Congress just cannot get through the Clarity Act.
The CFTC has got a lot of authority where going to continue to make sure that we're prepared for Chaine markets, and we're modernizing and upgrading our rules and regulations so that the exchange that wants to put their markets on a blockchain can do so here in the United States. It's really unacceptable to be pushing all this stuff offshore
simply because it's different type of technology. The Clarity Act is really, I think a powerful piece of legislation because it'll help future proof our crypto markets by ensuring that things are in statute, and the Supreme Court said very loud and clear that if things aren't explicit in statute, there's a risk that the agency doesn't have the same sort of difference on some of the authority of the agency that said to be a very broad authority over
our derivative markets, of course, over anti fraud and anti manipulation, the spot markets, and then to the extent in exchange is offering margin trading that's also within our authority. So there's a lot we can do with without legislation.
I think a lot of people are thinking about just person power at the CFTC, and I'm wondering enforcement staff. The Chicago office doesn't have any enforcement stuff. I know they resigned before you were even chair. What's the status of hiring people there or other commissioners to be appointed.
Well, I just brought on a new enforcement director and he's quickly staffing up and building out that capability. And it's very important to have, you know, folks in each office and throughout the building. But of course we're not operating kind of like a Starbucks model where you have, you know, an office on.
Every block with with people in it.
We've got a critical mass in DC and that's where a lot of our enforcement attorneys are housed. We've got a number of attorneys in New York of course as well, and in Kansas City. So we'll continue to build out personnel and each office. But we're also in a world where AI and automation are allowing us to do so much more with less individuals. So I'm not concerned about being able to fill our obligations. But I'm always excited to bring on people that are willing to help support the mission.