Securities Regulation Daily Wrap Up, EXCHANGES AND MARKET REGULATION—Responses to SEC, CFTC request for comment reflect divided industry, (Aug 26, 2026)

By Suzanne Cosgrove

The Commissions issued a joint RPC on June 18 that solicited input on the classifications of derivative instruments, including for swaps and security-based swaps, and on alternative compliance.

Largely responding along industry segments, respondents to the CFTC’s and SEC’s recent joint request for comment were divided on the need for additional regulation of swaps and security-based swaps but generally agreed that their regulatory jurisdiction should be clarified.

CFTC Chairman Michael Selig has contended that event contracts are swaps, and so are traded under the CFTC’s auspices. However, the rapid growth of event contract trading on CFTC-regulated exchanges has resulted in muddy regulatory waters, and the Commission’s request for public comment (RPC) asked for potential ways to draw clearer lines “with respect to innovative products that may implicate both SEC and CFTC regulatory interests.”

Creating a novel asset class. A review of the comments revealed a divergence of opinions. DJ Adams, chief executive officer of Nashville-based Thesis Market, Inc., suggested further blurring agencies’ lines of responsibility and taking a co-regulator approach that facilitates jointly regulated platforms, with appropriate tailoring of requirements to address duplicative, conflicting, or inappropriately burdensome requirements.

The Commissions’ harmonization efforts “would allow the creation of a platform that could potentially list in-scope event contracts, whether they are futures, options on securities, swaps, or SBS,” Adams said in his letter to the CFTC and SEC.

“Thesis recognizes this would not be easy, but the task would be simplified by focusing on event contracts as a novel asset class, which could be appropriate for trading on such platforms as a starting point for consideration,” he said.

“Erroneous interpretation.” Taking a very different stance, the Tribal Alliance of Sovereign Indian Nations (TASIN) said the CFTC's “recent erroneous interpretation of ‘swap’ as applied to ‘prediction markets’ known as ‘sports event contracts’ infringes on tribal sovereignty.” TASIN acknowledged its membership has a direct sovereign interest in the RFC because of its potential impacts on the Indian Gaming Regulatory Act (IGRA), and Indian gaming in general, “which is a vital source of funding for our member tribal governments.”

As for event contracts, the Commissions must reject any overbroad reading of "swap," "security-based swap" (SBS), or "mixed swap" that would encompass sports betting or any other forms of gaming that would enable federally regulated derivatives exchanges to function as online gambling platforms, TASIN said in its comment.

Further, the Commissions should clarify that "swaps," "security-based swaps," and "mixed swaps" do not include contracts that involve gaming, including sports gambling, TASIN said, and they should also clarify that swaps require bona fide financial, economic, or commercial risk, including legitimate hedging or price-discovery functions.

“Market-implied odds, public sentiment, or wagering probabilities generated by gambling activity do not constitute the type of price discovery protected by the Commodity Exchange Act,” the group said.

Perpetual comments. The Blockchain Association (BA) eschewed detailed comments on event contracts in its letter and focused instead on harmonization of the Commissions’ frameworks to enable the trading in U.S. markets of cash-settled “perpetual” contracts that reference an individual equity security.

“Regulatory uncertainty is presently a hindrance to development of these products in the United States,” the BA commented in its letter, which was signed by its CEO and a former CFTC commissioner, Summer Mersinger. “Our system is widely recognized as the global gold standard, yet it has not kept up with the pace of innovation,” the group added. “As a result, equity perpetuals trade exclusively in markets outside of the United States.”

BA said its recommendations for equity perpetuals can be implemented under existing statutory authority by utilizing existing, statutorily prescribed joint regulation of security futures products. Specifically, the joint regulation of security futures products by the SEC and the CFTC established by the Commodity Futures Modernization Act of 2000 (the CFMA) serves as a foundation for the harmonized regulation of equity perpetuals.

Prior to the CFMA, the BA noted, the Shad-Johnson Accord functioned for nearly 20 years as a ban on the development of markets for single-stock futures and narrow-based security index futures. The CFMA lifted this ban and created a joint CFTC-SEC regulatory framework for security futures products.

A security future is defined, “in pertinent part,” as a contract of sale for future delivery of a single security, including any interest therein or based on the value thereof. In “edge cases, and where applicable based on specific facts and circumstances,” the Commissions should utilize their existing authority to regulate novel derivatives products that may straddle the jurisdictional boundary between the CFTC and the SEC, the BA said.

Rules revisited. Because the SEC and CFTC already have rules for defining swaps and security-based swaps, and the rules draw clear regulatory lines for how event contracts should be categorized, there is no reason for special event contract rules, said Better Markets in its comment letter.

“The request for comment appears to be driven by the desire of prediction market platforms to offer event contracts on corporations’ key performance indicators (KPIs),” said Benjamin Schiffrin, director of securities policy for Better Markets.

“The prediction markets undoubtedly would like these event contracts to be regulated as swaps by the CFTC, which does not have an investor protection mandate, rather than as security-based swaps by the SEC, which does,” he continued.

Existing definitions of a swap and a security-based swap establish that event contracts on corporations’ KPIs should be considered security-based swaps, and the Commissions should not revise these definitions so that the prediction markets can obtain more favorable regulatory treatment, the letter concluded.

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