Given that the CFTC is celebrating its 50th birthday and has been in the news lately, I thought the time was right to examine its origins, the Commodity Exchange Act that preceded it, and the application of that Act today to crypto, prediction markets, and whatever comes next.
There’s a made-up curse attributed to ancient China that goes something like “may you live in interesting times…”1 Well, in my 27 years in the industry I’ve watched:
· Exchanges fail, demutualize, go public, merge, and thrive.
· Markets migrate from the pit to the screen and expand their hours and access accordingly.
· Scandals tear at the fiber of the industry, but have the regulations that underpin it stitch it back together.
· The industry consolidate by a factor of at least 5 and grow by a factor of 10.
· Be threatened with obsolescence by everything from crypto to Google.
But I can’t remember a previous time when the industry has been pulled in such diverse ways simultaneously. On one hand, the House and Senate are pushing for crypto legislation that identifies a significant portion of crypto as commodities, while on the other, gambling sites are making noise about listing futures contracts.
But before we dive into those topics, let’s take a brief look at the formation of the CFTC and the Commodity Exchange Act that preceded it.
Origins
The Commodity Exchange Act has regulated the trading of commodity futures since its inception in 1936. Following closely on the heels of the Securities Exchange Act of 1934, and similar in intent, with the CEA Congress sought to codify and centralize commodity regulation. Aside from requiring the standardization of contracts and the centralization of trading on regulated exchanges, the three core tenets of the CEA are2:
· The promotion of competitive and efficient futures markets.
· The protection of investors against market manipulation.
· The policing of abusive and fraudulent trade practices.
The Commodity Futures Trading Commission was created in October 1974 as part of an overhaul of the Commodity Exchange Act. During this time, a confluence of factors3 led to a boom in commodities trading, and new rules and oversight were required to keep up with the times. Most importantly, the Commodity Futures Trading Commission Act (which brought the CFTC into being) granted the CFTC exclusive jurisdiction over futures trading in all commodities4.
This exclusive jurisdiction covenant (covering all futures markets except onions, since onion futures are explicitly banned by a separate act of congress5), is at the heart of the current conundrums facing the CFTC.
Crypto
Given the clear mandate to oversee all commodity futures products, it makes sense for the CFTC to oversee futures trading on all crypto asset futures not exclusively identified as securities. This explains why Coinbase, Kraken, Ripple, Crypto.com, and others have aggressively pursued asset purchases within the space to ensure they are in regulatory compliance for the crypto futures assets they offer.
It is less clear if the CFTC’s jurisdiction should extend to the underlying commodities themselves, although there is some precedent for it. For example, the CFTC doesn’t regulate the grain elevators that purchase farmers’ crops, nor does it regulate the Treasury department’s periodic sales of federal fixed income securities. However, the CFTC and NFA do regulate Retail Foreign Exchange Dealers6.
Although retail foreign exchange trading has fallen in popularity in the US due to the rise of commission-free stock and options trading and lower leverage requirements than other jurisdictions7, it is still a spot market overseen by the CFTC, and could therefore serve as a model for the CFTC to oversee spot crypto.
Prediction Markets
Recently, a handful of gambling sites both large – DraftKings8 – and small – Sporttrade9 – have attempted to gain regulatory approval to list futures on sports events and gain access to the event contract space to compete with Kalshi10 and Crypto.com11.
While this may seem like a revolutionary concept, it’s actually just evolutionary and has been percolating since the CFTC granted no-action relief to Iowa Electronic Markets back in 199212 when they launched a political stock exchange for educational purposes.
More recently, Nadex13, a fully collateralized (meaning the exchange cannot allow leveraged trading) derivatives contract market (i.e., an exchange) that specializes in binary options, was designated for non-intermediated trading (meaning customers can open accounts directly at the exchange, and it functions as both a broker and an exchange) in 2004. Crypto.com now owns Nadex and was able to list its Sports prediction markets as futures via Nadex’s regulatory designation.
What I think these new applicants fail to understand is that CFTC regulatory approval is not just a piece of paper that means you don’t need to be regulated separately by each state. It is an ongoing commitment to providing fair and transparent access to markets no matter the market conditions or the spread. Fair and equitable access being a major tenet of the CFTC’s 23 core principles, along with14:
· Trade execution in an open, competitive environment.
· All trade information being available to market participants and the public.
· Contracts not being susceptible to manipulation.
· Minimizing conflicts of interest in decision-making processes.
Given that there is a whole subreddit related to Sportsbook issues15, and googling “….stole my money” generates an endless series of links and blog posts, there is clearly a disconnect between what sportsbooks think is fair and equitable and what their customers believe. The bottom line is sportsbooks are not exchanges – they currently have no mandate to provide transparency or to be fair and equitable in their markets, and while it is in their best interest to provide a good experience for their customers, they are also perfectly within their rights to skew the markets in their favor – isn’t that how casinos make money?
So while Kalshi may look like a competitor to the gambling industry and the state regulators that are suing them16, the fact is they are a federally-regulated commodities exchange and must abide by the CFTC’s rules and principles.
A bigger question for the CFTC regarding event contracts, and specifically sports contracts, is how they fit into the existing rulebook, or whether the rulebook should be amended to be more inclusive. Specifically, the Commodity Exchange Act excludes commodities that may involve or be related to Terrorism, Assassination, War, Gaming, or Activity that is unlawful under any state or federal law (TAWGA)17.
Additionally, the Commodity Futures Act included a provision that required futures contracts to serve an economic purpose and be in the public interest. While this specific language was amended under the Commodity Futures Modernization Act, it is somewhat unclear whether it was intended to be reinstated under the Dodd-Frank Act, although a 2012 CFTC suit indicates it was18.
It also comes as no surprise that all three professional sports leagues19, the NFL, NBA20, and MLB21, filed letters with the CFTC opposing sports event contracts. In their letter, the NFL outlined how little they know about fair and equitable federally-regulated markets (and possibly how much they may value their partnerships with sportsbooks22) when they said the contracts “would mimic sports betting but seemingly without the robust regulatory features that accompany regulated and legalized sports betting.”23
Personally, I feel that regulations need to be tailored to the times and the will of the persons they regulate. I also like speculating in markets dictated by the transactions of its participants rather than a single counterparty that can “adjust” the rules at its whim.
Wrapping Up
In the past 50 years, the CFTC has weathered and persevered through attempts to corner markets, financial scandals, market meltdowns, and regulatory headwinds. It has been prompted to merge with the SEC24 and is periodically brought before Congress for reauthorization25. It has also remained intact and independent after two major changes to financial services laws (The Commodity Futures Modernization Act26 and Dodd-Frank27) because its principles-based approach to regulation gives it the flexibility to adapt with the times.
Here’s to another 50 years, CFTC.
1. https://en.wikipedia.org/wiki/May_you_live_in_interesting_times
2. https://www.investopedia.com/terms/c/cea.asp
3. https://en.wikipedia.org/wiki/Nixon_shock
4. https://www.cftc.gov/About/HistoryoftheCFTC/history_1970s.html
5. https://en.wikipedia.org/wiki/Vincent_Kosuga
6. https://www.nfa.futures.org/registration-membership/who-has-to-register/rfed.html
7. https://www.reddit.com/r/Forex/comments/8mpmem/us_brokers_and_501_leverage_what_do_you_do/
8. https://www.ainvest.com/news/draftkings-strategic-retreat-navigating-regulatory-crossroads-prediction-markets-2504/
9. https://www.sportico.com/business/sports-betting/2025/sporttrade-cftc-kalshi-prediction-market-1234850501/
10. https://kalshi.com/live/sports
11. https://crypto.com/us/sports
12. https://www.cftc.gov/sites/default/files/files/foia/repfoia/foirf0503b004.pdf
13. https://www.nadex.com/
14. https://www.cftc.gov/sites/default/files/groups/public/@otherif/documents/ifdocs/orgfbotapdxffcftccrp160615.pdf
15. https://www.reddit.com/r/sportsbook/?f=flair_name%3A%22Sportsbook%20Issue%22
16. https://frontofficesports.com/newsletter/asset-class-kalshi-keeps-winning/
17. https://www.fia.org/sites/default/files/2023-05/FIA_Webinar_Event%20Contracts.pdf
18. https://www.fia.org/sites/default/files/2023-05/FIA_Webinar_Event%20Contracts.pdf
19. https://www.comped.com/news/sports-leagues-nfl-nba-mlb-react-prediction-markets/
20. https://www.casino.org/news/nba-tells-cftc-prediction-market-expansion-threatens-integrity/
21. https://sbcamericas.com/2025/03/10/mlb-cftc-letter-sports-events-contracts/
22. https://www.nfl.com/news/nfl-announces-tri-exclusive-sports-betting-partners
23. https://frontofficesports.com/newsletter/asset-class-kalshi-keeps-winning/
24. https://www.cftc.gov/PressRoom/SpeechesTestimony/opachilton-4
25. https://agriculture.house.gov/calendar/eventsingle.aspx?EventID=6668
26. https://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000
27. https://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act