Everything CFTC Pick Quintenz Said About Prediction Markets In Senate Hearing

The Commodity Futures Trading Commission will likely not police what events can and can't be traded at Kalshi and other platforms under Brian Quintenz, and that includes sports event contracts.

Brian Quintenz, the nominee to head the Commodity Futures Trading Commission, gave every indication he would do little to slow the expansion of prediction markets, including sports event contracts. His remarks came during a hearing in the US Senate Committee on Agriculture, Nutrition, and Forestry on Tuesday regarding Quintenz’s confirmation for chairman of the CFTC.

There were no real bombshells in the testimony; here are a few key takeaways:

• Quintenz didn’t seem very interested in saying that certain types of event contracts wouldn’t be allowed. He made it abundantly clear that he believes the Commodity Exchange Act (CEA) allows markets on nearly any kind of event with economic, financial or commercial impacts.

• It didn’t sound like any rules around event contracts would be imminent under a Quintenz regime. He indicated it would be up to Congress to provide guardrails about what is or isn’t allowed on this front.

• Quintenz seemed to indicate that he thought tribal gaming interests could in theory offer event contracts (including sports) under the Commodity Exchange Act.

• Sen. Adam Schiff (D-California) and Sen. Cory Booker (D-New Jersey) offered the most substantial pushback on the prediction markets front. California is the home to gaming tribes that have decried the existence of sports event contracts. New Jersey is one of a number of states that have sent cease-and-desist letters to Kalshi.

  • Schiff harped on the idea that the CFTC was usurping existing gaming laws and tribal sovereignty.

  • Booker pursued the idea that there are conflicts of interest around the future of Kalshi and prediction markets. Those concerns revolved around Quintenz’s role as a Kalshi board member and the status of Donald Trump Jr. as an advisor to Kalshi. Booker questioned if Quintenz would take any actions that could potentially hurt a company associated with Trump’s family.

• Under questioning from Schiff, Quintenz said this about legal wrangling around event contracts: “…the agency would want to ensure that it is appropriately defending the Commodity Exchange Act and the remit that the agency has to regulate and preempt laws, state laws around futures and derivatives markets.”

• Quintenz promised to hold a roundtable on prediction markets that was canceled/postponed this spring.

  • There was an interesting exchange here that made it clear that Quintenz would not be pumping the brakes on event contracts:
    
    Schiff: And would you do that (reschedule the roundtable) before you issue any guidance on this topic?

    Quintenz: Since I don't have any plans to issue any guidance in the near term, so I feel comfortable making that commitment.

You can read Quintenz’s opening statement to the committee here. The hearing is below:

Quintenz answers to prediction markets questions

Here is a transcript of relevant portions of the hearing that were specifically about prediction markets, sports event contracts, and/or Kalshi:

Sen. Tommy Tuberville (R-Alabama): We’re all curious about the growth of prediction markets. Can you talk about the benefits of the markets and how various business and industries can use them for risk management when they otherwise may not have access to appropriate hedging tools?

Quintenz: Thank you senator, when I was at the commission, I read the law and the law was clear that the Commodity Exchange Act recognizes that an event that poses financial, commercial or economic consequences is a commodity. And I think the reason that that Commodity Futures Modernization Act of 2000 that was passed into law, signed by President Clinton, did that because it recognized that events pose risks to individuals, small business and large firms in the same way that exposure to physical commodity prices do. Events have been hedged in various capacities for a long time, it’s just been through large Wall Street firms through very complicated products where there isn’t a lot of insight into how they operate, and a market trading mechanism to create clarity around that. So with the way that this innovation is evolving, there are going to be many new methods for individuals to be able to hedge risk that they otherwise couldn’t because the innovation could be targeted to a specific event and they don’t have to use some other generic form of hedging that may not correlate to that risk.

…

Sen. Adam Schiff (D-California): I wanted to start out by talking about futures contracts, events futures contracts. I know this is a space you’re well familiar with, from your role on the board of directors of Kalshi. I'm proud to represent more than a hundred federally recognized tribal nations in California that have the exclusive right to offer gaming in California and I am very concerned that these event contracts, which seemed pretty indistinguishable, at least from the consumer point of view, from gaming, violate tribal sovereignty, undermine state and tribal gaming compacts, and conflict with the Indian Gaming Regulation (sic) Act. Federal law dictates that the tribes, not the CFTC, have exclusive rights to police gaming within their territory. If you're confirmed, do you commit to exercise the CFTC's statutory and regulatory authority to call these contracts in for review?

Quintenz: Thank you, Senator. So I appreciate the concerns that you mentioned. I think this is an area of the marketplace that the agency used flexibility that it found in the statute in a way that hampered its growth. I believe that the law is very clear about events that have commercial or financial or economic consequence, qualifying as commodities, because the act recognizes that therefore, a viable and invaluable futures market can be listed upon them, and afford people the opportunity for risk management, price discovery, and price dissemination, which are the three cited national interests for the Commodity Exchange Act in Section 3A.

But I would pledge to you, given that this is an area that has, I think, more recently found legislative clarity, given the actions of the agency previously, that I would have a very robust all =-stakeholder engagement process around this. I would listen to the concerns of the tribes that you mentioned. Nothing in the CEA that I'm aware of prohibits or affects the opportunity of tribes to offer those products and those markets and those services.

Schiff: Well, in my view, betting on the outcome of a sporting event looks like sports betting, looks like gaming, smells like gaming, sounds like gaming, there are winners and losers like gaming, it's probably gaming. And if indeed it is determined that these contracts do amount to prohibited gaming of violating tribal sovereignty and jurisdiction under the IGRA, will you require the contracts to stop?

Quintenz: Thank you, Senator. Should I have the honor of being confirmed, I believe that I need to abide by the Commodity Exchange Act. And if there is a conflict between the Commodity Exchange Act and the other act you mentioned I believe that's best resolved through Congress. I believe the Commodity Exchange Act is very clear about the purpose of derivatives markets, the purpose of risk management and price discovery, and that events can serve a function in that mandate.

Schiff: If the courts determine that, in fact, these are prohibited gaming contracts, will you enforce the law and require the contracts to stop?

Quintenz: I think that depending on the outcome of the court case and where that is in the court system, the agency will follow the appropriate court mandate.

Schiff: Are you indicating that if the court should rule that they are illegal gaming contracts, that you would appeal because you personally disagree with the rule, or would you recuse yourself having come from a gaming business that would be affected?

Quintenz: No, Senator, I think that I would need to, and I think that the agency would want to ensure that it is appropriately defending the Commodity Exchange Act and the remit that the agency has to regulate and preempt laws, state laws around futures and derivatives markets.

Schiff: And finally, you said you would encourage community engagement. There was a commitment to hold a public roundtable, and leaders were ready to fly out, to attend it, I think, in February, but it was abruptly canceled. If confirmed, will you commit to holding this public roundtable?

Quintenz: Yes, Senator, I have no information as to why it was canceled, and I'd be happy to reschedule it.

Schiff: And would you do that before you issue any guidance on this topic?

Quintenz: Since I don't have any plans to issue any guidance in the near term, so I feel comfortable making that commitment.

…

Sen. Cindy Hyde-Smith (R-Mississippi): Over the past few years, we've seen growing public interest in prediction markets, and not just for trading, but as tools, for forecasting, academic research, and even policy analysis. At the same time, questions had been raised about where to draw the lines around what types of events are appropriate for public contracts and what falls outside the scope of the CFTC's mission. If confirmed, how do you believe the commission should approach prediction markets, particularly when it comes to balancing innovation, with the need for regulatory purity and market integrity?

Quintenz: Thank you, Senator. I think the last thing that I would want to do, should I have the honor being confirmed, is to be a value-judgment regulator. If I try to express my own value judgments on a marketplace, and undertake a process that is opaque and inconsistent, and likely illegal, and in the past, the agency has taken an approach that I had disagreed with in terms of that adjudicating which kinds of contracts may be acceptable or not. I believe that it is the role for this body and for Congress to decide what is acceptable or appropriate. I think it is the role for the agency to follow the statute. And the statute, as I have said, a number of times, it is very clear that it is the purpose of the Commodity Exchange Act, and the purpose of the CFTC, to support derivatives markets that provide for hedging, risk management, price discovery, and price dissemination. So I would try to take a very clear approach that is predictable, repeatable, durable, and legal.

…

Sen. Cory Booker (D-NJ): …But I want to pick up on a line of questioning, which I thought was excellent questioning by my colleague, Senator Schiff. I have a lot of reservations, I have to say, about the explosion and advertising for sports betting, some of the addictive-by-design tactics employed by the industry, is ultimately the law of the land. Should you be confirmed, you're going to have a very important role to play in this emerging space. We now know that Kalshi, who we’ve been discussing, they're having significant efforts to offer event contracts sports events, which closely resembles sports betting. Now, Kalshi's own advertising, I looked at Instagram, says, quote unquote, "sports betting legal in all 50 states on Kalshi.

And so I just want to talk a little bit about your independence in this space. And you said, you gave the following statement while you were a CFTC commissioner, “The statutory definition of commodities includes an occurrence extent of an occurrence or contingency that is one, beyond the control of the relevant parties to the contract, two, associated with a financial, commercial or economic consequences, 4, since practically any event has at least a minimal financial commercial or economic consequence, all events or commodities. Because of this definition, any contract on the outcome of a future event would be considered a commodity, futures contract and pursuant to the Commodities Exchange Act is required to be traded on a registered designated contract market.” Do you still agree with that statement today?

Quintenz: I do.

Booker: Okay, and so help me understand. Does that mean it would be illegal for sportsbooks or tribal communities to take bets on sports outcomes in New Jersey or California or Nevada, unless they are registered with CFTC exchanges.

Quintenz: No, Senator. So the quote that you that you read may have omitted a critical detail, which is if those contracts are traded across state lines.

Booker: Okay, to me, just on the face of it, even with the omissions that you just spoke to, I just feel like it's undermining the clear language of the Commodity Exchange Act, which states that event contracts involving gaming shall not be listed if the CFTC determines that they are contrary to the public interests. Would you agree with that?

Quintenz: So there is a special rule for the review of event contracts, yes, and it does mention specific kinds of events that could trigger.

Booker: And you would have a role in this position on determining this space.

Quintenz: Yes, although I would say, and I have spoken about this, I had a very, very long statement when I was a commissioner previously on this. That provision of the statute troubles me in terms of trying to execute it with repeatability and legality, especially in a post Loper Bright world, because there is no framework that was provided for by Congress in terms of how to execute that appropriately. What constitutes the public interest? What constitutes an appropriate kind of…

Booker: I agree, but you're gonna be in this space, and I'm hoping that we can talk more, not in the last two minutes that I have, about the role, power, and authority you'll have in this space, and I hope you can appreciate that there will be some real questions into your independence in that role, given the fact that you sat on the board of this, you can understand that there'd be concerns about that, yes?

Quintenz: I can certainly understand and I think that's…

Booker: And let me, because I'm running out of space, I told you where I want to try to go, but Donald Trump Jr. was hired by Kalshi on January 13th after his father was elected president of the United States, nine days before it began offering sports contracts. One week, again, before President Trump was inaugurated. And so I'm worried that you're going to be in a position where, if chairman, are you going to feel empowered to prosecute a company or push back on a company that's being advised by the president's son? This deserves some exploration. I want to be able to ask you one last question, but there's a lot more here that has to be discussed, as I'm hearing from a lot of parties that are questioning the independence. And given the culture of corruption that I believe we're seeing in our country right now, where a president has a meme coin that's being invested in by foreign companies where Americans are justified and wondering the influence that's having on our policy, you're sitting in a position coming from a company with the president's son. We really have to explore that more. And I'm hoping that the chairman and the ranking member would want to.

I very much really want to spend my time working on getting that market structure bill. I really want to talk to you more of it. I am out of time now, but I'm hoping you will be willing to have a conversation as my subcommittee on this on this committee really is focused on driving something forward. This is an area that needs regulation. This is an area that needs rules, and we can create a lot more transparency and a lot more trust. And that right now is in this space of digital assets, the space of sports betting, with a lot of things happening in America that have never happened before with the president so intertwined and his family so intertwined in areas that are seeing extraordinary profits right now, it is very important that we have the objectivity necessary to govern in this space, and I hope we can talk about that more.

Quintenz: I would pledge to have that conversation with you and to have that relationship.