The U.S. CFTC has asked Crypto.com and Kalshi Inc. to explain how their recently launched Super Bowl event contracts comply with derivatives regulations, Bloomberg reported.
The agency wants to ensure these contracts are not prone to manipulation and meet regulatory requirements. The CFTC can request additional information from firms that self-certify their financial products, assess their responses, and decide on enforcement actions or potential new rules.
Why is this Required?
A CFTC spokesperson confirmed that the agency is reviewing these contracts under its regulations.
Last week, the regulator announced plans to hold public discussions on emerging issues in the derivatives market, including event contracts.
Crypto.com Defends Legality
Crypto.com has expressed confidence in its event contracts and will cooperate with regulators. The company maintains that the CFTC is the appropriate authority to oversee these contracts and ensure market integrity across all 50 U.S. states.
In a statement, a Crypto.com spokesperson said, “We firmly believe in the legality of our event contracts and believe the CFTC is the appropriate regulator to bring federally regulated market integrity, manipulation controls, and product availability in all 50 states.”
The CFTC had previously decided in January to put Crypto.com’s sports contracts under a special review. The regulator wanted to determine whether these contracts should be classified as gaming, a category that faces higher scrutiny regarding public interest concerns.
Following this review, Crypto.com withdrew its original filings and submitted a newly self-certified contract related to spectator sports and related industries. It remains uncertain whether the CFTC will continue its initial review.
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Kalshi’s Position and Robinhood’s Involvement
Kalshi Inc. introduced its event contracts shortly after President Donald Trump’s inauguration. Unlike Crypto.com’s contracts, Kalshi’s offerings were not placed under a similar CFTC review.
Robinhood Markets Inc. has also stepped into the event contract space. On Monday, the company announced its plan to introduce sports-related trading via Kalshi’s exchange for Robinhood Derivatives clients.
Robinhood sees an opportunity to cater to customers whose interests span across financial markets, news, sports, and entertainment.
Additionally, Robinhood has chosen Kalshi to facilitate trading in Super Bowl event contracts. This follows Robinhood’s previous decision to allow derivatives trading based on the outcome of the 2024 U.S. presidential election.
Regulatory Uncertainty
Crypto.com launched its sports event contracts on December 23, 2024, allowing traders to bet on a simple yes-or-no outcome, such as predicting whether the Kansas City Chiefs or the Philadelphia Eagles would win the Super Bowl.
The sudden introduction of these contracts reportedly caught the CFTC off guard, prompting its current inquiry.
As event-based contracts gain popularity, regulatory agencies like the CFTC are examining their implications for financial markets. While these contracts offer traders a new way to engage with sports and political events, questions remain about their classification and potential risks.
Regulators’ ongoing scrutiny highlights the uncertain legal landscape for event contracts. Crypto.com, Kalshi, and Robinhood’s involvement in this space signals growing interest, but whether these offerings will face tighter regulations or new rules remains to be seen.
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