00:00You helm the agency after the global financial crisis. There were a lot of raised eyebrows after word of this
00:05trade came out.
00:06What is your read on what's happening here? And maybe take us behind the scenes of what the CFTC might
00:11be doing as it looks into this.
00:14One, the only way that the American public can have confidence in markets is they think that insiders can't get
00:21ahead of them with material information.
00:23I mean, that's just not fair, right? But two, the only way we can have confidence in our government is
00:30that we don't think that somebody in government or their friends or family are trading ahead of us, right?
00:36So those two things are really important. And we knew that 16 years ago after the financial crisis, we were
00:45putting reforms in place.
00:46And I was honored to have this thing called the CFTC. And we were going to Congress. And I have
00:53to tell you a little story about Eddie Murphy.
00:55Okay. The comedian?
00:56The comedian, yes.
00:57An actor?
00:57An actor. And he had done this movie, Trading Places.
01:01This is a legendary movie in my household. I never understood the end of it until like a year ago.
01:05But yes, this is an amazing movie.
01:07And it's an amazing movie where Eddie Murphy is trading these things called futures. It's a contract where it's the
01:14future.
01:14The frozen concentrated orange juice.
01:17There you go. There you go. But do you remember, Christina, what he was trading it on? He was trading
01:21it on a report from the Department of Agriculture about the orange crop.
01:28He basically got inside information.
01:30Yes. So I get to the Commodity Futures Trading Commission. I ask the staff. I said, well, that's illegal, right?
01:35And they go, well, boss. It was a lot of mumble mumble and wonderful people.
01:41So we went to Congress in the midst of all that and we said, we've got to get something.
01:46And I used to say it was the Eddie Murphy provision. It's got to be illegal.
01:50Well, guess what? We were successful. Al Franken, who was in that movie and was a senator, had a great
01:56yucks.
01:56It was in that late. It's a very good.
01:57Great yucks on a couch in his office. But here's where it is today.
02:02Anyway, it is illegal for a government actor, somebody who works in the government, to pass on information to somebody
02:10and to have that person knowingly or with reckless disregard of the knowledge trade on that information.
02:16Also, it's illegal for that government actor to do it.
02:19Yeah. So it's both the government actor or somebody passing the line.
02:24But how do you – I'm sorry, go ahead.
02:26So it's illegal.
02:27Yeah.
02:27But how do you prosecute it? Because it can't be easy because it's not like these trades all have the
02:31person's name on them.
02:32They go through intermediaries. They go through trading desks.
02:35Talk to us about how the investigation works.
02:36You have to figure out who did it, when they did it, what information they have, and if it was
02:39public information or not.
02:41It's hard. It's hard.
02:42And I was honored to run federal law enforcement agencies twice, one in the commodity space, one in the security
02:51space.
02:52And so the staff is doing this, not the political appointees, but the staff is doing it with a lot
02:58of technology, now using artificial intelligence as well, tracking and looking for patterns, just like you do at Bloomberg, looking
03:06for patterns.
03:07Is there a spike in trading for three minutes before something happens?
03:11Like we saw late in March, I think it was March 23rd, like you've all reported that we saw again
03:17on April 7th, like various members of the House and Senate on both sides of the aisle have written, Senator
03:25Warren, but others also, Senator Whitehouse and others have written.
03:30And so I would think, yes, the government's going to investigate these things.
03:36But to your point, Christina, it's hard because it's about pattern recognition and then getting behind that and saying, well,
03:43who actually traded?
03:44And even if you identified, David, I'm not saying you did this, but if, David, somebody in your production booth,
03:52your control room and the one second delay that we have here traded on whatever information, even in that one
04:00second, they might be trading on material, non-public information.
04:04I'm not saying they are.
04:05No, of course not.
04:06Right.
04:06We'll follow up after.
04:07If they don't show up for their shift, we'll know something's happened.
04:09But so far, our team is all still here.
04:11Right, right.
04:12But then what happens if all those government actors show up for their shifts?
04:17And they're in a situation room, or maybe they're handling President Trump's tweet.
04:22Yeah.
04:23Or they call it X now.
04:25Right.
04:25The same, same.
04:25Or truth social.
04:26Yes.
04:28Right, so that's important.
04:30Look, I think also Congress is looking at whether to ban certain contracts, prediction markets.
04:36Think about it.
04:37Well, let me use that as a segue.
04:39We had Alyssa Slotkin on the show talking about a ban that she's suggesting be put in place for government
04:46officials.
04:46They shouldn't be able to make bets.
04:47Congressional staffers.
04:48Congressional staffers, yeah.
04:49And in that interview, it was kind of clear that there was some ambiguity surrounding who's regulating these spaces.
04:53So, as we talk about prediction markets, and you on a recent podcast episode point out, people have been betting
04:58on things for centuries.
05:00Don't have been betting on the Pope, who's that going to be back in the 15th century, whatever.
05:04Is it well regulated?
05:05When we look at Calci, which is domiciled here in the United States.
05:08Polymarkets is not.
05:09It's overseas and subject to less regulation.
05:12Is there an adequate regulatory apparatus surrounding all of this right now?
05:15I think that collectively people probably agree, no.
05:19No.
05:19Right now, no.
05:22One, you're right.
05:23Americans, humans, have been betting on things since antiquity.
05:28But how it's regulated.
05:30And at least on sports betting, we've done that at the state level.
05:34Yeah.
05:35And I worked on that reform back in 2010.
05:39I don't remember a single member of Congress, a single senator or House member saying, oh, we're going to give
05:46you your little agency, Gensler.
05:48We're going to give you authority to regulate all this gaming.
05:52And this also isn't a really pro-regulatory environment right now.
05:55That's just not where the winds of federal government seem to be.
05:58No, no.
06:00But I can tell you this.
06:01The majority leader at the time, Senator Harry Reid, would have never voted for something to basically preempt Nevada gaming
06:09commissioners.
06:09The gentleman from Nevada.
06:10That's right.
06:11No, it's just – it's so – it's rather absurd to think that's what Congress meant to do.
06:15No, the courts, that will play out.
06:17That's about sports betting.
06:18But now you have these geopolitical events, and we did work with Congress at the time to have a prohibition
06:26put in place on any contracts on assassination, war, terrorism, gaming, and otherwise unlawful acts.
06:36And that was something that they gave to the CFTC that we could prohibit.
06:41I thought we voted on that.
06:42I remember voting on that.
06:44It was a rule, 40.11, I think.
06:47And so I thought we voted on that.
06:50It was settled.
06:51Well, sometimes in life, things that you think are settled aren't settled.
06:56Spoken as a true lawyer here.
06:57No, I'm not a lawyer.
06:59I'm a markets guy.
07:01That's very true.
07:01That's true.
07:02But I would say this.
07:03I think the prediction markets some things we might just say as a society we're going to ban.
07:10And you talked about the pope in 1591.
07:14Gregory XIV said no betting on papal conclaves.
07:18Some things are off the table.
07:20They're just off the table.
07:21But guess what?
07:22In that reform effort in 2010, Congress said we can't bet on movie.
07:32That's right.
07:33That's right.
07:33On box office receipts.
07:34Howard Ludnick was running Cantor Fitzgerald at the time.
07:37He's now the secretary of commerce.
07:39He came in to us and said, we want to start a contract on movie futures.
07:44What do you think, CFTC?
07:46And we looked at it.
07:47We voted.
07:48It was a split vote, three to two.
07:50We lost one republic and one democrat, actually.
07:52But we voted.
07:53We said, there's an economic purpose here.
07:55You're hedging some risk.
07:57The movie industry, Hollywood, reacted negatively.
08:00And they had a vehicle, this reform thing going through.
08:05Senator Patrick Leahy from Vermont took that side, got an amendment in.
08:12That is illegal.
08:13You cannot bet on movie futures in this country, nor can you bet on onions.
08:19And that was Gerald Ford in the 1950s.
08:23Okay, so we can't bet on movie futures or onions.
08:25It's a great lesson in lobbying in Washington.
08:27But we can 100%.
08:27I covered D.C. for 17 years.
08:30But you can now bet on going to war.
08:33You can bet on all these really huge outcomes.
08:35But not on assassination, war, or terrorism.
08:39I thought I voted on that 16 years ago.
08:42But, I mean, talk to us about the larger picture of this.
08:44Because we're in an era of so much data and commoditization.
08:48And you're refining everything down to the numbers.
08:50I do worry, and I'm not a very touchy-feely person, but I do worry about what it does to
08:55us
08:55when you are marketizing things like acts of war and people dying in conflicts
09:00and these huge geopolitical events.
09:02Which could have economic consequences, I should add.
09:04Of course.
09:06Absolutely, absolutely.
09:07And there's day trading.
09:09And people who watch this show know that people can trade on options that are expiring the same day.
09:15Yeah.
09:15And we try to allow the retail public and the big institutions to trade and meet in those markets.
09:24Or even to buy and sell and speculate on the price of oil if it's well-regulated
09:30and we guard against insider trading and the like.
09:32But then there's some things that you would say, really, do they have economic consequences?
09:37Do we want to have that?
09:39Now, why we banned onions in the 1950s and why we banned movie futures in the 2010,
09:48but assassination, war, terrorism, death contracts.
09:53Yeah.
09:53Like, even in 18th century England, and this was a real problem at Lloyd's of London,
09:59which was at a coffee shop, King George II in the 1740s had to deal with his noble lord,
10:06say, hey, we're losing too many times to the pirates.
10:09Can we ban betting on ships going down?
10:12They use different words.
10:14Yes.
10:15Admiralty insurance.
10:16You have to have an insurable interest in the ship.
10:19So maybe you have to have an insurable interest to have terrorism insurance.
10:23We have got a minute left here.
10:25Where do you see this?
10:26How do you see this developing here over the next year?
10:28Grounds full of public interest and leads to what?
10:33It's a challenge.
10:34I think that this administration will try to do their best to push out insider trading,
10:40and that's because they have an interest in promoting this.
10:43Two, the courts will play out.
10:45I don't think it was Congress's intent to preempt state gaming laws,
10:50but this administration wants to take that on and have a little agency of 500 people
10:55be a national gaming regulator.
10:59I think I don't know.
11:01You don't see the evolution.
11:02And then I think Congress, I hope Congress takes up some prohibitions on certain,
11:06like, death and assassination contracts.
11:09All right.
11:09On that cheerful note, we're going to have to leave it there.
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