00:00I want to start with what you said in your keynote in March at your annual conference in Boca.
00:05You talked about how for years, you've been doing this since 2012, you talked about for years you'd go to
00:09Christmas parties and stuff and people would ask you what you did and you started explaining and their eyes would
00:13just glaze over because they would be so bored with what you're talking about.
00:17Now you go to these same parties and everybody wants to talk to you about this stuff.
00:21You're like the belle of the ball now.
00:22Yeah, I have teenage and 20-year-old kids right now and they love the fact that we're involved with
00:29Polymarket and Kalshi and they actually think dad's job is pretty cool, which is unique because it hasn't been that
00:35case in the past.
00:37So it's fun and I think part of it is the attractiveness of our regulatory system.
00:42It is a strong regulatory system that's flexible, principles-based, gives exclusive jurisdiction so other regulators either in states or
00:52the federal level can't regulate at those markets.
00:55So it brings regulatory predictability and clarity, which I think is very attracted to these new markets.
01:00Well, your kids say this is pretty cool what dad does, but what do your members like the NASDAQ, the
01:05New York Stock Exchange, who are increasingly either getting involved in prediction markets or at least look at them very
01:10closely,
01:10what do they really think about the disruption that's going on?
01:13Well, I think a lot of the prediction markets are very innovative in many ways.
01:18This actually, when I was a former regulator at the CFTC, we started to look at these markets in the
01:242000s because they were incredibly predictive at bringing disparate information together in a market condition to predict things.
01:33And that could happen in economic activity, but also started to work for politics.
01:39And obviously, sports betting is a big one now, too.
01:42I think everybody is in agreement that if we're going to do this, let's do it responsibly.
01:48And so that's why FIA plays an important role of saying, if you're going to be in the community, let's
01:53make sure it's at the appropriate best practices, the highest levels of regulation.
01:58And so we think that's a positive. Let's bring these things on shore at the highest levels of regulation.
02:04So on that, the conversation around prediction markets that are regulated here in the U.S. by the CFTC, a
02:10lot of questions have emerged about whether or not the CFTC actually has the person power to regulate everything that's
02:16happening on these platforms.
02:18Do you think the CFTC is able to do this?
02:21I do. Of course, if if it is clarified that, you know, the regulation of crypto markets and clarity around
02:29prediction markets, the CFTC should look at their budget and see if more people are necessary.
02:34This year's budget, they asked for a 12 percent increase, 15 FTEs, more additional people to the marketplace.
02:42But they are going to need that manpower if indeed prediction markets and the crypto industry comes into their space
02:48and they should ask for that.
02:50And FIA supports appropriate appropriate resources for the CFTC.
02:55Do regulators totally get it? Do lawmakers totally get it?
02:57As they probably are thinking about their own jurisdictions back at home and people wondering, OK, what does this mean
03:01for me if I'm investing or playing around on these markets?
03:04The regulators do get it.
03:06They certainly understand the importance of of well-functioning markets.
03:11This is unique and is a case of first impression.
03:14I think people on Capitol Hill are trying to figure out what activity should be under the jurisdiction of the
03:20CFTC.
03:21I think there is a strong public policy debate going on whether sports gaming and gambling should be within its
03:26jurisdiction.
03:27Right now, my view is that the law does capture that for the CFTC.
03:32But that's either going to be decided by the CFTC or the Supreme Court.
03:37I'm sorry, by the Congress or Supreme Court ultimately.
03:41And that's where it should be.
03:42It should be.
03:42This is a public policy determination that really should be at the highest levels of what does the public want
03:48and what does Congress want.
03:49You know, I want you to give us some historical context.
03:52The FIA has been around since 1955.
03:55And I'm wondering, given that we're talking prediction markets, tokenization, stable coins, 24-7 trading, that's taking a lot of
04:04the oxygen right now.
04:05Would you say this is sort of the biggest inflection point in the history of the industry?
04:09I wouldn't say it's the biggest.
04:10What was bigger?
04:11Well, certainly when they moved from agricultural to financial products in 1974.
04:17OK.
04:18So the Commodity Exchange Act, the CFTC, was created at that time.
04:21But that opened up the definition of commodity not just to agricultural products but to energy, to financials, to equities.
04:28And that broad definition of commodities also captured a lot of things.
04:33So in many ways, the CFTC has been trying to clarify over time what is in its jurisdiction or out
04:40of its jurisdiction since that moment.
04:42We had a big inflection point in 2000 with the Commodity Futures Modernization Act.
04:47That brought principles-based regulation.
04:50It brought self-certification for products.
04:52So exchanges can self-certify products quickly to market, which is a great innovation.
04:57That's what the prediction markets are doing.
04:59They love it.
05:00And I think that is something, while everybody in our industry supports it, self-certification also comes with the burden
05:06and the responsibility on the prediction markets to show their homework.
05:11You know, they have to show that you can't manipulate this product.
05:15You have to meet the 23 core principles of the act.
05:18And I think the CFTC put out guidance recently saying, hey, do your homework.
05:22We need to see the proof.
05:24The burden is on you.
05:25And here's some guidance around how to do that.
05:27I think that's going to help clean up some of the products that are being listed around self-certification.
05:31Well, Walt, for the prediction markets, so much is gambling, right, and sports gambling.
05:37Does that have to be off the platform ultimately for it really to be embraced by traditional finance and markets?
05:47Well, Congress has told the CFTC and part of the Dodd-Frank legislation that there is certain activity that may
05:54be outside the public interest of the CFTC regulating.
05:57That said, terrorism, assassination, gaming was a key word thrown in there.
06:02And I think the CFTC has since that time been wrestling with how do we interpret that?
06:08What does that capture?
06:09What does it not capture?
06:10That is why it's uncertain.
06:13That's why people are debating this, why Indian tribe states are concerned about this.
06:17That's why I think it's ultimately up to Congress to clarify.
06:20What did you mean?
06:22Should it be in?
06:23Should it be out?
06:23And if they don't clarify, ultimately, I think it will end up with the Supreme Court.
06:27We don't have a ton of time left.
06:28I want to talk about some of the new products that are being offered by members of your organization.
06:33We had Cat Doherty on our program yesterday who covers this space.
06:37She wrote a story about how CME is launching single stock futures this week.
06:42It's not the first time they've done this.
06:44They did this 26 years ago, and it didn't really catch on, and they ultimately ditched it in 2020.
06:50They think this time is different, and they'll succeed this time.
06:53Do you?
06:54I do.
06:55And I think partly because the tone from the top at the SEC and CFTC is different.
07:00I actually was involved.
07:01So you think it's about regulation this time?
07:03It is duplicative regulation.
07:04I think there is the cost of being in the markets.
07:07There's alternatives overseas.
07:09There's alternatives.
07:10You're talking about a hyperliquid type of?
07:11Well, not just hyperliquid, but on-exchange regulated exchanges in Europe offer single stock futures.
07:19And so I think this is an opportunity to, again, bring this back on shore.
07:22CME is going to do this in a month or so.
07:26But let's make sure the regulatory structure is rationalized because you don't want to have both the full burden of
07:33the SEC and CFTC on these products.
07:35Let's at least recognize each other's jurisdiction.
07:38It's funny.
07:39I always say that both the SEC and CFTC recognize foreign jurisdictions, that we don't need to regulate certain foreign
07:45products, yet we can't recognize the two agencies across town from each other.
07:50That has stopped with this administration.
07:52They're talking to each other.
07:54They're finding out how do we rationalize this to allow those products to launch and be successful.
07:58There's so much more to ask you.
07:59Will you come back soon?
08:01Absolutely.
08:01Anytime.
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