CFTC gives futures exchanges 30 days to drop domestic geographic restrictions

The Commodity Futures Trading Commission told US futures exchanges on Nov. 5 that they must stop sorting traders by where they live inside the United States, giving them 30 days to remove those limits or put their reasons for keeping them on the record. The agency issued an interpretation of Commission Regulation 38.151(b), the impartial access requirement that obliges designated contract markets to provide competitive, open, fair, and impartial access to their members and persons with trading privileges.

Chairman Michael S. Selig grounded the instruction in statute. "Derivatives markets must operate on a uniform basis at a national scale in order to achieve the purposes set out in the Commodity Exchange Act," he said in the release. "Geographic access restrictions are inconsistent with those purposes and the Act's impartial access requirements."

The compliance window

The release splits the instruction in two. DCMs must cease domestic geographic restrictions that violate the impartial access requirements within 30 days, or submit an explanation to the Division of Market Oversight for why such compliance is not feasible. In the same window, exchanges should also make sure the intermediaries connecting customers to their markets are not impeding those requirements and are complying with them, or file the same kind of explanation. LeapRate observed that the first limb is a "must" while the second is a "should", and that the release specifies no penalty for either.

Designated contract markets are the federally registered venues where futures and other derivatives trade in the United States. Under the interpretation, an exchange facing a violating restriction has two options inside the 30 days: unwind the restriction, or send its reasoning to the Division of Market Oversight, according to Crypto Briefing. The same report said exchanges are expected to police whether brokers and other access points are getting in the way of impartial access, with an explanation filed in place of compliance when they cannot. Operators with access policies that vary by US location now have to decide whether those policies survive the agency's reading of the rule, and intermediaries face the same review one step downstream, the LeapRate report said.

What the interpretation changes

The impartial access requirements are not new. They are codified at 17 CFR 38.151, which requires DCMs to maintain access criteria that are transparent and non-discriminatory. What the interpretation adds is the agency's reading that domestic geographic restrictions can count as the kind of discrimination the rule prohibits, the Crypto Briefing report said. Selig framed the move as a matter of statutory purpose rather than a policy preference.

The stakes are clearest in event contracts. Prediction markets have been fencing their sports offerings from states where courts or regulators blocked them. Court orders bar Kalshi's sports contracts in Nevada, Michigan and Washington, and sportsbook operators such as DraftKings, FanDuel and Fanatics do not offer their event contracts in states where they hold betting licenses, Sports Betting Dime reported. States including Ohio and Massachusetts have threatened companies with the loss of their licenses if they also offer event contracts within their boundaries. The interpretation argues that a participant who builds a position where access is allowed and then travels somewhere access is restricted may be unable to manage that position or meet margin calls, the trade publication reported, quoting the agency's text.

What the release leaves open

Several basics are not stated. The release does not define "domestic geographic restrictions" or "intermediaries", and it does not say which venues, if any, currently apply such limits, according to LeapRate. The agency also gave no start date for the 30-day clock, so no compliance calendar date can be confirmed from the document itself, nor did it announce a comment period or a Federal Register date.

Enforcement posture is equally light so far. The Commission said it will consider the facts and circumstances of any particular case in connection with potential action, and no significant enforcement actions against DCMs have followed the announcement, with the agency leading instead with a deadline and an invitation to explain its reasoning.