CFTC tells contract markets to drop US geographic access limits within 30 days or explain why

The Commodity Futures Trading Commission issued an interpretation on November 5 saying designated contract markets generally may not limit access based on where an otherwise eligible trader is located within the United States. Exchanges must end domestic geographic restrictions that violate the rule within 30 days, or tell the agency’s Division of Market Oversight why they can’t.

The interpretation covers Regulation 38.151(b), which requires exchanges to give members and people with trading privileges competitive, open, fair and impartial access. The CFTC says it acted after overseeing the listing and trading of event contracts, and that it knows some exchanges restrict access to certain event contract markets based on a trader’s location or residence. The document names no exchange or state.

“Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements,” Chairman Michael S. Selig said, referring to the purposes of the Commodity Exchange Act.

Intermediaries are covered too

The 30-day clock also reaches the firms that give customers access to these markets. Within that time, exchanges should ensure that intermediaries are not impeding their impartial access requirements and are complying with them, or else submit an explanation. The CFTC says exchanges are responsible for taking reasonable steps on this.

The agency’s reasoning

The CFTC argues that access should turn on a participant’s financial and operational soundness. It says location limits can fragment national liquidity, widen bid-ask spreads and limit hedging, for example by shutting a region out of weather or energy contracts.

It singles out two event-contract types. Sports contracts can draw regional interest, so excluding a region could reduce their liquidity. Election markets may be especially exposed, it says, because statewide and local markets may draw the most volume and knowledge from residents of that place.

What it means for traders

The interpretation addresses location inside the United States. Exchanges keep the right to set financial and operational eligibility criteria, as long as those are published in advance and applied uniformly. The CFTC adds that it will consider the facts and circumstances of any particular case before taking action.

Separately, the CFTC has sued to block state enforcement in Utah. For background on the contracts themselves, see our guide to prediction markets and event contracts.

What happens next

The guidance was published as approved by the Commission, subject to technical corrections, and takes effect on publication.