Case 2:25-cv-00978-APG-BNW Document 42 Filed 08/04/25 Page 13 of 26
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exchange may offer derivatives only after obtaining CFTC designation as a regulated exchange. 7 U.S.C. §§ 2(e), 7(a); 17 C.F.R. § 38.3(a). To achieve this designation, the exchange must submit a detailed application demonstrating its ability to comply with the CFTC’s extensive regulatory requirements. 17 C.F.R. § 38.3(a). The CFTC then conducts a thorough review of the application to determine whether the exchange satisfies its standards. See id. Once designated as a federally regulated contract market, a DCM is governed by the CFTC’s comprehensive regulatory scheme, which includes, among other requirements, recordkeeping obligations, 17 C.F.R. § 38.950, reporting requirements, id. § 38.450, and liquidity standards, id. § 38.1101(a)(2). Congress also authorized CFTC-designated exchanges to list contracts—including event contracts—through a certification process, whereby the exchange affirms that the contract complies with the CEA. Congress granted the CFTC authority to conduct a post-certification review if it believes the contract may violate any applicable statute or regulation. See 7 U.S.C. § 7a-2(c)(2); 17 C.F.R. § 40.11(c). To keep its designation, a DCM must comply with all Core Principles and CFTC regulations. 7 U.S.C. § 7(d). If an exchange disregards a CFTC regulation, the Commission may pursue civil and criminal penalties. See CFTC Division of Enforcement, Enforcement Manual (2020), at § 3.3. Importantly, the CEA allows the CFTC to reject event contracts that it finds “contrary to the public interest” if they “involve” conduct such as “activity that is unlawful under any Federal or State law,” “terrorism,” “assassination,” “war,” “gaming,” or other comparable conduct identified by the CFTC through rule or regulation. 7 U.S.C. § 7a-2(c)(5)(C)(i). The statute provides that the CFTC “may”—not must—find a contract contrary to the public interest if it falls into one of the listed categories. Id. As Congress specified, this judgment rests with the CFTC alone—not with the NGCB and its counterparts in fifty individual states. The legislative history of the Dodd-Frank Act confirms that the Special Rule’s drafters intended for the CFTC to have “the power to determine” whether contracts in certain categories were contrary to the public interest. 156 Cong. Rec. S5902, S5906 (daily ed. July 15, 2010) (statements of Sens. Feinstein
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