consequences may be security-based swaps or other instruments subject to the jurisdiction of the SEC. 17 B. Statutory and Regulatory Requirements A prediction market that seeks to list event contracts for trading, or make event contracts available for clearing, must comply with the substantive and procedural requirements that apply, more generally, to the listing for trading, or making available for clearing, of derivative contracts. 18 Further, a prediction market is subject to statutory requirements to only list or permit trading in derivative contracts that are not readily susceptible to manipulation; 19 to enforce compliance with contract terms and conditions; 20 and to monitor trading on the exchange in order to prevent manipulation, price distortion, and disruption of the settlement process through market surveillance, compliance, and enforcement practices and procedures. 21 In addition to the more generally applicable requirements to which registered entities are subject when listing derivative contracts for trading or making such contracts available for clearing, CEA section 5c(c)(5)(C) grants the Commission the authority to prohibit prediction markets from listing for trading or making available for clearing 17 See 7 U.S.C. 1a(47)(B) (providing “exclusions” from the definition of “swap” under the CEA, including for securities such as security based-swaps, certain options, and debt securities); see also, e.g. , 15 U.S.C. 78c(a)(68)(A) (defining “security-based swap” under the Exchange Act). 18 For example, Regulation 40.2, 17 CFR 40.2, sets forth the general process by which a DCM or SEF may list a new derivative contract for trading by providing the Commission with a written certification. See also infra , note 27. 19 See Core Principle 3 for DCMs, CEA section 5(d)(3), 7 U.S.C. 7(d)(3), and Core Principle 3 for SEFs, CEA section 5h(f)(3), 7 U.S.C. 7b-3(f)(3). 20 See Core Principle 2 for DCMs, CEA section 5(d)(2), 7 U.S.C. 7(d)(2), and Core Principle 2 for SEFs, CEA section 5h(f)(2), 7 U.S.C. 7b-3(f)(2). 21 See Core Principle 4 for DCMs, CEA section 5(d)(4), 7 U.S.C. 7(d)(4), and Core Principle 4 for SEFs, CEA section 5h(f)(4), 7 U.S.C. 7b-3(f)(4).
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