Joe Weisenthal: Do you have an opinion on whether Cardi B performed at the Super Bowl? I mean, it's funny, but it's also kind of relevant because I saw someone has actually filed a complaint to the commission about Kalshi's decision specifically.

Mike Selig: Well, of course, we're spending a lot of resources investigating whether Cardi B performed. Really our focus here is on the market. So the unique thing, the great thing about the way that we regulate the markets is that the exchanges themselves, similar to on the security side, are self-regulatory organizations. So each exchange has its own rulebook that's been approved by the agency. It has its own requirements for contracts that are certified on the exchange. So of course, the Cardi B contracts went through a self-certification process and then they're settled in accordance with exchange rules. They go through a clearinghouse as well. So the exchanges each have these rulebooks and certain requirements around how the contracts are resolved and settled. And of course, now we're seeing some differences amongst Kalshi's rulebook and PolyMarket's rulebook. But that's the great thing about our markets and having the ability to build a business, to develop an exchange with some flexible guardrails on top that the agency oversees. But we don't prescribe exactly what has to be in the rulebook. We have a principles based system of regulation.

Joe Weisenthal: Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway: And I'm Tracy Alloway. Tracy, did you watch the Superbowl?

Joe Weisenthal: You know, I was going to ask that and I knew it actually, I was going to start exactly the same way. I did watch the Super Bowl. And so I feel empowered to ask you a very controversial.

Tracy Alloway: Oh yeah, not which halftime show you watched, but did Cardi B perform at the Super Bowl?

Joe Weisenthal: Oh. Right, because this was a big thing. I forgot that there was. I'm aware of various sort of questions about prediction markets and things that people place bets on. Well, how did that resolve? What was the basic issue here again?

Tracy Alloway: So I think it's still being resolved in various ways. But, Cardi B, she was on set during Bad Bunny's extravaganza and she was kind of like dancing and singing along, like mouthing words, at least along with other people like Pedro Pascal and Jessica Alba.

Joe Weisenthal: Yeah, Lady Gaga.

Tracy Alloway: Lady Gaga. It was like singing together. Right, right, right. The only reason this matters at all is because of prediction markets. So there was a bet. Will Cardi B perform? And now the question is, does standing on stage and kind of bobbing your head and mouthing words count as a performance? PolyMarket says it does, Kalshi says it doesn't.

Joe Weisenthal: Oh, interesting. Yeah. There you go. Kalshi and PolyMarket split over whether Cardi B performed. That's great. That's a great tension. I like that.

Tracy Alloway: It is. It was striking to me, setting aside that I actually somehow seem to have missed the specific thing, how much prediction markets are now just part of the consumption experience. You look at all these different things that people are talking about, there was, is Lady Gaga going to show up somehow? Someone made a bet on it before it went public. But also, just like with each score, you check the line, how much did this move the expectations of whether the Seahawks are leading? Prediction markets are truly becoming part of pop culture and how we interact with pop culture.

Joe Weisenthal: There were some weird bets around like color of Gatorade that was going to get dumped on the coach. Yeah, length of like the national anthem being sung.

Tracy Alloway: Yeah. Did you see that? Like, I was tempted by some of those, but I stayed away. I'm still, I haven't used PolyMarket or Kalshi probably.

Joe Weisenthal: The interesting thing too is how much the mood has swung, right? Because a few years ago, like, I don't know, 2022, 2023, I think we did an episode. And that time, there was almost nothing. And the sort of regulatory 180, the degree to the liberalization of these markets has been pretty remarkable. Even, going back to a year and a half ago, there was just PolyMarket and it was just the offshore version that you had to fund with Stablecoins.

Tracy Alloway: Yeah. And now it's exploded. At the time, Kalshi was very limited. They didn't have U.S. access, etc., or very curtailed U.S. access. Anyway, they're here and everyone's trying to wrap their heads around where this is all going and stuff.

Joe Weisenthal: Yeah, it feels like they're much more sanctioned, I guess, than they used.

Tracy Alloway: Yeah.

Joe Weisenthal: But that said, there are still some issues that people are trying to work out. You have ambiguous outcomes like did Cardi B actually perform? You have concerns around insider trading, although not insider trading per se, because we're not talking about securities contracts, but maybe people with insider info who inadvertently disclose something material.

Tracy Alloway: I was thinking about this actually, so you can also bet on which companies are going to run Super Bowl ads.

Joe Weisenthal: Oh yeah. And a lot of people must know if a company is going to run an ad like that. You have like the agency actors, like everyone, and you could argue maybe that that's material, non-public information, right? You run a Super Bowl ad, you get a bunch of attention, maybe your share price goes up if you're publicly listed.

Tracy Alloway: Yeah, I don't know. There are so many things anyway, rather than just keep talking about them because we can talk for an hour. We really do have the perfect guest. We're going to be speaking with Mike Selig. He is the new chairman of the CFTC, the main regulator for prediction markets. He's just sworn in in December. We're going to talk all about this, maybe some crypto as well.

Joe Weisenthal: So, Mike, thank you so much for coming on Odd Lots, coming into the studio.

Mike Selig: Glad to be here.

Joe Weisenthal: What do you tell us a little bit about just broadly coming into this new role? What are your goals here with the CFTC? We're really at a pivotal moment. You mentioned prediction markets, crypto, AI, all manner of new technologies and products that are impacting our markets. And the CFTC was really this kind of a little known regulator before the financial crisis, regulated in the futures markets. It has expanded jurisdiction over the swaps markets, the over-the-counter derivatives markets. And now we see so much innovation in that space with things like prediction markets and crypto, with legislation on the verge of hopefully being on the president's desk. And so the agency is really at this unique moment where it has the opportunity to shape the future of these new and emerging markets. And it's really exciting time to be in the seat.

Joe Weisenthal: Do you have an opinion on whether Cardi B performed at the Super Bowl?

Mike Selig: I mean, it's funny, but it's also kind of relevant because I saw someone has actually filed a complaint to the commission about Kalshi's decision specifically. Well, of course, we're spending a lot of resources investigating whether Cardi B performed. Really our focus here is on the market. So the unique thing, the great thing about the way that we regulate the markets is that the exchanges themselves, similar to on the security side, are self-regulatory organizations. So each exchange has its own rulebook that's been approved by the agency. It has its own requirements for contracts that are certified on the exchange. So of course, the Cardi B contracts went through a self-certification process and then they're settled in accordance with exchange rules. They go through a clearinghouse as well. So the exchanges each have these rulebooks and certain requirements around how the contracts are resolved and settled. And of course, now we're seeing some differences amongst Kalshi's rulebook and PolyMarket's rulebook. But that's the great thing about our markets and having the ability to build a business, to develop an exchange with some flexible guardrails on top that the agency oversees. But we don't prescribe exactly what has to be in the rulebook. We have a principles based system of regulation.

Tracy Alloway: What is the basis for something like Is Cardi B going to perform at the Super Bowl halftime show? What is the basis for this being categorized as a true financial instrument regulated by the CFTC? Because it certainly just feels like problematic to me. Who has economic exposure? They need to hedge to Cardi B performing.

Mike Selig: There's a really interesting historical story around the definition of commodity and the markets that we regulate today. Starting back in the thirties, when the Commodity Exchange Act was first ratified, it was originally focused on grain and over time we've had things like workbench come a long way.

Joe Weisenthal: Exactly. It's come a very long way.

Mike Selig: Of course, with the financial crisis, we got all manner of new products within our authority. But the definition of commodities is extraordinarily broad. It includes virtually everything except a few things have been carved out, onions and motion picture box office receipts. And that's a really important point to note that they were expressly carved out. So most things in our commerce today, even securities are technically considered commodities under our act, and we have authority to regulate them. In the case of securities, we coordinate with the SEC and have some joint authority. But for all other types of products, services, REITs, indices, people are going to hedge that risk. They're going to be in the market to speculate on those products. And so we don't merit regulate. We don't tell people what they should be entering into contracts on. We create rules and regulations around those markets to make sure that they have integrity, that they're resilient, that they're vibrant and they have guardrails and investor protections. And so that's why going back to the exchange rulebooks and other controls, self-certification being an important process or making sure those markets are safe and secure. But we're not telling people whether to trade pork bellies or Cardi B contracts or anything else.

Joe Weisenthal: So let's go to the insider trading question, because this is sort of top of mind for a lot of people. Technically, it's not insider trading, but it does look like some people have inside knowledge sometimes when they put on big bets on something that just happens to happen the next day. The CFTC hasn't, as far as I know, given a lot of guidance on this issue, how are you actually thinking about it?

Mike Selig: From a legal standpoint, I think there's a bit of a misunderstanding about the insider trading doctrine at the CFTC. So the authority at the agency is very similar to the authority at the SEC under our anti-fraud, anti-manipulation rule. We do have authority to police insider trading in the commodities markets. Now the way that insider trading is carried out is oftentimes different from a situation where you have information asymmetries relevant to a company. But there are situations where you have informational asymmetries related to the markets placing a trade ahead of a customer, for example, or even in this situation now with prediction markets. And that's something we are thinking about and certainly on the beat and exploring. So we surveil the markets, we collect data, we have information about, for example, our players participating in these markets, are people associated with the sports leagues, etc. And so we are a cop on the beat in that regard. So the doctrines not entirely different, but there are some nuances that we are aware of and making sure that we're policing for.

Tracy Alloway: Would PolyMarket or Kalshi, in your view, be allowed to live stream a video of a giant roulette wheel and create futures trade? Let people trade futures on when it lands on right or black.

Mike Selig: Some of these types of gaming where it's really a game of chance and not a game of skill. There's definitely a difference. And I think when we look at what's a commodity, it's possible that you could construct some sort of contract, an esoteric derivative, but really the underlying and a game of skill is very different. There's a clear economic risk associated, for example, at the Super Bowl. It's a good example. There's a ton of economic activity associated with that. There's hotel revenue that comes from it. There's vendors, there's activity within the city, tourism, all of that. And so there's a real reason to hedge that risk with a game of chance. It's harder to say it's possible you can attract something by it, but it's less likely that that's a real underlying.

Tracy Alloway: Well, what is like the difference? Because, let's say it's what is Bad Bunny's first song going to be at the Super Bowl? What is the difference between that? Which doesn't really seem any more economic than a roulette wheel and whatever it is?

Mike Selig: Well, to be clear, there's no requirement in the act that there has to necessarily be some merit based result from it, from a contract. I do think with a lot of these information markets, these prediction markets where they're forecasting a potential outcome in the future, they produce a lot of useful information. We are seeing newsrooms incorporate prediction markets. We're seeing sports live broadcasts, incorporate prediction markets. We're seeing the information use in particular. A great example is the election in 2024 where the president had a very large victory and that was not necessarily forecast in many of the polls. But of course, the prediction markets got that right. So it's something that I think is valuable to society. The question of having regulation around, that's a separate question. I think that's an important one. We are certainly taking on that task and making sure that we don't let these markets languish or we don't push them offshore, but we develop the right rules and regulations to develop investor protections and make sure that the markets are flourishing here in the United States.

Joe Weisenthal: Since we're discussing prediction markets through the prism through the medium of the Super Bowl. And you mentioned players as well looking at player behavior. If a player were to place a bet on, I don't know, a specific play during the game and then they did it themselves like something that they actually have agency over. Would that be something that you would investigate or look into?

Mike Selig: I think it's all facts and circumstances. So we'd evaluate potentially to the extent that there's insiders that are involved in the markets, we get that data. We're actually talking to a lot of the sports leagues. We're talking to participants in the markets to make sure that we are on top of things, have information about who is able to be participate in these markets, who's not. We do have at the exchange level, the exchanges are really the first line of defense, and they are surveilling the markets. They're doing KYC on their customers. And so that's certainly something we're on top of and we'd consider and evaluate on a case by case basis.

Tracy Alloway: Why isn't trading sports derivatives gambling or betting, or is it better?

Mike Selig: Well, there really is an interesting history here. So if you go back to the Thirties National, grain betting was a thing right then that was considered a national pastime. And so for as long as we've had derivatives markets, we've had these so-called bucket drops which were, these off exchange markets where people were just placing bets against the house on the future price of a commodity. On the other hand, you had organized exchanges. So the Chicago Board of Trade, later CME and others had organized markets with market integrity. They had derivative instruments, contracts where you actually were in a contract with another person. And then now in our markets, we have a clearinghouse innovating and standing in the middle of those contracts. But you have a buyer for every seller with the with the kind of bookie model that's not the case or betting against the house. And there's a lot of different rules when you're betting in the house, you don't have the liquidity of being able to offset your position or sell a lot of your position. You're kind of stuck taking whatever the bookies giving you, and some of the odds are very different. So you're actually based on the odds of the bookie as opposed to here where the contracts go up and down in value based on actual market activity. And so over time, the Supreme Court actually blocked some of this bucket shop activity by saying you can't take the price quotations from the organized exchanges and use them in a bucket shop. But a lot of these bucket drops over the years have now moved into gaming and other things. We're seeing really the same phenomenon where we have casinos and other operations that are operating lawfully under state requirements and regulations, but they don't have the same sorts of controls. We regulate a nearly 500 trillion notional market with the swaps market. We have very stringent requirements and controls around our exchanges, and these contracts reflect that. They go through a very stringent process of self-certification. They can't be readily susceptible to manipulation. We surveil those markets, we police things like insider trading. And so it's a much more robust scheme on top of these markets, much higher stringent requirements. And so I do think. We're seeing a lot of parallels between the thirties and forties and today. But rest assured that we're on top of these markets and these have the same sorts of investor protections that you would expect in the securities markets and in our futures markets.

Joe Weisenthal: Hmm. Out of curiosity, how much of your time is split now between the new stuff, prediction markets, crypto versus the I guess the old boring older exchanges?

Mike Selig: Yeah, all very well. Our day to day is really the traditional markets. And when we talk about these new markets, many of the incumbents are getting into the space as well. We're seeing more and more of these products offered on our traditional DC ATMs. But all of these are the same registration category, right? There are some nuances in how they're set up. There's some new no action relief that's been given to some of these platforms historically. But this is not, it's not, our day to day bulk of work. That said, given that it's new and given that there's so much that is changing, we have a lot of more a lot more rulemaking and policy work to do in this space. So I do think it's a big piece because of that. But in terms of the actual size of these markets compared to are, as I said, that $500 trillion notional swaps market, $40 trillion notional futures markets, it's a smaller piece, but it's growing. And I think blockchain is going to really change in particular how some of these existing exchanges operate, how they settle transactions and so forth. And so it's a really exciting time to be in the seat.

Tracy Alloway: So I get that there are some market structure differences between a futures exchange on sports versus the traditional horse sense, the odds and so forth. But from the perspective of the user or the person who's putting money on the line, I think most people would say like economically they're very similar and they're getting more similar because we know that say like the Kalshi and PolyMarket they're trying to get into, figure out how to do parlays and stuff. So it's getting closer and closer and people have a lot of concerns about sports gambling and the effect that that has on young people and so forth legalizing, national legalization of these. It de facto lowers the age in a lot of states because in a lot of states, the legal age to gamble is 21, and the legal age to treat a futures like 18, I believe is this is this is do you think that's good that we've de facto lowered the age to bet on sports or again we're not married regulators.

Mike Selig: We don't merit regulate. We don't pass judgment on kind of the age requirements in our securities markets and our derivatives markets. We have certain standards that have been upheld in these markets. People are betting on, any number of assets. But that's overwhelmingly sports. I mean, I think that said, you have the ability to make investments and trade options and all manner of security is all manner of commodities. And so the rules are not different based on doing sports or this or that. I think this term betting has been used and thrown about in our securities markets and our derivatives markets as well. So I don't think it necessarily means anything in particular. But the notion is that you're able to make decisions at 18 in our markets and we uphold that state by state. Some of the standards are set even higher. And that is not something that, I have a particular opinion on. I think that's just the way when you say what do you mean in state by, say, some of the standards or some some of the states have flexibility in what they set up for drinking or for, gambling. And they're like, this is financial market activity. These are not wagers. You're not betting against the house. We have significant overlay from a regulatory standpoint over these markets. And so we're not gatekeeping particular categories of market selections or sports and having different standards. That's not how we've typically done things. And so we don't intend to do that in this particular market.

Joe Weisenthal: So you're not a merit based regulator, but you are a technical regulator. And as we've been discussing, there's a lot going on, lots of rulemaking to do, lots of potential enforcement actions. There's a Barron's story out today talking about how the CFTC apparently has no enforcement officers left in its Chicago office. And you used to have 20, but everyone resigned, it seems. How are you balancing all these new markets, which are growing really, really fast and pose some very thorny questions that we've been discussing with more limited resources?

Mike Selig: Well, look, a lot of the folks that left that was before my tenure and certainly, I'm not blaming you. It's not, they didn't leave right after I joined it. But no, I think it's a serious question. We've got to make sure that we have adequate staff to police the markets. And we do have a ton of staff throughout the country. And, to the point of our Chicago office, of course, it's important that we have folks within that office. But we don't have a Texas office. We don't have a Florida office. We don't have offices in every state. We have a handful of offices. We've got a critical mass in D.C. and a number of folks in New York as well. And those are. Two largest offices. We continue to fill those out and we would love to have more people in Chicago. And, the door is always open for folks that want to come in and work for us. And we continue to build out the ranks there. But we have adequate resources. We have a ton of folks within each of our offices, and we're actually leveraging a lot of the new technologies like A.I. to make sure that we're surveilling the markets and that we're reviewing things like insider trading and bringing cases where it makes sense. We're also processing applications very quickly. We just processed, I think, in a record time of 200 days, one of the more recent exchange applications. So we're really well-staffed, but we're continuing to build that out and make sure that we have good people in the building who are competent and able to make sure that we protect our markets.

Joe Weisenthal: So you have the funding to you have the funding to add headcount. And are you pursuing like building out the headcount? Do you need more funding?

Mike Selig: Absolutely. So. So we are actually staffing up. Okay. So 100%, we're building that out. We have adequate resources to do so. But I want to be clear that we have a very well staffed building and we are very much on top of things with and, these questions around not enforcing and surveilling. I think there's a little bit of fake news there. We probably should put it up to a prediction market. But I do think that we're on top of things.

Tracy Alloway: So one thing I know about the Trump administration, they are big fan seemingly of cutting costs, cutting spending, streamlining the federal government in some ways and, sometimes cutting agencies altogether. This has been a really long running question in market structure world. But why don't we just combine the CFTC?

Mike Selig: Oh, yeah, that's easy. It's everybody's favorite question. Yeah, look, the CFTC and SEC are very different regulators. So the SEC is a capital markets regulator. They are focused on somebody wants to go raise capital for a great idea. Other people want to place that capital somewhere. There needs to be some regulation over that. After the Great Depression, there was a lot of chaos in the markets and the agency really was a great answer to that issue. And as as put a great regime in place to regulate all of that. The CFTC grew up actually at a different time. The original act was in the thirties, but later on the CFTC was established in the seventies. But the purpose of the CFTC is to regulate risk mitigation, risk management, very different areas. So there are firms that whether farmers, ranchers, energy producers, now we have data centers in the air space, but all manner of businesses have a bunch of risk related to the inputs for their business and ongoing operations, and they need to hedge that risk. And there are other participants that want to supply liquidity into those markets, make markets or speculate, and the CFTC regulates that. So very different purpose for the regulator. There's not the same sort of disclosure regime that we have at the SEC. And so it makes sense to have two separate regulators. But what doesn't make sense and what Chairman Adkins and I have been very clear on is the lack of coordination between the agencies. So it's coordination, not consolidation. We need to harmonize the two regimes to make sure that there's not inconsistent and incompatible rules and that there's not gaps. So Chairman Adkins has referred to this no man's land between the two agencies where you've got the bodies of all these dead products and services that otherwise could have been, if the agencies could just figure out how to coordinate security features is a great example. We have shared jurisdiction there, but we've really failed to work well together to get that off the ground. And so I think it's really a new day at both agencies where we're intending to work closely together on that.

Joe Weisenthal: Yeah, this is exactly what I wanted to ask. So I've heard people talk about increased cooperation and coordination between the S.E.C. and the CFTC, basically ever since the financial crisis. And it hasn't really happened or it hasn't happened to the degree that some people would like to see. What's your diagnosis of the actual problem there? And I would love to get into the weeds here and, like, what does coordination look like between the two agencies?

Mike Selig: I'm in a good position in that I used to work for Chairman Adkins. So I think we have a great relationship just getting off for the start. But a memorandum of understanding is something that we've committed to execute and we're looking to execute very soon. And that really set all the ground rules for coordination between the staffs. And so not having that in place I think is really hampered the two agencies because sharing information is really important. You need a framework for sharing that information. There's a lot of nonpublic material that is generated in each building. And so having rules for the sharing of that information is important. Having regular meetings between the staffs and coordination and sharing of market data related to registrants is really important. So if we've got dual registrars and we're collecting our own sets of information and we're ensuring that they're each complying with these two kind of separate fortresses of rules and regulations, how do we know what, what, who's doing what and what needs to be changed? And. So having the information is really important. That's the first step. And then the staffs need to come together and figure out how to create substitute compliance. So certain rules are incompatible on both sides. We need to knock those out or at least have a kind of default choice. One agency versus the other. If you're a broker dealer and you're doing a very minimal amount of commodity derivatives activity, perhaps you should have a primary regulator at the SEC with some CFTC overlay to make sure that there's no gaps. So that's an important piece. I think a lot of the general like crypto related issues are really calling for joint rulemaking, joint work between the agencies because we're seeing NVIDIA tokens on chain, not necessarily within the U.S., but I think now with the DTC, we're going to start seeing a lot more of the tokenization of public equities. And then we're also seeing Bitcoin, Ether, things that are with the within our territory trading on screen and those worlds are going to collide and then they are in fact colliding today. And so having common ground between the agencies, figuring out what the ground rules are and making sure that we have similar standards for decentralized finance and for digital wallets. And all of that is really important because if we set incompatible standards, then it's going to be a real disservice to the market and that's going to harm all Americans.

Tracy Alloway: Kalshi had an ad recently. It said, P.O.V. is a girl and it's a pure V. I was about I was about to be unable to pay my rent, but I got two years of rent through Kalshi's predictions. It's amazing. This is seems more aggressive even than, the traditional sports betting. And there's all kinds of sports betting ads. And then they have a thing where if you're a problem gambler, call this number. Should there be any limiting factor on how aggressively sports these prediction markets should be advertised or that?

Mike Selig: That's one point that I think is worth double clicking on in the sense that there are standards for a futures Commission emergence for brokers within our markets. And some of those standards are a relic essentially of the way that the act and the regulation is developed where you have a intermediation between the customer and the clearinghouse and the exchange. Typically in our markets. Now these no action ladders that started around 2000 that were given to some of the prediction markets back then as well as now. Other markets cut out the FCA and cut out the broker. And so you had direct to the clearinghouse, direct to the exchange. And that model doesn't have all the same rules and regulations. And so something that we're thinking about is how do we make sure that we have consistent standards across both. Now I think this question of what sort of marketing and advertising either should be able to engage in is one that we're certainly going to think about.

Joe Weisenthal: So just to be clear, there are current rules on, say, a futures broker and how they can market. But when these new no action letters were established that allowed the sort of the futures entity itself to offer directly, they didn't have the rules. What are the rules? And would an ad like these like if if if a futures broker like, I don't know, forget MF Global or something that like, oh, I couldn't pay my rent. But then now I'm, now I'll never have to work again because I traded wheat futures. That seems a little weird and I've never seen an ad like that, right.

Mike Selig: I mean it really is this result of the way that these no action letters were handed down, as I said many, many years ago. And this kind of regime that we have, that really my view on a lot of this stuff is that we need clear rules of the road. We need to do things through notice and comment rulemaking and actually think holistically about our markets and not focus on these little patchwork, no action letters, which unfortunately has been the rule over many years. And so that's definitely something we're thinking about. We want to set clear standards. We want stakeholders at the table to figure out what these regimes should look like. And I'm not one necessarily to say what the marketing should look like. We want to hear from participants as to what what sort of marketing they think is appropriate for these markets. But what we're certainly thinking about that and there are different standards. It really is just a result of that kind of ad hoc way that regulators in the past have gone about establishing exceptions for certain things in the markets.

Tracy Alloway: Well, on this note, do you maybe need new classifications? Because it seems like all these different worlds are kind of melding together where you might have a crypto trading platform that's now offering derivatives and other things, and then you have like an old school exchange that is offering essentially bets on your number, go up, number go down. At the moment, I think your registration categories are pretty like standardized and you have three of them, is that right? Like futures exchange, swap, execution, stuff like that.

Mike Selig: Now, we've got too many. We've got many.

Tracy Alloway: Okay. On anymore. All right. More than that. So could you create even more to sort of encompass the industry changes that we're seeing?

Mike Selig: Well, we certainly need to think holistically about what requirements we have on different participants. So these non-answer mediated exchanges and we're also seeing a lot of vertical integration with a single business owning a clearinghouse. And and the broker and the exchange are seeing different models where where there's that non intermediated as I said, we don't have enough CRM at all and then you have everything in between. And so we need to think about that. We need to make sure there's consistent standards. We don't want a regulatory arbitrage where because you don't have the broker, you're able to do more. Now the way that these have been set up under no action letters today, they do not allow for any margin. So they're they're not they're fully collateralized. And so if you go directly to the clearinghouse as a customer, you're putting up for collateral. And so that's something as well, or we're seeing more institutional interest in these markets. They would prefer to be able to put up margin and go through a broker or have a model where you don't have the broker at all, but you're able to use margin. So we're thinking about all these things. It's a really interesting time, as I said, to be thinking about market structure for things that really just probably should have been done many years ago. And for whatever reason, people relied on these no action letters. And really, I guess it was more of a an ankle biter at the time and didn't get a full regime. But we're thinking about all of that.

Tracy Alloway: Donald Trump Jr. is an adviser to Kalshi. He's on the board of PolyMarket and it looks like Truth Social, which is largely owned by President Trump, is also going to launch something called Truth Predict. How should the public feel comfortable that these are well regulated markets given the very obvious sort of like stake that the that that the White House has found or that the president and his family has in this industry.

Mike Selig: These are designated contract markets like any other. We have regulated these markets for for many, many years, for decades. They have some of the most stringent regulatory requirements. As I mentioned, these are nearly $500 trillion notional markets that we regulate. We take it very seriously. We put these fraud and manipulation in these markets. So I think everybody can rest assured that we are on top of of protecting the markets. And we think it's great that there's a broad swath of interest in the markets.

Tracy Alloway: But like so, for example, when you're figuring out like what is the appropriate level of advertising going back to those Kalshi ads and you're thinking like, okay, like how do you know? And you're talking about talking to market participants, like who is that? And like, how should people feel comfortable that you're going to find that right line again when the administration has a very clear economic stake in this industry and having the industry grow?

Mike Selig: We adhere to the law. I mean, the Commodity Exchange Act is our authorizing statute. We act in accordance with the Commodity Exchange Act and meet very strict ethics and, government requirements, and as does, I think, everyone in this administration. So we take all of that very seriously.

Joe Weisenthal: So speaking of Trump, we should talk a little bit more about crypto because it's been having a pretty bad month so far. And I think one of the big hopes of the industry, the Clarity Act, seems to be stalled in Congress. What happens if that doesn't go through? Because you've sort of I feel like you've committed yourself to being, a crypto digital asset friendly administration or regulator in many ways.

Mike Selig: Well, thanks to the President's leadership, I really do think we're at a critical moment where we've got genius now as law regulation, my enforcements done. We've got the Clarity Act that's really on the precipice. I think there's a few issues that are being ironed out actually, as we speak. I know there's a meeting today and we're hopeful that that's going to get done. I think that's going to set a really futureproof framework for crypto here in the U.S. We can't allow European countries and others to lead in this area without U.S. involvement and leadership. And so we're committed to getting that done. And I think we've got a really great bill that's that's almost at the finish line if it doesn't get done. Look, I think there's a lot of authority that the agencies have, but it's important with Loper braids and some of the case law that takes a little bit of the agency's discretion over nuances in the statute and puts that back to the Congress and the courts, I think it's really important to have more baked into the statute than not. And so we're hopeful that we'll get a statute in place.

Joe Weisenthal: One of the areas that crypto seems to have been at the forefront of is perpetual futures. And, it's very popular. You see, you can get 101 leverage trading if futures on some platforms. Do you see the more use of perpetual perps in sort of traditional finance, Could we have perpetual oil futures at some point? Like could you envision that?

Mike Selig: Well, right now we're thinking about it in crypto, I think, there. I would like, trade it on on chain, like all futures, like you're going for like, okay, crypto provides the infrastructure, but could you like, why not trade? an oil perp on Unchained.

Mike Selig: Look, if there's demand for these products, it's definitely something that we're all consider and look at right now. The overwhelming demand has been in the crypto space. We've seen some demand in precious metals, gold, silver. We have to consider their susceptibility of each contract to manipulation. So there might be unique considerations around a contract that doesn't have a physical delivery date with, for example, pork bellies or other things, and that can create issues within the supply and liquidity for the futures contracts. So it's something we're thinking about. We're definitely excited about all this innovation. It's been too long. This stuff is only developed offshore and we really want to bring it back with clear rules of the road. So it's really important that the U.S. leads and that we set the standard that other countries are going to follow rather than just allow this stuff to flourish offshore with potentially less regulation. As you all know, when you offer into various countries, there's different rules around offering directly in or solicitation or solicitation, all of that. So we're certainly aware of that. We're thinking about it. We want to set really clear and kind of best in class standards for U.S. markets.

Tracy Alloway: And just going back to prediction markets, I know you keep emphasizing that you're not a merit based regulator, right? So you're not making decisions on what people should be betting on or what they can bet on. But is there like is there a line at some point that you wouldn't want to see private companies actually cross? Like if someone creates a contract for like someone's going to die, right, a violent death or something, that that would seem problematic or a contract. And this came up when we talked to Dan Wilson do Chicago, the contract for whether people would throw sex toys onto the court during a WNBA game, which of course the existence of the contract might elicit people to do it changed their behavior. Also kind of dangerous, like, what is where do you where is the line?

Mike Selig: The ladder seems highly at risk of, being susceptible to manipulation, which we do have authority to reject. I think with other categories, assassination and the like, there is authority within our statutes to prohibit. So we would exercise that authority. You know, there are certain areas where we certainly would not want contracts being offered, but with others, look, we're not, as I said, a regulator. We're not going to go and say you can't have a contract in sports, You can't have a contract in politics. But the details matter and we are evaluating that.

Tracy Alloway: Just going back to, the sort of basic question. A lot of states, attorneys generals are are attorneys general. Did I say that I plural attorneys for a lot of states, attorneys general? You know, there's a lot of court fights about this. And they look at this and like many people would and they say, look, this is this is betting, this is this is gambling. This certainly looks like sports gambling. Kalshi itself ran ads that said sports betting is now legal in your state. And I think they've pulled those back, etc.. But from the perspective of the public, it certainly looks like by calling, by putting sports betting into this framework that a lot of like that it's undermined the ability of states to set the rules about who can bet on what.

Mike Selig: Well, there's a great law Journal article by Professor Hayes and he's a securities law professor. This must have been written in the early 2000, but it was before the financial crisis comparing derivatives, futures contracts, securities, insurance products, gambling. These are all products that you can take similar economic positions in, but they have different legal treatment. And it's because the products are structured in different ways. So an insurance contract could be structured very similarly to a credit default swap, but you haven't insurable interest. So the details do matter and we are looking at that. So it's not the case that we're going into the casinos and saying you're offering legal off exchange swaps. But if the products are structured as swaps, then we have authority there. And so many of these platforms that are offering products that may have some similar economic attributes, but the details do matter. Right. As I as I mentioned, you can you have to go through a clearinghouse.

Joe Weisenthal: Yeah. The products can be offset. You can get in and out of your position. There are different. They matter. I totally get that. But do they matter from the perspective of like a 19 year old who's addicted to betting on sports?

Mike Selig: Well, I think that's a question for society as a whole and even for Congress, right? I mean, to the extent we don't want a 19 year old trading in NVIDIA stock options either, you know, that's that's something that you can talk to Congress about. But the reality is that today we allow 18 plus in our financial markets and there's a responsibility associated with that. They have to go through a broker in many cases. There is this nuance of the non intermediated model, but there is screening as well to be able to access those markets. And so we do have standards, we do have rules. Everything's done in accordance with an exchange rulebook and we enforce that and we are policing those markets. But I think this this more paternalistic question of what age should be the age to be able to participate in the markets and these people can be drafted, go off to war. And so a question of whether they can trade options on the outcome of the Super Bowl, I think that's not really for the regulator to decide.

Joe Weisenthal: You said you were ramping up staffing to help regulate all these new markets, new and fast growing markets. What's the hiring process or the hiring experience actually like at the moment? Because, you know, thinking back to last year or 2025, all the headlines when it came to government employment were, layoffs, mass firings, streamlining. What's what's that like for you now? Is it easy to get people in the door?

Mike Selig: Well, look, there are there are to the extent there are areas where we need additional staff. We are evaluating based on competence and the highest quality. We do not want to to just bring on bodies, to bring on bodies. We're making sure that we're bringing on the right people for the roles. And in many cases we are very well staffed. I think there are some needs that we're looking to fill out. But but again, it's it's very much akin to hiring at a private company or looking to bring on the best and the brightest who really want to help revitalize the agency fill out needs for the agency. And we are, as I mentioned earlier, relying a lot on technology as well, because there's just so much that many years ago it really had to be done manually. That can be done very quickly through new technologies.

Joe Weisenthal: Well, this has been a perennial question, which is how government agencies actually compete with the private sector to get good people. How are you doing that at the moment, given that? I mean, I imagine you have some form of budget constraint and I would imagine that it's probably your budget is not as big as like, I don't know, CMS or something like that. How how do you actually compete?

Mike Selig: Well, look, I think part of that's the mission. We are really interested in making sure that these markets flourish here in the United States. It's an exciting time. Many people are interested in being able to contribute to that effort where really, as I said earlier, setting new market structure for this asset class as well as for for blockchain based Marquez and a lot of the things that needed to be fixed in the wake of Dodd-Frank that frankly were never fixed. So I think it's in part mission and part people that are willing to serve and come in and maybe they don't get the salary that they get in the private sector, but that's not necessarily a bad thing. They get a lot of value out of being it working for the government.

Tracy Alloway: Do you think going back to the question of like marketing and again, gambling marketing, there's always like some line or whatever about people who get addicted. Would you like Congress to come in and create rules? Should Congress come up with a rule about prediction market advertising?

Mike Selig: We have got a lot of authority to regulate our participants. I think there's sometimes a real need for Congress to the extent, as you all mentioned, if you really want to set some sort of more paternalistic role around, you have to be 18 or 21 to participate in the markets, that sort of thing. Sure, you can talk to Congress about with respect to the more nuanced pieces of how we regulate the markets, that's stuff that we handle. It's not typically baked into statute. We go through our notice and comment process and get input from the public on those sorts of things. So I don't necessarily think you need to kick everything the Congress within the details. But but but it certainly could be something that people in a lot of countries, you know, we're sorry, a lot of states regard like, okay, under 21 like we don't want that Right.

Tracy Alloway: And it sounds like you regard that as paternalism in action, which, I understand a lot of people share that view. But, it also seems like the CFTC, people have different views and it sounds like the CFTC is sort of undermining a value that a state might have about gambling.

Mike Selig: I don't view it that way. I do think our derivatives markets are a separate area within government and within the law as opposed to the state gambling and the. The rules and requirements that govern a state casino are very different. They can do a lot different things than what a regulated futures exchange can do. And so I do think there's some give and take, some for sure limitation on the age piece. But look, you can serve alcohol in a casino and allow people to bet on sports. You can't do that necessarily at a digital exchange. Maybe somebody has got a beer on the side. But I do think there's a lot of different restrictions and a different environment in which people are trading. So it's not quite apples to apples.

Joe Weisenthal: Mike Selig, thank you so much for coming on Odd Lots. a perfect guest at the perfect time.

Mike Selig: Thanks for having me.

Tracy Alloway: I enjoyed that conversation too. However, there are a number of difficulties with regulating prediction markets and I'm kind of trying to like zoom in on what I think might be the primary one. So, number one, the CFTC exists to regulate risk management, right? Which is what Mike said. It is very doubtful to me that someone needs to manage their exposure to Cardi B performing on stage at the Super Bowl. So it's not even entirely clear to me that, like, this is an industry that the CFTC should be regulating now. That said. So that's that's a big tangent.

Joe Weisenthal: Yeah, right.

Tracy Alloway: And then just beyond that, you could certainly argue that by legitimizing prediction markets and helping them to grow, you are in fact introducing a new risk into the system because everyone's going to start gambling away. I don't know, they're college funds or whatever. Mike made an interesting observation and sort of near the end of the conversation that like and until it was like different market structures warrant different types of regulatory treatment. Right. So and I think that makes sense. I think what's interesting, though, about this conversation, particularly as it relates to sports betting, is that part of the reason that we hear that states have sort of in many cases, either no sports betting or very stringent rules about who can engage in sports betting has nothing to do with financial risk and everything to do with the sort of like moral choice about who gets to sports bet. And so, on one hand it's like, okay, there's like traditional sports books. They have a house that sets the odds. It's definitely true that prediction market companies have like a different market structure, but from a sort of like, why do society want to constrain the role of sports betting? It's not because of like any sort of like financial instability risk. It's because we don't want certain people like 18 year old people who might still be in high school having access to sports betting. And when the CFTC says, like, this is this is a new type of financial instrument that should be regulated like a financial instrument, it sort of undercuts that sort of choice that the state has made.

Joe Weisenthal: Yeah, exactly. Do you think sports betting is like the new monoculture? I mean, it's just really incredible. I mean, it is really incredible how pervasive it is. An incredible but also it's just incredible, truly how pervasive betting on everything is. And, I should say, like I I'm an enthusiastic consumer of the prediction markets data. As I said in the very beginning, like I now on all kinds of things, including fed decisions, you know, like I think it's very useful to say like you look at like certain measures of like I don't know, the Fed funds swaps or whatever. It's like you just look at worth.

Tracy Alloway: No, I like I like I love work, too, but like a simple we have it on the Bloomberg now PolyMarket. Will there be three rate cuts this year? That is also a useful instrument to have. But there are a lot of things the prediction markets have and again that a are that. But I, I like a lot of them I like looking at election odds. I like looking at whether the odds of like some company what they're going to like. I think there's a lot of useful signal from them. It's also true that the platforms are largely sports betting at this point.

Joe Weisenthal: Right. Right. How much signal do you actually need about I don't know, the Super Bowl? I'm sure some people are really into it. But from a yeah, trading from a sort of from a financial regulation standpoint, it's a different question.

Tracy Alloway: Yeah. Anyway, all right. Shall we leave it there? And it's also true, by the way, that the Trump family is very invested, quite literally into this space. And I think that quite reasonably should, raise some questions about like how policy is being made about the growth of this industry.

Joe Weisenthal: Incentives.

Tracy Alloway: Yeah, for sure.

Joe Weisenthal: Okay. Shall we now leave it there.

Tracy Alloway: Let's leave it there.

Joe Weisenthal: Okay. This has been another episode of the Off Thoughts podcast. I'm Tracy Alloway. You can follow me @TracyAlloway and I'm Joe Weisenthal. You can follow me @thestalwart. Follow our guest, Michael Selig. He's @MichaelSelig. Follow our producers, Carmen Rodriguez, @CarmenArmen Dashiell Bennett, @dashbot and Cale Brooks @CaleBrooks. And if you enjoy Odd Lots and you want more Odd Lots content, then go to Bloomberg.com/oddlots You can find our daily newsletter and some of our other writings, and you can chat with fellow listeners. 24-7 about this topic discord.gg/oddlots And if you enjoyed this conversation, then please leave a comment or like the video or better yet, subscribe. Thanks for watching.