CNBC's full interview with CFTC Chairman Michael Selig

[0:00] Our next guest is going to weigh in on crypto regulation, prediction markets, and so much more. [0:04] I want to bring in the CFTC chairman, Michael Selig. Good morning to you. It's nice to see you. [0:10] We're all trying to figure out a whole bunch of things that are happening here. [0:14] We've got the prediction markets, which I think are completely roiling or raising all sorts of [0:19] questions about sports betting, about how they're used, all of those issues. There's the crypto [0:25] piece, what's happening with Gemini, for example, just everything that you're doing. [0:31] I want to start with sort of a broader sort of question, which is there was a big piece in the [0:38] New York Times just about a week ago that talked about the politics of the agency and who was in [0:46] the agency, who was forced out of the agency, and sort of how you think that has or hasn't changed [0:52] the fundamental sort of philosophy of what the agency does. Well, a lot of what was recounted [0:59] in that New York Times article was before my tenure. Of course, I've only been in the seat for about [1:04] over 100 days now, and a lot of this was the previous leadership. But I will say that a lot [1:10] of what happened under the Biden administration was this regulation by enforcement, was this [1:15] politicization of the agency. And we're trying to get back to a baseline. We're trying to make sure [1:20] that the agency does its job of regulating the markets and nothing else, nothing political. [1:25] We're done with the lawfare. We're done with pursuing certain industries or certain types [1:30] of politically involved people. And so, yes, there were some people at the agency that are no longer [1:37] with the agency, but we're moving forward under my leadership, and that's what I'm here to do. [1:41] And is the view, though, that they were too political, those people? Meaning, because this goes back to the [1:46] which side is, has the agency now become politicized? If you thought it was politicized [1:51] before, has it now been politicized in some other way? Well, we're focused on the agency [1:55] as the future. We're focused on making sure that we have dedicated career civil servants. And we do [2:00] have hundreds of dedicated career civil servants that are not political. They're focused on doing [2:04] their job. There are certain people like me that are there for political reasons. I'm a political [2:09] appointee. But those that aren't really should not be engaging in lawfare, should not be targeting [2:13] people for political reasons. And we're getting back to baseline, making sure that's not the case. [2:18] Part of the piece, though, talked about sort of this revolving door connection between industry [2:23] and the agency itself. And for example, the prediction markets obviously have now opened up [2:29] in a remarkable way, in a way that I think we didn't even see two or three years ago. [2:35] I'm curious sort of what kind of influence you think that has had. But more importantly, [2:39] I don't know if you saw it, Gary Gensler was in Barron's recently and was talking about how [2:43] when the original rules came about for prediction markets, that there was never a conversation, [2:49] ever, ever, ever a conversation about sports betting being part of prediction markets. And had [2:55] sports betting, for example, been part of prediction markets, been part of that conversation, [2:59] that senators, especially from the states where they had laws already in place against sports [3:04] betting, would have never gone for it. What do you make of that? [3:08] Gary Gensler, also the man who said every crypto asset is a security, and that's very obvious. I [3:13] think he has a little bit of trouble reading statutes. But I will say that the statute's very [3:19] clear. The CFTC regulates all derivative contracts to the extent they are a commodity derivative, [3:25] to the extent they involve a security that goes to the SEC. And the statute's also very clear that [3:30] event contracts, whether the events on sports, politics, or anything else is within our remit. [3:35] We have express authority in the statute to prohibit the trading in certain event contracts [3:41] involving sports, involving political things like war, terrorism, and assassination. And so [3:47] that's all in the statute. I'm not reading outside the statute. I'm reading in the black letter. [3:52] Do you then use it to prevent those sports predictions from being made? [3:56] We do have discretion to set rules for that. And we're considering rules in the space. I don't [4:02] want to get ahead of that. We've put out an advance notice proposed rulemaking, received over, [4:07] I think, 1,500 comments on that issue. And we'll consider various rules. We have one with OIRA right [4:12] now. [4:13] I would just, separating yourself from being the commissioner at this point, how do you feel [4:18] about that? Is a sports prediction, can you make it a sports prediction if you're betting, [4:24] let's say, what happens to the outside, to even what happens to the game score? Is that sound to [4:29] you like gambling or does that sound like an actual contract? [4:31] It all depends on how the product's structured. In the casinos and the sports books, you cannot [4:36] offer a market in sports derivatives. You cannot offer a market in political derivatives. Those [4:43] products are regulated exclusively by the CFTC, and they're different than going to a bookie and [4:48] placing cash with a bookie. [4:49] Here's the question I'd ask you, which is, I've read the statute, you've read the statute. I think we [4:53] could agree that the statute seems to, on its face, just by dint of the text, allow for a market to [5:00] be made in the context of what you just described around sports. I actually think that's not even [5:05] up for grabs. I think the bigger question is whether you believe the intent of that law, [5:11] when it was signed by Congress, was, in fact, to allow for what has turned into a market for [5:19] something that looks very much like gambling. I do believe that the intent of Congress was for [5:25] the CFTC to exclusively regulate these products and to have discretion over certain areas, sports, [5:32] gaming, all of that. We have authority to prohibit, potentially, if we choose to use that authority. [5:38] But I do believe that Congress was very clear that the CFTC is the exclusive regulator. [5:43] Different question. It goes to the question about insider trading, manipulation, [5:47] all sorts of things. We just talked about this fascinating case. Andrew left, who's a short [5:51] seller. I don't know if you saw it yesterday. He was convicted by a jury of effectively manipulating [5:57] stocks because he would go on social media. He would talk something up. And then hours later, [6:03] the argument was that he sold that and that that was a form of manipulation. Does that constitute a [6:11] form of manipulation? If I go on Twitter and tell people that I think the Knicks are going to win [6:19] and then I bet against the Knicks. So I'm going to, I'm going to, I'm going to bet on the Spurs, [6:26] but I'm going to tell everybody. You're trying to drive the derivatives contract up. [6:28] Right, but I'm going to, I'm going to, I'm going to, I'm going to bet on the Spurs, [6:31] but I'm going to tell everybody that I think the Knicks are going to win and you too [6:34] should go bet on the Knicks. What is the, what, no, but this is, this is a fundamental question [6:40] about how this whole system works. It could. So in the context of a sports derivative, [6:46] we'd look at it the same way as an oil derivative or any other type of commodity derivative. [6:50] If somebody is engaging in behavior to drive up the price artificially, of course, we're going to [6:55] consider a manipulation action. But how does that work in the context of sports? It's just a total, [6:59] it's, it's a different, do you see what I'm saying? That's why, that's why I think all this [7:03] raises all sorts of new questions and whether either Congress or somebody else, maybe you think [7:07] the CFTC is supposed to be the one that ultimately determines what the guardrails are on all this. [7:12] It's really not so different, right? These are sports teams and organizations and players. [7:18] If you're manipulating the outcome related to a sports team, a player, et cetera, it's no different [7:23] than manipulating the outcome of what the price of a stock is going to be or how many cars will [7:27] Tesla produce. If you go out and say you're going to bet on the Knicks, I'm betting on the Spurs. [7:33] But no, by the way, I don't disagree. If a player throws a game or a manager or somebody does [7:40] something that may be sort of the equivalent of management, that I agree with is different. [7:48] I'm saying, let's say there's, I don't know, somebody who you think has a large following [7:54] online and a reputation and therefore tells people, this is what I think is going to happen [8:02] and whether that has any impact on these things. Do you think that that would be considered some [8:07] kind of manipulation and how would you treat that? [8:09] We're going to consider it. As I've said since the outset of my tenure, we are going to be tough on [8:15] manipulation, fraud, insider trading and abuse. We've brought a handful of actions already. We [8:20] have more in the pipeline. We're sending out subpoenas. We are not going to tolerate any sort [8:24] of manipulation in these markets. [8:25] I mean, it's out there already. Do you have any idea how we're going to eventually, what the [8:30] resolutions, I feel like we're like, we're almost like this. We're almost blindfolded as we're going [8:36] forward trying to figure out what to do with these. It's like the wild, wild west right now. Do you have [8:41] a structure in your mind that we're going to eventually arrive at? I don't envy you. [8:46] We do. These products are trading on regulated exchanges that are registered with us. They [8:52] administer the same types of controls and requirements that we have with other types [8:58] of derivatives exchanges. But there are some nuances to these markets. And that's why we've put out a [9:02] proposed rule that's now with OIRA. We've also accepted a number of comments, as I mentioned, [9:08] in a request for comments. And we'll continue to iterate and put rules in place. But we're going to [9:13] to bring enforcement actions against those that break the rules. [9:16] Chairman, that strikes me as maybe the biggest issue. If you're trying to enforce things, [9:21] there's a limited number of people who are playing in derivatives markets when it comes to commodities [9:25] or any of the traditional ways of kind of placing these bets. What this prediction markets have done [9:31] has opened the floodgates to so many more people being involved in these things. Do you need a ton [9:36] more resources to be able to monitor all of this and bring actions on these levels? It just seems like [9:41] the volume that you must be dealing with at this point, I can't even imagine how it's grown. Do [9:47] you have any numbers on that volume? And do you need more resources for this? [9:50] We are seeing an increased retail participation in our markets. And this started before the [9:54] prediction markets. We saw it with things like S&P mini contracts and contracts really designed for [9:59] retail. We've seen it now with interest in crypto and now prediction markets. And so, of course, [10:03] we're using our resources efficiently and we'll continue to do so. We're using tools like AI to make [10:09] sure that we're able to leverage staff more effectively. But we also have a number of job [10:14] postings on USA Jobs. We're recruiting, we're bringing on new staff, and we'll continue to do so. [10:19] Can I ask you a question in the context of enforcement? So on one side, you're saying you're [10:22] going to enforce things. On the other side, in the crypto space right now, you're saying that the [10:27] Winklevoss twins from Gemini were victims, effectively, of the CFTC. When the CFTC found and then accused [10:36] them of misleading or lying to the agency. So how do you how do you think about enforcement in those [10:43] contexts? The Biden administration weaponized the federal agencies against the crypto industry and [10:49] many other industries. They politically targeted people like the Winklevoss twins. And that's not [10:55] acceptable. We're righting those wrongs. We're going to start fresh. The agency should not be used to [11:01] engage in lawfare. And we're going to make sure that's not the case again. [11:03] The Winklevoss twins misled the agency. Look, I'm not going to get into the facts [11:08] because this is an act of investigation or in litigation rather. But what is important here [11:13] is that to the extent the agency was used to politically target folks, we're reversing that [11:18] and we're starting fresh. That's not going to happen again. It can't happen again under my [11:22] administration or future administration. This is all fascinating and we so are thrilled to have [11:28] you here. Appreciate it very, very much. Thank you. It's a fascinating conversation, Chairman.