Signage is seen outside of the US Commodity Futures Trading Commission (CFTC) in Washington, D.C., U.S., August 30, 2020. REUTERS
NEW YORK, (Reuters) – The U.S. Commodity Futures Trading Commission will focus on policing misconduct such as insider trading in prediction markets and manipulation in energy markets, the agency’s new enforcement director said on Tuesday.
The agency, which oversees commodities and swaps markets, will be focused on a handful of enforcement areas, also including market abuse such as spoofing and willful violations of laws designed to prevent money laundering, enforcement director David Miller said in his first public remarks since joining the agency earlier this month.
Prediction markets, which allow traders to bet on “yes or “no” outcomes on specific events, have grown in both popularity and controversy. They have drawn increasing scrutiny as well-timed trades ahead of U.S. President Donald Trump’s major policy surprises have potentially led to millions of dollars in profits for unknown traders.
“We are aware of the speculation about insider trading,” Miller said at an event at New York University law school. “We are watching.”
The CFTC and state regulators have been embroiled in legal battles to decide who has jurisdiction over event contracts. Some states hold they are gambling contracts that fall under their oversight.
“Our position is that event contracts are not gaming. The event contracts at issue are swaps. Insider trading law applies,” Miller said.
ENERGY MARKETS
Miller also highlighted the agency’s focus on manipulation in energy markets, which can ultimately affect consumers seeking to fill up their gas tanks.
“People still have to buy gas when the price goes up. You can’t drive a car on air,” he said.
Prices of oil have surged this month due to the Iran war. The CFTC-overseen crude markets drew attention last week when an unidentified trader or traders bet $500 million on futures contracts shortly before Trump announced a five-day delay to attacks on Iran’s energy infrastructure. The delay sent oil prices crashing.
Miller declined to say if the CFTC was investigating the trading.
While outlining the CFTC’s core priority areas, the enforcement director noted the era of so-called regulation by enforcement is over – referring to a criticism of regulators under the prior Democratic administration.
The CFTC plans to boost incentives for companies and individuals to cooperate with the CFTC in its investigations, Miller said. Those that fully cooperate and remediate issues would pay significantly less in penalties.
Such benefits would even apply if there was a confidential government investigation already underway.
“Cooperation in our view is binary: you’re either in or you’re out,” Miller said. “That means robust, full cooperation.”
Reporting by Chris Prentice; Editing by Stephen Coates
