1. CFTC and SEC Seek Public Comment Regarding Portfolio Margining Frameworks
On June 26, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) issued a joint request for public comment in connection with the harmonization of regulatory frameworks applicable to portfolio margining across securities, security-based swaps, futures, swaps, and related positions. The CFTC noted that financial markets are becoming increasingly convergent and interconnected, with new trading models, digital infrastructure, and novel products blurring traditional jurisdictional lines and prompting market participants to employ cross-asset strategies spanning cash securities, options, futures, and cleared and uncleared swaps. Because current regulations may require related positions to be held in separate accounts under different margin regimes, offsetting exposures sometimes go unrecognized, potentially creating capital inefficiencies and added liquidity demands without improving market stability. Portfolio margining, by contrast, permits netting of offsetting positions in a single account, which can lower collateral requirements, ease margin calls, and improve liquidity and cash flows. The joint requests seek input on topics such as existing portfolio margining models and practices, customer protection considerations, capital, segregation, and collateral treatment, and operational and technical implementation issues. See the CFTC’s press release here and the request for comment here.
2. CFTC Sues Kentucky Claiming Exclusive Jurisdiction Over Prediction Markets
On June 23, the United States and the CFTC filed a complaint for injunctive and declaratory relief in the United States District Court for the Eastern District of Kentucky (Case No. 3:26-cv-00049-SCM) against the state of Kentucky, Governor Andrew Beshear, Attorney General Russell Coleman, Department of Revenue Commissioner Thomas B. Miller, and the Kentucky Horse Racing and Gaming Corporation. The CFTC filed the lawsuit in response to Kentucky’s enforcement actions against CFTC-regulated designated contract markets (DCMs), alleging violations of the Kentucky Consumer Protection Act and the state’s gambling laws. Additionally, Kentucky’s House Bill 757, enacted April 14, imposed an excise tax of 14.25% on prediction market operators’ transaction fees, effective January 1, 2027, which the CFTC alleges, as applied to the notional value of prediction market contracts, makes it economically infeasible to offer event contracts in Kentucky. See the CFTC’s press release here.
3. CFTC and SEC Seek Public Comment Regarding Derivatives Product Definitions
On June 18, the CFTC and the SEC issued a joint request for public comment (the Request) seeking input regarding definitions relating to swaps and security-based swaps (including the scope of certain exclusions from the swap definition), the treatment of mixed swaps, the treatment of novel or emerging products, jurisdictional and interpretive questions, potential areas in need of greater clarity regarding regulatory definitional lines, and potential areas for alternative compliance. The Request includes questions for definitional clarity for security-based swap narrow-based-security-index, single-security, and event-contract prongs, as well as statutory exclusions for securities options, notes and bonds, security forwards, and futures. The Request also sought feedback regarding alternative compliance frameworks, including how satisfying one agency’s requirements could satisfy “substantially similar” requirements of the other, and how surveillance, examination, and enforcement should operate. See the CFTC’s press release here and the request for comment here.
4. CFTC Issues Notice of Proposed Rulemaking Regarding Certain Event Contract Data Report Requirements
On June 25, the CFTC issued a Notice of Proposed Rulemaking (the Proposed Rule) seeking public comment. The Proposed Rule sets forth an alternate framework for reporting of data for certain fully collateralized event contracts. Specifically, the Proposed Rule seeks to amend Parts 15, 16, and 17 to allow “Covered Event Contracts” to be reported under the futures and options reporting framework in Parts 16 through 18 instead of the swaps reporting framework under Parts 38, 39, 43, and 45. A “Covered Event Contract” is defined by four prongs: it must (i) be a swap under Section 1a(47)(A)(i) or (ii) of the Commodity Exchange Act; (ii) be listed on a DCM and cleared through a derivatives clearing organization; (iii) trade as a fully collateralized position under § 39.2; and (iv) have a binary or variable payout structure. The Proposed Rule essentially codifies CFTC staff no-action letters the agency has issued since 2017, eliminating the need for market participants to seek such relief on an ad hoc basis and providing a more uniform, efficient approach. Notable features include substantially raising large-trader reporting thresholds for these contracts from 25 contracts (position) and 50 contracts (volume) to 125,000 contracts (a change expected to reduce potentially reportable special accounts by 97 to 99 percent and spare most retail traders from reporting), and new requirements that DCMs publicly disseminate transaction data “as soon as technologically practicable” and obtain detailed trader-identifying information to support surveillance and detect insider trading and manipulation. See the CFTC’s press release here.
5. House Members Discuss PACE Act and Fintech Access to Federal Payment Rails
On June 24, the House Committee on Financial Services (the Committee) held a hearing titled “Future of Payments: Promoting Innovation and Fair Markets.” Members of the House of Representatives (the House) engaged in a debate over whether to offer fintech firms access to Federal Reserve payments systems under the proposed Payments Access and Consumer Efficiency Act (the PACE Act). During the Committee hearing, House members noted that the PACE Act could provide potential benefits for small businesses and consumers if fintechs gained more access to federal government payment rails. If enacted, the PACE Act would create a new payments service provider registration process with the office of the Comptroller of the Currency that would be available to non-bank entities. Such registered entities would have access to the Federal Reserve’s Fedwire Funds Service, FedNow Service, and FedACH Services. Some House members expressed concerns that “super apps” may become too powerful, given that they have access to certain market data that is generally unavailable to ordinary banks. The hearing can be viewed here. See a copy of the bill here.
