1. CFTC’s Exclusive Jurisdiction Over Prediction Markets Moves Closer to Supreme Court
On September 2, New Jersey filed a writ of certiorari petitioning the U.S. Supreme Court to resolve a growing circuit split over whether Commodity Futures Trading Commission (CFTC)-registered prediction markets like KalshiEX LLC (Kalshi) can offer sports-related event contracts without complying with state gambling laws. Specifically, the question presented is “[w]hether the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act preempted States from regulating sports bets that occur within their jurisdictions if those bets are offered on markets registered with the Commodity Futures Trading Commission.” The case stems from a 2-1 Third Circuit decision holding that the 2010 Dodd-Frank Act’s grant of “exclusive jurisdiction” to the CFTC over “swaps” traded on designated contract markets preempts state sports-wagering statutes. The Ninth Circuit reached the opposite conclusion weeks later in Kalshi v. Assad, holding that sports-based event contracts are not “swaps” under Dodd-Frank and that Congress did not intend a Wall Street reform bill to federalize the multibillion-dollar sports gambling industry.
The petition frames the stakes as existential for both the prediction market industry and state gaming regulators. Petitioners argue that if Kalshi’s interpretation prevails, any company could bypass all 50 states’ sports gambling frameworks simply by self-certifying contracts on a CFTC-registered exchange–and conversely, that every brick-and-mortar sportsbook operating off a CFTC exchange since Murphy v. NCAA (2018) would technically be violating federal law. Forty-four states, hundreds of tribal nations, and major casino operators have weighed in against Kalshi’s position, while the CFTC has filed nine suits against states to defend its exclusive regulatory authority. The Court’s decision could reshape the regulatory landscape for prediction markets, online sportsbooks, and fintech platforms operating at the intersection of derivatives trading and gaming. See the petition for writ of certiorari here.
2. SEC Proposes To Rescind “Pay-to-Play” Rule
On September 3, the Securities and Exchange Commission (SEC) proposed rescinding Rule 206(4)-5 under the Investment Advisers Act of 1940, as amended (Advisers Act), the “pay-to-play” rule, which has barred investment advisers from receiving compensation for advisory services provided to government clients for two years after the adviser or a covered associate makes a political contribution to certain elected officials or candidates. In its proposal, the SEC argues that more than 15 years of experience administering the rule has revealed significant unintended consequences: Some firms have imposed blanket bans on all employee political contributions, the rule’s strict-liability framework has penalized minor “foot fault” donations disproportionately, and its complexity has deterred advisers from competing for state and local government mandates.
Rather than maintaining the prescriptive rule, the SEC takes the position that existing Advisers Act requirements, including antifraud provisions under Section 206, fiduciary duty obligations, the compliance rule (Rule 206(4)-7), and the code of ethics rule (Rule 204A-1), together with applicable federal, state, and local anti-corruption laws, provide a sufficient principles-based framework for advisers to address pay-to-play risk on a firm-by-firm basis. The proposal would also eliminate the related recordkeeping obligations under Rule 204-2. See the SEC’s press release here and the proposal to rescind here.
3. SEC’s Investor Advisory Committee To Hold Meeting To Discuss AI and Regulation NMS
On September 10, the SEC’s Investor Advisory Committee will hold a meeting to discuss artificial intelligence (AI) and Regulation NMS, examining how AI-enabled technologies are changing the process of how public company disclosures are produced, reviewed, and filed. The SEC notes in the meeting agenda that intermediaries and investors are using AI-based tools to search, summarize, and compare information sourced from SEC filings, earnings calls, presentations, and other corporate communications. However, while the use of AI can reduce costs and improve speed and consistency, there is the question of whether the information processed through AI is factually accurate, including whether there are material omissions and hallucinations.
The SEC is also considering potential changes to the regulatory framework governing U.S. equity markets, including a proposal that would permit trades to be executed without first obtaining the best publicly displayed price. The panel will consider the current market structure, implications for whether the SEC permits trades to be executed other than through the existing trade-through rule, and other additional market structure reforms that may enhance investor outcomes to support efficient, fair, and transparent markets. See the meeting agenda here.
4. OCC Files Proposed Rule Change To Amend Membership Admission Standards
On September 2, the SEC published a notice of a proposed rule change filed by the Options Clearing Corp. (OCC) that proposes to significantly amend OCC’s clearing membership standards. Building on reforms approved in 2023, the proposal strengthens onboarding requirements for new applicants, including a one-year minimum operating history, mandatory physical office facilities (with limited exceptions for remote models that OCC determines do not present heightened risk), and the obligation to furnish, upon request, a third party-assessed business plan demonstrating the applicant’s capacity to sustain OCC’s financial and operational standards. The amendments also expand the bases for denial of membership and introduce a 12-month probationary period for newly approved members admitted with contingencies. Notably, the proposal delegates additional authority to the Risk Committee’s designated agents to approve or deny applications and business expansion requests on an expedited basis and codifies new hearing and appeal procedures for protective-measure challenges and membership denials.
For existing clearing members, the proposed changes establish OCC’s authority to impose risk-based minimum capital levels above the current thresholds, targeting members that may present elevated risk profiles due to factors such as high leverage, short operating histories, or weak internal controls–and enhance ongoing reporting obligations, including tightened early-warning notice triggers and the ability to require parent or affiliate audited financial statements. The amendments expand the catalog of available protective measures (e.g., leverage caps, financial guarantees from affiliates, and requirements to fill key risk management vacancies), introduce a reapplication-for-membership mechanism for clearing members experiencing material changes to their financial or operational condition, and articulate specific grounds for disciplinary proceedings. See the filing here.
5. Federal Regulators Issue Joint Statement Regarding SAR Confidentiality Requirements
On September 2, the Federal Reserve, Federal Deposit Insurance Corp., National Credit Union Association, OCC, and Financial Crimes Enforcement Network issued a joint statement clarifying how banks and credit unions may communicate with customers regarding potentially fraudulent transactions, suspicious activity, and account closures without violating Suspicious Activity Report (SAR) confidentiality requirements. The statement was prompted by industry comments to a request for information on payments fraud and responds to concerns raised under Executive Order 14331. The agencies emphasized that the Bank Secrecy Act’s (BSA) confidentiality protections cover the SAR itself and information that would reveal a SAR’s existence but do not extend to the underlying facts, transactions, and documents on which a SAR is based. As a result, institutions may discuss transaction details, including dates, amounts, and parties, with customers and third parties, provided the communication does not disclose that a SAR was or will be filed.
The statement includes a nonexhaustive list of permissible customer communications, such as requesting due diligence documentation, notifying customers of account delays or closures related to suspected fraud, asking about a transaction’s purpose or source of funds, providing fraud awareness resources, and requesting originator or beneficiary information for funds transfers. The agencies stressed that these clarifications do not alter existing BSA legal or regulatory requirements or establish new supervisory expectations but are intended to enhance customer engagement and fair access to financial services. See the joint statement here.
