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Executive Summary: The Commission should permit a designated contract market (DCM) to list contracts on sporting events that are designed to hedge the risks of commercial activity related to those events, including legalized sports bookmaking. However, the proposal (withdrawn) by Eris Exchange (ErisX) to list contracts based on the outcome of football games was deficient because: (1) ErisX did not provide sufficient evidence of hedging utility; and (2) ErisX’s proposed exclusion of the general public from trading the contract on the DCM would violate DCM Core Principles and CFTC regulations regarding impartial access (Core Principle 2) and antitrust considerations (Core Principle 19). A DCM cannot exclude retail participants. Core Principle 2 prohibits a DCM from imposing discriminatory access criteria on the basis of net worth, as ErisX has proposed. Core Principle 19 requires a DCM to not impose any material anticompetitive burden on trading. ErisX’s proposed sporting event contracts are functionally identical to the sports bets offered by bookmakers to the general public, and are designed so that sports bookmakers may use the exchange to hedge the risks arising from selling those contracts to the public. It would be anticompetitive to allow bookmakers to trade these contracts on the exchange so they can sell them to the public at casinos, racetracks, and other betting establishments, while at the same time prohibiting the public from obtaining those contracts through open, transparent, competitive trading on the exchange. Although contracts involving gaming should be permitted to be traded on a DCM if they have an economic purpose, which may include hedging by sports bookmakers, gaming contracts without any such economic purpose should not be permitted on a DCM.
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