[00:00:00] Speaker 01:
Case number 24-5205, Dalchiax LLC versus commodity futures trading commission at balance.

[00:00:08] Speaker 01:
Mr. Schwartz for the balance, Mr. Roth for the appellee.

[00:00:13] Speaker 03:
Morning, Your Honors.

[00:00:14] Speaker 03:
Rob Schwartz on behalf of the CFTC.

[00:00:17] Speaker 03:
The district court granted summary judgment in favor of the plaintiff's calcium based on what my friends call an event focused reading of the statute, which for the sake of brevity, I'll call Section 5C.

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We're asking the court to apply a text focused reading of the statute and to vacate summary judgment remand for further proceedings.

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To build and maintain a thriving derivatives industry that is distinct from the gambling business has been the work of 175 years, and it's important.

[00:00:48] Speaker 03:
The statute, Section 5C, is a part of that.

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And the reason we're here today is because a federally regulated exchange has turned itself into an online casino for betting on elections.

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The question for the court, though, is not whether that's right or wrong, but whether the CFTC can even evaluate that activity.

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The text of Section 5C clearly says that we can.

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It says that the commission may review agreements, contracts, or transactions that are based on an event if the agreements, contracts, or transactions involve one of a list of activities, including gaming or activity that violates state law.

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The election contracts qualify if you consider them as a whole, like the statute says, rather than focusing on one isolated feature that has no basis in the text, as Cal she wants.

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I'm going to offer the court three propositions.

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First, on what it means for an agreement contract or transaction to involve an activity.

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The parties agree on what the word involve means.

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that it covers a range of relationships, and that it keeps its ordinary meaning in Section 5C.

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That ought to be the end of the matter.

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But what Kalshi argues is they are not asking for a different meaning of the word involved.

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They are asking for a different reading of the word involved.

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Proposition number one is that those are the same thing, and there is simply no way to read this sentence the way that Kalshi is asking the court to apply it.

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Second, on gaming.

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Kelsey knows it can't confine gaming to betting on things that are called games, otherwise you miss things like fights and races.

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So what they've done is they've come up with a definition by which the gaming is something done for diversion or amusement and that serves no commercial purpose.

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Proposition number two is that their line is arbitrary and unworkable and the commission has to analyze the economics of the contract at the second step in the public interest analysis.

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So in context, the word gaming makes a lot more sense here if it's understood to include, as a gatekeeping matter, things like betting on contests with the understanding that the commission still has to evaluate the economics of the contract at step two.

[00:03:02] Speaker 01:
Mr. Schwartz, I'm interested here.

[00:03:06] Speaker 01:
So in addition to the list of things that the CFTC can regulate, including gaming, it can regulate

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it can use its authority to reach similar activity determined by the commission, by rule or regulation, to be contrary to the public interest.

[00:03:21] Speaker 01:
So could the commission have used that authority to do a general rulemaking to prohibit this type of, to prohibit the type of contracts that Kalshi passed?

[00:03:33] Speaker 03:
Yes, but some context is important there.

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We discussed in our briefs.

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And why hasn't it?

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Because then they don't have to sort of wedge it into gaming.

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Right.

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We discussed in our briefs a 2012 order about an exchange called Nadex, in which the commission made the same holdings, if you will, about congressional control contracts.

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And then it was a settled issue for a decade.

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Nobody tried to do this again until Kalshi arrived.

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And now we're in a bit of a difficulty because the district court whiffed on what the meaning of involved is.

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So we would have to contend with that in a rulemaking.

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The commission proposed one.

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But at this point, we need the district court reversed in order to move forward.

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I believe that there is a path forward on rulemaking, but the district court really threw a wrench by misinterpreting what the word involved means.

[00:04:27] Speaker 01:
If we concluded that the commission can't regulate this as gaming, if we were to conclude that, would that foreclose the commission's ability to

[00:04:39] Speaker 01:
promulgate a rule that this was a similar activity to gaming?

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Because if it's not gaming itself, could it be a similar activity to gaming?

[00:04:47] Speaker 03:
Yes, it could be a similar activity to gaming.

[00:04:49] Speaker 01:
Even if it's not gaming?

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Even if it's not gaming, because the purpose of this is that the function of the contracts is gaming.

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The function of the contracts would be betting on elections in much the same way.

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And this is phrased various ways in the briefs and in the order, but that's the bottom line.

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If it were determined to be a similar activity because of those similarities,

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And they have a lot of line drawing problems here in between things that they admit are gaming and things that they claim are absolutely not gaming.

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So for example.

[00:05:19] Speaker 04:
Mr. Court found that you have the biggest line drawing problem, which is that if gaming really does mean gambling, as you defined it, then basically every event contract would fall within

[00:05:40] Speaker 04:
the special rule, not just certain ones.

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Right.

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That was incorrect because the commission cited a variety of sources, including dictionaries that have broad definitions, but that is not what the commission relied on in this case.

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The commission held specifically that these contracts are gaming because they involve betting on a contest of others.

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That's the holding.

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So the fact that there may be hypothetical contracts possible that would be within a dictionary definition

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of gaming is not relevant to the question before the court today.

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Well, you say that the definition of gaming is betting or wagering on a contest of others.

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Is that your definition?

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It includes vetting and wagering on a contest of others, but the commission did not promulgate, as though it were a legislative regulation, the commission did not promulgate a rule defining the outer bounds of what these terms mean.

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And it didn't have to.

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I mean, that's just basic APA.

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Agencies should not.

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do things like that.

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If you're going to issue a comprehensive scheme regulating something, you're supposed to put it out for notice and comment.

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We have a requirement to do cost benefit analysis.

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So what the commission did was to consider the facts before it and nothing more.

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And I do want to point out that they've been saying something that's not true about the order.

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They've been saying that the commission defines gaming to mean betting on contests and nothing more.

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The commission did not do that and I expect that there are other things that may fit the bill.

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I'm not here to announce any kind of new policy on the part of the commission, but if it were a game, even if it were a one player game, I think the commission would have a strong argument that a contract on

[00:07:35] Speaker 03:
that smart kid in Oklahoma will he clear 2000 lines at Tetris was a gaming contract.

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That would be something they would look at at the time, but it's absolutely not true that the commission defined gaming to mean betting on contests and nothing more.

[00:07:48] Speaker 04:
So if you look at the statute defining event contracts under the special rule, it has, um,

[00:07:59] Speaker 04:
It says that their agreements, contracts, transactions, or swaps in excluded commodities.

[00:08:10] Speaker 04:
So by definition, all of these things are excluded commodities, right?

[00:08:14] Speaker 03:
Correct.

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Does the definition of excluded commodities help us at all?

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Recall that that definition is an event that's beyond the control of the parties to the contract and has financial commercial or economic consequence.

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Yes, I think it puts these events squarely within the definition of excluded commodity.

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But then, of course, the commission has to go on to apply these individuals.

[00:08:40] Speaker 04:
So, so then it goes on to say it involves and then there's Roman one through six and six is the one that says other similar activity, which isn't an issue here because that requires a separate rulemaking or action that didn't happen.

[00:09:00] Speaker 04:
But it seems to me that six is relevant because

[00:09:03] Speaker 04:
It says other similar activity, meaning that Congress must have thought that there was some way that we would be able to discern what is similar to items one through five, that there must be some characteristic that is common in one through five that we can identify and discern and then

[00:09:33] Speaker 04:
then we would know what would be similar activity to that.

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So what is that?

[00:09:42] Speaker 04:
What is similar is that characteristic that makes 1234 and five similar to each other and that we could latch onto to determine what else is similar to them.

[00:09:58] Speaker 03:
Yeah, I mean, it could be similar to any of the enumerated activities.

[00:10:01] Speaker 03:
So if it's similar to war, it could be, which is kind of hard to define, but it may make sense for the commission to say, well, look, an overt hostile act by a country short of war is a similar activity to that.

[00:10:20] Speaker 03:
Gaming is broad.

[00:10:21] Speaker 03:
I mean, that's the fact of the matter.

[00:10:23] Speaker 03:
But it's broad enough, no matter what, to capture contests of others.

[00:10:27] Speaker 03:
Again, it makes more sense at the gatekeeping stage.

[00:10:30] Speaker 03:
The reason that their definition is unworkable is because we submit that Congress couldn't have intended the commission to perform the kind of commercial purpose analysis that they're insisting has to be performed at step one.

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And I want to give you an additional bit of context.

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The court may recall that these contracts were submitted to the commission under something called self-certification.

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Under self-certification, the exchange can list something almost immediately following business day.

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It's implausible that Congress could have intended the Commission to analyze the commercial use of a particular supposed financial product overnight like that and sort of drive by fashion if it wanted to address the issue before the contract was listed.

[00:11:21] Speaker 03:
So analyzing the economics of the contract has to be done at step two and it must be done at step two because the public interest, any public interest analysis is necessarily going to give high importance to the economics of the contract.

[00:11:35] Speaker 02:
And in fact, isn't that really the only thing that the CFTC is particularly expert in?

[00:11:46] Speaker 02:
Kalshi's reading is correct that the enumerated categories refer only to the underlines, and therefore that the residual category, Roman sex, requires the commission to identify categories of underlying that are similarly contrary to the public interest.

[00:12:09] Speaker 02:
I mean, then the CFTC would be making determinations of what kind of real world activities as distinct from what kind of event contracts would be contrary to public interest.

[00:12:23] Speaker 02:
That seems like a very strange role to assign to the Commission.

[00:12:29] Speaker 03:
Ex ante, it is.

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And Kalshi has never explained another district court for that matter.

[00:12:36] Speaker 03:
Again, how it is possible to read this sentence to mean that involve requires the relationship between the underlying and the enumerated activity.

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And it's not possible.

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And the fact of the matter

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The fact of the matter is there's no canon of construction that can get you out of that box.

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Canons of construction always have to lead to a reading of a sentence that is possible.

[00:13:02] Speaker 03:
Theirs isn't.

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And I will hasten to add that we did follow the consistent meaning canon.

[00:13:11] Speaker 03:
It is the meaning of involve that they agree is the meaning of involve, the American English meaning that captures a variety of relationships.

[00:13:21] Speaker 04:
But your meaning of involve just ends up with us like a dog chasing its tail.

[00:13:28] Speaker 04:
If involve gaming means that the event contract itself is akin to gaming, then that means that every single event contract falls within the special rule.

[00:13:47] Speaker 03:
No, I disagree with that.

[00:13:50] Speaker 03:
Again, the commission did not say that it did not adopt a definition like that.

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All that it said was that it was looking at contests of others.

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And this is important.

[00:14:01] Speaker 03:
My friends also rely on the trading in their interpretation of gaming.

[00:14:06] Speaker 03:
They admit

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At least one narrow part of this that Congress was concerned with, including sports betting inside the scope of the statute.

[00:14:15] Speaker 03:
Well, the only relationship between an NFL game and gaming is the betting.

[00:14:20] Speaker 03:
So they have been chastising us for looking at the trading of the contracts.

[00:14:24] Speaker 03:
But they do exactly the same thing.

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And if Congress had written the statute so that the underlying event has to relate, it would not have captured those exact things that my friends are.

[00:14:34] Speaker 02:
I'm not sure I followed that because I think under there, under the district courts, reading gaming involves a game or putting stakes on a game.

[00:14:47] Speaker 02:
And so if it involves a game, they're saying, yeah, well, the underlying is Super Bowl.

[00:14:52] Speaker 03:
Yeah, separate issue, right?

[00:14:54] Speaker 03:
That is about what is gaming.

[00:14:56] Speaker 03:
No, no, no.

[00:14:56] Speaker 03:
There's a lot mixed in here.

[00:14:58] Speaker 03:
Concerning what is gaming, that's their argument.

[00:15:00] Speaker 03:
It has to be something that's not called a game.

[00:15:03] Speaker 03:
But in terms of what involved means, the Super Bowl is not gaming, which they admit the district court sort of hinted that it believed that football was gaming, which I don't think they don't defend that.

[00:15:16] Speaker 03:
I don't think that's.

[00:15:17] Speaker 04:
The district court said gaming is playing a game.

[00:15:21] Speaker 04:
The Super Bowl is a game, so it falls squarely within the district court in dictionary definition.

[00:15:29] Speaker 04:
I think, respectfully, sir, you started out by saying the district court whiffed.

[00:15:37] Speaker 04:
I would caution you to

[00:15:40] Speaker 03:
Consider your tone.

[00:15:42] Speaker 03:
I apologize, your honor.

[00:15:44] Speaker 03:
Coming up with a word in the heat of the moment, I pulled up that one, but you're correct.

[00:15:49] Speaker 03:
The district court mistook.

[00:15:50] Speaker 02:
So I want to catch your argument that you say culture also relies on the transaction.

[00:15:56] Speaker 02:
The Super Bowl is a game, but they acknowledge that betting on the Super Bowl is covered under the special rule.

[00:16:05] Speaker 02:
And to do so, you say they have to rely on involving a transaction involving being the event contract, not the underlying.

[00:16:16] Speaker 02:
Drive that home for me.

[00:16:18] Speaker 02:
I'm not quite getting it.

[00:16:21] Speaker 03:
OK.

[00:16:21] Speaker 03:
We're all in agreement that the Super Bowl is not gaming in and of itself.

[00:16:26] Speaker 03:
It's game.

[00:16:27] Speaker 03:
So if you were going to say that the Super Bowl involves gaming, the only way that's so is because of the wagering on the Super Bowl, which is the same connection as the connection between elections and gaming.

[00:16:41] Speaker 03:
It's the betting.

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So Congress, it could easily have said, it could easily have written the event-focused interpretation, the event-focused reading by saying an agreement contract or transaction based on an event, that involves the enumerated activities.

[00:17:01] Speaker 03:
But it didn't.

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And for the reasons we're discussing, it would have failed to capture about the only common ground here that we have is that Congress was trying to cover sports betting.

[00:17:13] Speaker 01:
Mr Schwartz, I guess I wonder whether it really matters what gaming means in this context or whether it really just all turns on how we understand involves, because if involves is limited to the underlying thing, then clearly an election is not a game.

[00:17:34] Speaker 01:
And it is an election is not prohibited by state law.

[00:17:38] Speaker 01:
So, and if involves has the broader meaning that the CFTC says that it does, then possibly it does.

[00:17:51] Speaker 01:
So like the CFTC, I mean, if you can't show both its meaning of involves and the meaning of gaming, it loses.

[00:17:59] Speaker 01:
So it seems the first step is essential.

[00:18:03] Speaker 01:
And I'm not sure why and I'm not sure how the CFTC gets past that first step because you know for some of the reasons that that Judge Wilkins mentioned which is that if if this kind of contract is gaming then every kind of trade you know every kind of event contract is a game.

[00:18:23] Speaker 01:
I mean, it's sort of the essential nature of what that is.

[00:18:27] Speaker 03:
If we're correct on what the word involved means and that you can consider the purpose of the contract or what the trading entails, the only thing that we've captured here is betting on contests.

[00:18:40] Speaker 03:
The fact that we cited a dictionary that includes.

[00:18:42] Speaker 03:
I mean, courts do this all the time, right?

[00:18:45] Speaker 03:
And I think sticking to the text here is particularly important.

[00:18:49] Speaker 03:
And I'm thinking of the illegal activity prong.

[00:18:52] Speaker 01:
But your definition involves is that it amounts to gaming, right?

[00:18:57] Speaker 01:
So betting on an election outcome amounts to gaming.

[00:19:02] Speaker 03:
That's one of the definitions.

[00:19:04] Speaker 01:
That's one of the definitions, right?

[00:19:06] Speaker 01:
I think that's the one that does all the work for the CFTC.

[00:19:09] Speaker 03:
Intales relates to, I'm sorry.

[00:19:11] Speaker 01:
Right, entails relates to, but if that's true, then every event contract

[00:19:15] Speaker 01:
on anything would fit into that category.

[00:19:20] Speaker 03:
No, I don't think that's correct.

[00:19:22] Speaker 03:
We're interpreting 5C here.

[00:19:24] Speaker 03:
We're not applying the dictionary or any particular state statute.

[00:19:30] Speaker 03:
As far as the order goes, is that betting on contests is gaming.

[00:19:34] Speaker 03:
So I disagree with that.

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I think it's particularly important.

[00:19:37] Speaker 03:
to stick to the text here.

[00:19:39] Speaker 03:
I mean, the canon of construction that I think is significantly more important than the consistent meaning canon, which doesn't get them anywhere, is the canon that when a court interprets a statute

[00:19:55] Speaker 03:
If before a court interprets a statute that's going to significantly encroach on traditional state police powers, and here we're talking about the authority to regulate their own elections and to protect them, the court has to be absolutely certain.

[00:20:09] Speaker 03:
But what Kalshi is asking for here is to actually edit the text to get them there, because there is no textual basis for their interpretation.

[00:20:18] Speaker 02:
Well, they're coming up with a reading.

[00:20:20] Speaker 02:
We don't have to decide the meaning of gambling to rule for you, do we?

[00:20:27] Speaker 02:
If we accept your understanding of involves and we accept that then contracts based on elections are contrary to state law, then that allows the commission to do a public interest review.

[00:20:48] Speaker 03:
Correct.

[00:20:48] Speaker 02:
Now the big, it seems to be the big stumbling block there for you is the Bucket Shop laws.

[00:20:55] Speaker 02:
And I noticed that there's express preemption in the statute.

[00:21:01] Speaker 02:
That's a little unclear to me what the scope of that is.

[00:21:05] Speaker 02:
Kalshi said, I think in a comment,

[00:21:08] Speaker 02:
that it thought that the Bucket Shop laws were preempted by the express preemption in 7 USC 16 E2B.

[00:21:20] Speaker 02:
Is that your view?

[00:21:24] Speaker 02:
And if so, then it seems like a helpful for you.

[00:21:30] Speaker 03:
The Bucket Shop laws, to the extent that they would apply to on-exchange trading, are preempted.

[00:21:37] Speaker 03:
So transactions that involve on-exchange trading.

[00:21:41] Speaker 02:
So there's two different preemption arguments.

[00:21:43] Speaker 02:
There's an express preemption argument, and I guess there's a conflict preemption argument.

[00:21:47] Speaker 02:
And I'm trying to focus on the express preemption argument, which I thought Kalshi itself made in its comment.

[00:21:55] Speaker 02:
And I understand the argument also in the briefing that once something is on an exchange, that preempts contrary state law with respect to those products.

[00:22:09] Speaker 02:
But putting that aside for a moment, I'm interested in a more express preemption in whether the commission has a position on that.

[00:22:19] Speaker 03:
I don't think the commission has said that.

[00:22:23] Speaker 03:
And if they make the argument for me, I appreciate that.

[00:22:26] Speaker 03:
But I don't think the commission has said that these sorts of, they're really gambling laws that apply to betting on any contingency.

[00:22:35] Speaker 03:
And they're sort of mistaken about how the analysis works procedurally as between an adjudication and a rulemaking.

[00:22:43] Speaker 02:
I find your argument that this is just an adjudication so we don't have to account for the implications of

[00:22:51] Speaker 02:
the statutory interpretation that we're relying on deeply unsatisfactory.

[00:22:56] Speaker 02:
I mean, there may be provisions that don't have to be decided in this case, like what exactly is the scope of category six, or if we didn't rely on gambling, what exactly is the scope of that?

[00:23:10] Speaker 02:
But when you're relying on a term and the construction that you give it is problematic, I do think that's something that you have to take on board.

[00:23:21] Speaker 02:
So I have another question about the Bucket Shop laws.

[00:23:27] Speaker 02:
Your best argument with respect to that?

[00:23:30] Speaker 02:
So one thing strikes me is nobody contends that Congress, in the special rule, meant to subject all event contracts to public interest review.

[00:23:46] Speaker 03:
Not as a permanent all circumstances matter, but I think an exchange would have.

[00:23:53] Speaker 03:
So say tomorrow the states repeal these laws, then they don't have any illegal activity problem.

[00:23:58] Speaker 03:
But you're at a point in time, and we were in 2023.

[00:24:01] Speaker 02:
They have been repealing them because they're really an artifact of a different time when the entire project of event contracts was seen to be questionable.

[00:24:12] Speaker 02:
Given that there are Bucket Shop laws, and given that Congress was focusing on activity under state law, I guess the question is, does the structure of and the scope and the whole project of this special rule indicate no, we're not

[00:24:33] Speaker 02:
asking the CFTC or authorizing the CFTC to do public interest review on everything that has a structure of an event contract, we are trying here to make sure that CFTC is

[00:24:48] Speaker 02:
is acting carefully where it trenches on issues that states have legislated in areas of their traditional concern, elections and gambling.

[00:25:01] Speaker 02:
I mean, these are states, a lot of states have laws on these matters.

[00:25:05] Speaker 02:
So,

[00:25:07] Speaker 02:
So isn't that one way to read the contrary to state law is A, no.

[00:25:13] Speaker 02:
Bucket shop laws are just not covered because they're contrary to the whole structure of the thing as focusing on subsets of event contracts.

[00:25:22] Speaker 02:
Put that out of the way, and it seems like you're home free.

[00:25:26] Speaker 03:
Yeah, I agree with that as well.

[00:25:28] Speaker 03:
I think the point is made in the briefs, perhaps not as clearly as we could have, that that is probably not the concern that Congress had here.

[00:25:36] Speaker 02:
And you don't have a position on whether the express exemption provision preempts the Bucket Shop laws.

[00:25:48] Speaker 03:
I don't believe that it does.

[00:25:50] Speaker 03:
I think as written, it applies to on-exchange transactions.

[00:26:04] Speaker 03:
I see that I'm

[00:26:04] Speaker 04:
So if we accept your definition of gaming as betting on a contest of others.

[00:26:18] Speaker 04:
So I think there's some discussion in the briefs about whether that means it's limited for the purpose of entertainment or not.

[00:26:30] Speaker 04:
You would say that it doesn't matter whether it's for the purpose of entertainment or not, so that it could include the contest of others, i.e.

[00:26:42] Speaker 04:
elections, even though elections aren't for entertainment?

[00:26:46] Speaker 03:
Correct.

[00:26:47] Speaker 03:
This is where I was going to get into their line drawing problem.

[00:26:52] Speaker 03:
If we agree that betting on sporting events is covered, why not betting on the ESPN SB awards?

[00:26:58] Speaker 03:
And if that, why not the Grammys or a times person of the year or who wins a debate or the popular vote versus the electoral college or most pertinent here, the house national popular vote versus control of the chamber.

[00:27:13] Speaker 03:
And if Cal she believes that house national popular vote, for example,

[00:27:18] Speaker 03:
does have a serious commercial purpose.

[00:27:20] Speaker 03:
They can come in and make that argument, but our position is that it can't be that Congress intended us to make that judgment essentially overnight at step one.

[00:27:33] Speaker 04:
Why isn't the line drawing that Congress meant betting on contests of others in the context of games?

[00:27:48] Speaker 04:
in those sorts of contests, and that would cover things like boxing, football, basketball, et cetera, but not elections.

[00:28:00] Speaker 03:
We're going off the plain meaning of contest here, which we've cited a definition where entertainment isn't until the third or fourth.

[00:28:07] Speaker 03:
Generally, contest means a struggle for some sort of end.

[00:28:11] Speaker 02:
The Oscars or billboard charts, those are competitions, contests,

[00:28:17] Speaker 03:
I would say so.

[00:28:18] Speaker 03:
My friends are going to stand up and say that we have all kinds of contracts like that, and the CFTC never did anything about it.

[00:28:24] Speaker 03:
But that is, of course, not an indication that we've ratified anything like that.

[00:28:28] Speaker 03:
But yes, I would absolutely, there's a strong argument that those are contests, too.

[00:28:34] Speaker 04:
Isn't a war contest?

[00:28:36] Speaker 03:
Well, I think if you have an express provision for war, then that is where that sort of contract belongs.

[00:28:46] Speaker 03:
And there's overlap here, right?

[00:28:48] Speaker 03:
I mean, if you look at illegal activity, assassination and terrorism are illegal activity.

[00:28:52] Speaker 03:
But there's overlap there.

[00:28:55] Speaker 03:
So even to the extent a war could be characterized as a contest, I don't think that is dispositive of what gaming means.

[00:29:10] Speaker 03:
I see that I'm well out of time.

[00:29:13] Speaker 02:
Give you some time for rebuttal.

[00:29:15] Speaker 02:
Thank you.

[00:29:28] Speaker 02:
Morning, Mr. Roth.

[00:29:30] Speaker 05:
Good morning.

[00:29:30] Speaker 05:
May it please the court.

[00:29:31] Speaker 05:
Jacob Roth on behalf of Kalshi.

[00:29:34] Speaker 05:
Your honor, Judge Cobb got this right.

[00:29:36] Speaker 05:
The commission's interpretations of the statute are untenable and lack any meaningful limiting principle.

[00:29:44] Speaker 05:
I certainly understand the policy arguments, both for and against election prediction markets.

[00:29:49] Speaker 05:
But the question here is, did Congress empower the commission to prohibit them?

[00:29:53] Speaker 02:
What are the policy arguments that you understand on both sides?

[00:29:58] Speaker 05:
Well, the policy arguments aren't actually presented in the appeal.

[00:30:00] Speaker 02:
I appreciate that.

[00:30:01] Speaker 02:
I'm just interested in your view, because it relates to what you think Congress realistically was up to.

[00:30:09] Speaker 05:
Well, what I think I'm happy to answer.

[00:30:11] Speaker 05:
I mean, what I think Congress was up to, we have to look at the categories of activities that it carved out and said, these are the types of contracts we want the commission to be able to review.

[00:30:22] Speaker 05:
And that's the meat of this appeal.

[00:30:25] Speaker 05:
So we'll get to it.

[00:30:28] Speaker 05:
The policy arguments in favor of election prediction markets are twofold.

[00:30:31] Speaker 05:
One, they serve legitimate hedging and economic needs.

[00:30:35] Speaker 05:
And two, they advance informational value for the public.

[00:30:40] Speaker 02:
But again, that goes really to that.

[00:30:42] Speaker 02:
So whether Nate Silver is right about his prediction on an election serves what kind of hedging or information forcing values?

[00:30:53] Speaker 05:
Well, Your Honor, that's not the contract that's at issue in this case.

[00:30:57] Speaker 05:
So that's not the contract where we have any record developed on the economics of it or the purpose of it.

[00:31:04] Speaker 00:
So that's not what you're talking about.

[00:31:05] Speaker 05:
That's not what this case is about, but if they want to try to draw a line between that contract and the ones here, they can try to do that.

[00:31:12] Speaker 05:
They haven't.

[00:31:14] Speaker 05:
Contracts here are about congressional control, and there's a large appendix that talks about the hedging purposes of that contract and the informational value of that contract.

[00:31:23] Speaker 05:
But again, the only issue that's actually presented here is, are these contracts within the narrow enumerated categories of contracts that Congress empowered the agency to look at?

[00:31:37] Speaker 05:
And I'd like to go through those, the two that the commission relies on and try to explain why their interpretations are not.

[00:31:44] Speaker 01:
Can we first talk about the word involve?

[00:31:47] Speaker 01:
So I think I have a consistent usage argument to be a bit weak in this context because the word involve sort of by its very nature changes its meaning based on the object that is involved.

[00:32:03] Speaker 01:
And I think the Clark case from the Supreme Court that talks about this in a similar context is distinguishable because I think the categories here

[00:32:14] Speaker 01:
are really quite different categories.

[00:32:16] Speaker 01:
There's some things that are very specific, like assassination.

[00:32:18] Speaker 01:
And there's something like gaming, which is arguably not.

[00:32:23] Speaker 01:
There's a lot of disagreement about what gaming includes.

[00:32:27] Speaker 01:
Probably not a lot of disagreement about what assassination is.

[00:32:31] Speaker 01:
So what is your best argument for your reading of involved that doesn't involve a consistent usage case?

[00:32:37] Speaker 05:
So I think you're under... Which I think is, you know, a nice label, but not... Yeah, fair enough.

[00:32:40] Speaker 05:
And I understand the point.

[00:32:42] Speaker 05:
I think it's actually more helpful to talk about the categories in conjunction with involve, because actually for gaming, and as this came up in the first half, for gaming, I'm actually not sure that involve does a lot of work, because as the district court explained, gaming under the least one dictionary definition means playing games or putting stakes on games.

[00:33:06] Speaker 05:
And so it kind of captures both the underlying game and the activities, whether an election is a game.

[00:33:14] Speaker 01:
An election is not.

[00:33:15] Speaker 05:
That's our point, right?

[00:33:17] Speaker 05:
That's our point that there has to be under that definition of gaming, putting aside involve under that definition of gaming.

[00:33:24] Speaker 05:
which is the dictionary of sort of standard dictionary definition playing games or playing games for stakes under that definition of gaming.

[00:33:31] Speaker 01:
These contracts are clearly not covered regardless turns on evolves because if the CFTC is correct that in a contract that involves gaming amounts to gaming because it's like betting on the election.

[00:33:45] Speaker 01:
And that the work that's being done isn't.

[00:33:47] Speaker 05:
No, I don't think so, your honor, because there's still no game.

[00:33:50] Speaker 05:
So our point is it all for gaming at all, rise and falls with with gaming, because our point is because I think the argument CFTC is that the gaming is.

[00:34:03] Speaker 02:
They just claim the notion that the election itself is the game.

[00:34:06] Speaker 02:
The gaming is trading an event contract.

[00:34:11] Speaker 02:
That's the transaction.

[00:34:12] Speaker 02:
So it all goes back to gaming because it's betting on an election.

[00:34:18] Speaker 05:
Right.

[00:34:18] Speaker 05:
And so they are interpreting gaming to mean gambling and gambling to be broader than games.

[00:34:24] Speaker 02:
That's how they get to well to this gambling.

[00:34:28] Speaker 05:
And our point is that can't be right because if you take that there are two definitions of gaming in dictionaries and other sources, the narrower one, which has a game focused and needs to be a game and then the broader one, which is just betting gambling.

[00:34:43] Speaker 05:
The problem with the broader one is if that's your interpretation, it covers everything by definition.

[00:34:48] Speaker 02:
So here's, I totally understand that argument.

[00:34:52] Speaker 02:
And I think that the CFTC has really struggled with this.

[00:34:56] Speaker 02:
Yeah.

[00:34:57] Speaker 02:
And even if, which I don't, you don't accept the Lincoln-Feinstein colloquy as in any way binding or it's post magma.

[00:35:06] Speaker 02:
But even without looking at that, it seems to me quite commonsensical.

[00:35:12] Speaker 02:
that the Congress was thinking we have event contracts, we have an exchange, which is a regulated exchange, that is about certain kinds of commercial activity that have proved to be beneficial to commercial life.

[00:35:29] Speaker 02:
And then we have other kinds of event contracts that are really frivolous, that are recreational.

[00:35:37] Speaker 02:
Who's going to, you know, be on time cover person of the year?

[00:35:41] Speaker 02:
Who's going to win the Oscars in the soundtrack category?

[00:35:45] Speaker 02:
Who is, you know, going to, which of these, you know, famous celebrities and divorced first?

[00:35:53] Speaker 02:
I mean, these are,

[00:35:54] Speaker 02:
event contracts that are really different from others and not a bright line, I grant you that, but where Congress is thinking we don't want this exchange which has its own competencies that relate to markets and finance and hedging and you know

[00:36:15] Speaker 02:
price information to become a casino.

[00:36:21] Speaker 02:
So we're going to say gaming is something that they, you know, transactions that amount to gaming are off the table.

[00:36:29] Speaker 02:
So I get it that there's a really tough textual problem, but

[00:36:36] Speaker 02:
It seems to me most plausible that that's what Congress was about.

[00:36:39] Speaker 05:
So Your Honor, what I would say to that is I understand exactly where Your Honor thinks the line might be for gaming or not gaming.

[00:36:47] Speaker 05:
Or at least you've articulated a principle to try to distinguish gaming contracts from all other event contracts.

[00:36:56] Speaker 05:
The problem is, that is not their argument.

[00:36:58] Speaker 05:
That has never been their argument.

[00:37:00] Speaker 05:
And he stood up here today and affirmatively disclaimed that argument and said, we can't make any determinations about commercial use or purpose at step one.

[00:37:08] Speaker 05:
That's all the public interest inquiry at step two.

[00:37:10] Speaker 05:
And they have said that consistently from the order to the district court to their argument on their opening brief on appeal.

[00:37:16] Speaker 05:
So if the test for gaming is, does it have

[00:37:18] Speaker 05:
You know, if your honor is suggesting that the test for gaming might ask what is the economic purpose, they have abandoned that like three times over and affirmatively said it's not their position.

[00:37:29] Speaker 05:
I think the reason for that is that as we explained in the briefs, it's actually a hard way to do it because every event contract, even the most economically significant event contract can be traded for speculation.

[00:37:44] Speaker 05:
and is often traded for speculation.

[00:37:46] Speaker 02:
The liquidity market is provided in part by people who are sort of dilly-dallying and don't know what they're doing.

[00:37:53] Speaker 05:
So then in order to make it work, you'd need to ask a question like, well, how often, what is sort of the balance predominant?

[00:37:58] Speaker 02:
And that's actually what that colloquy says is anything that's sort of predominantly for recreational gambling.

[00:38:03] Speaker 02:
And so I get it that the CFTC has disclaimed making a public interest determination in interpreting the statute, but really, that's the whole project.

[00:38:17] Speaker 02:
What is the subcategory of event contracts?

[00:38:21] Speaker 02:
that raise the sort of in the neighborhood of which there may be public interest concerns, and that therefore it's worth doing public interest review of.

[00:38:31] Speaker 02:
So there is a kind of rough draft sense that precisely what the special rule is, is identifying categories.

[00:38:42] Speaker 02:
Maybe a lot of the activity is perfectly constructive, but things that state laws

[00:38:48] Speaker 02:
render illegal, you know, CFTC is not going to be driven by all of that.

[00:38:53] Speaker 02:
But it wants to give a public interest look-see to what underlies that.

[00:38:58] Speaker 02:
Are they out-of-date bucket shop laws that nobody's bothered to take off the books?

[00:39:03] Speaker 02:
Or are they raising real concerns about the standing of elections in their citizens' minds?

[00:39:14] Speaker 05:
Right, so Your Honor, this idea of predominant use is the predominant use for hedging versus speculation.

[00:39:21] Speaker 05:
That was their test for public interests.

[00:39:26] Speaker 05:
It was their public interest inquiry before the year 2000 when Congress amended the law.

[00:39:32] Speaker 05:
So previously, they always had to analyze public interest at the front end.

[00:39:36] Speaker 05:
And what they would ask is, is the predominant purpose economic or non-economic?

[00:39:41] Speaker 05:
Congress repealed that.

[00:39:43] Speaker 05:
If we now read gaming to mean the same thing, we're just going back to the pre-2000 regime, because it means at the front end, for every contract, they're going to say, what's the predominant purpose of this?

[00:39:54] Speaker 05:
Is it economic or non-economic?

[00:39:57] Speaker 05:
And if it's economic, then we can review it for public interest, at which point we're going to ask the exact same question again.

[00:40:02] Speaker 05:
I think that's the reason they have never made this argument, and I don't think it's a basis to hold or to reverse the district court in light of that.

[00:40:10] Speaker 02:
but I'm saying that it explains, it's part of the understanding of what's in or out and that there is a part of why perhaps sloppily Congress put gaming in there is because really front and center for the Congress.

[00:40:26] Speaker 02:
I mean, there aren't really that many contracts on assassination or.

[00:40:30] Speaker 05:
Well, there are overseas, I think.

[00:40:33] Speaker 02:
Right, but on a US market.

[00:40:36] Speaker 02:
Yeah, thankfully.

[00:40:37] Speaker 02:
And so in a way, they're really trying to, perhaps artlessly, they're saying, look, we're going to give CTC the power to look and pick out things that it thinks pose that kind of risk.

[00:40:52] Speaker 02:
And look at them, and you can make your case, and you may win your case.

[00:40:56] Speaker 05:
Your Honor, I think there's something to that.

[00:40:58] Speaker 05:
But the way I would understand it from the statute is that the way Congress did that was by capturing out this category

[00:41:06] Speaker 05:
gaming, in our view, something relating to playing games, and said, well, that category, that's highly unlikely to have real economic significance.

[00:41:16] Speaker 02:
Wouldn't five then be sports or casino games?

[00:41:21] Speaker 02:
Why wouldn't they just said that rather than gaming?

[00:41:25] Speaker 05:
I don't know, Your Honor, but gaming games generally, I mean, that made a comment about our definition of games.

[00:41:31] Speaker 05:
It's the dictionary definition of games is something you do for amusement, entertainment, diversion.

[00:41:36] Speaker 05:
So it captures all of this.

[00:41:38] Speaker 01:
Congress often uses gaming in a broader sense to mean gambling.

[00:41:43] Speaker 01:
I'm not sure that's true.

[00:41:46] Speaker 05:
The Indian Gaming Regulatory Act is the statute that uses the term gaming, and it refers to casino games, to blackjack, to slot machines, and to horse and dog racing.

[00:41:57] Speaker 05:
That is kind of what we're talking about.

[00:41:59] Speaker 05:
Those are games.

[00:41:59] Speaker 01:
Those are things you do for amusement.

[00:42:01] Speaker 01:
Don't a lot of Indian casinos have sports betting?

[00:42:05] Speaker 05:
And we agree with that, too, because sports are games.

[00:42:08] Speaker 05:
Football game is a game.

[00:42:09] Speaker 02:
And gaming commissions.

[00:42:10] Speaker 02:
I mean, the gaming commissions are gambling regulatory commissions.

[00:42:14] Speaker 02:
So gaming, I mean, I do think there's a very strong case that gaming does mean gambling.

[00:42:19] Speaker 02:
And then the commission runs into this problem that, at least in your mind, everything that your clients do in the event contract space

[00:42:29] Speaker 02:
is gambling.

[00:42:30] Speaker 02:
And I think, understandably, CFTC says, no.

[00:42:34] Speaker 02:
And I think, understandably, Congress may have been thinking, no, there are event contracts, and then there's gambling.

[00:42:43] Speaker 05:
Right.

[00:42:43] Speaker 05:
And I agree with all that.

[00:42:45] Speaker 05:
And they don't push the broad definition.

[00:42:48] Speaker 05:
I mean, they don't really push the broad definition of gaming, i.e.

[00:42:51] Speaker 05:
gambling, i.e.

[00:42:52] Speaker 05:
all wagering, because they know it's completely untenable.

[00:42:56] Speaker 05:
The problem is, there is no in-between

[00:42:59] Speaker 05:
for which they can provide any legal source that actually works.

[00:43:04] Speaker 05:
The narrower definition, which is found in every dictionary, is what the district court adopted, and we're not covered by that.

[00:43:11] Speaker 05:
The broader definition, they agree, is untenable.

[00:43:13] Speaker 05:
So they settle on this by doing two things.

[00:43:15] Speaker 05:
First, they say, we don't need to draw a line because this is an adjudication.

[00:43:19] Speaker 05:
That's completely wrong.

[00:43:20] Speaker 05:
It's a statutory interpretation.

[00:43:22] Speaker 05:
They need to give a definition in order to justify their conclusion that these are gaming contracts.

[00:43:28] Speaker 05:
And then they say, well, contests is in.

[00:43:30] Speaker 05:
We don't have to decide anything else.

[00:43:32] Speaker 05:
But that doesn't come from anywhere.

[00:43:33] Speaker 05:
There is no dictionary definition of gaming that says contests.

[00:43:37] Speaker 05:
They either say games or they say everything.

[00:43:39] Speaker 05:
They are just pulling it out to get to the result they want here.

[00:43:43] Speaker 05:
And it's not even a test with any policy sense.

[00:43:46] Speaker 05:
It doesn't track your honors.

[00:43:48] Speaker 05:
insight into the economic purpose because there are lots of contests that have great economic significance and there's a ton of stuff that has zero economic significance that is not a contest.

[00:43:58] Speaker 02:
But you're requiring a little bit, you're really putting the court that part before the force.

[00:44:05] Speaker 02:
by saying that they have to know in effect at the threshold that everything that's in one of the categories, one of the numerator categories is in all circumstances going to be something that having an event contract with respect to is contrary to the public interest.

[00:44:22] Speaker 02:
And I think they're saying, you know, gambling, they clearly meant gambling, gambling in its broadest

[00:44:29] Speaker 02:
sense would cover every event contract.

[00:44:32] Speaker 02:
We're not there.

[00:44:33] Speaker 02:
We don't want to be there.

[00:44:34] Speaker 02:
We don't have the resources to be there.

[00:44:36] Speaker 02:
It would be pointless to be there because a lot of event contracts will just come in and show us the public interest case and we'll be great, you know, list.

[00:44:45] Speaker 02:
On the other hand, they're saying, you know, assuming that as a formal matter of, you know, definition that gaming does mean gambling, then the heartland of it, they say, is gaming in contests of others.

[00:45:04] Speaker 05:
And your honor, they're pulling the content.

[00:45:06] Speaker 05:
The word contest that they're pulling is coming from some state gambling statutes where in context,

[00:45:12] Speaker 05:
It could not be any clearer they are not talking about elections, just like they are not talking about corporate board contests and they are not talking about market share contests.

[00:45:20] Speaker 05:
They are not talking about lawsuits, things that can be colloquially described as contests.

[00:45:24] Speaker 05:
That is not what those statutes are talking about.

[00:45:26] Speaker 05:
They refer to things like contests of chance or speed, skill and endurance of human or beast.

[00:45:31] Speaker 05:
I mean, when you read these things in context, it is abundantly clear elections are not what they are talking about.

[00:45:37] Speaker 05:
The district court recognized this too.

[00:45:39] Speaker 05:
in the context of the federal statute that they cite, which talks about sports, contests of chance, or games of chance and contests.

[00:45:47] Speaker 05:
You look at those three things together, they're not talking about elections.

[00:45:51] Speaker 05:
And that's where they're getting the word contest, because it's not coming from any definition in a dictionary.

[00:45:57] Speaker 02:
betting on games of chance, betting on contests, I'm not sure.

[00:46:02] Speaker 02:
If that were what the statute said, I think they'd be in pretty good shape on betting on contests.

[00:46:05] Speaker 02:
But let me, I actually, so putting aside, you don't have, if you win on gaming, you still have to win on unlawful understate law.

[00:46:15] Speaker 05:
Yeah, I'm happy to switch to that.

[00:46:16] Speaker 02:
And the unlawful understate law, like it seems to me your argument, your whole argument is about the bucket shop laws.

[00:46:22] Speaker 02:
Am I wrong?

[00:46:22] Speaker 05:
It's about, excuse me?

[00:46:23] Speaker 02:
The bucket shop law.

[00:46:24] Speaker 05:
That is a big part of the argument, yes.

[00:46:27] Speaker 05:
Yes, because it, do you want me to flush that out a little bit?

[00:46:31] Speaker 05:
I mean, they say when the statute asks is, does the contract involve unlawful activity?

[00:46:38] Speaker 05:
That means does trading the contract often exchange?

[00:46:44] Speaker 05:
Would that violate state law?

[00:46:46] Speaker 05:
And under the Bucket Shop statutes,

[00:46:49] Speaker 05:
Every event contract, if it's traded off in exchange, would violate some state law.

[00:46:54] Speaker 05:
Not every state has these, but lots of them do.

[00:46:56] Speaker 05:
And so our point is, that's what tells us that they are focused on the wrong thing.

[00:47:03] Speaker 05:
In order to make this really work in context, the inquiry needs to be, is the subject matter of the contract.

[00:47:10] Speaker 05:
related to unlawful activity, just like the analysis is, does the subject matter of the contract relate to war?

[00:47:17] Speaker 05:
Does the subject matter of the contract relate to terrorism?

[00:47:19] Speaker 05:
Does the subject matter of the contract relate to assassination?

[00:47:22] Speaker 05:
If you read those four things together, that's what the statute is trying to get at.

[00:47:28] Speaker 05:
It's looking at the underlying event and asking, is there a relationship between the underlying event and the enumerated activity?

[00:47:34] Speaker 05:
Because we don't want people profiting from war.

[00:47:36] Speaker 05:
We don't want people profiting from terrorism, and we don't want people profiting from crime.

[00:47:40] Speaker 05:
So it makes perfect sense when you read it that way, and you don't walk into this problem of swallowing the rule, swallowing all the other exceptions, and rendering this stuff superfluous.

[00:47:49] Speaker 04:
Your honor asked about- To me, I think the problem for you with that argument is if I just look at this statue kind of at the 10,000 foot level, and I see, well, there's six different categories

[00:48:06] Speaker 04:
there's a catch-all, other similar activity, but the first five, they all seem to be, as you just said, kind of things that Congress would have thought that just as a matter of public policy, we don't think that people should be kind of trading and profiting off of, profiting off of whether someone is going to commit a crime or not.

[00:48:30] Speaker 04:
Whether an act of terror is gonna occur, an assassination or a war.

[00:48:36] Speaker 04:
I think then that supports kind of the CFTC's view that gaming means gambling because that is something that states and Congress have traditionally wanted to regulate.

[00:48:53] Speaker 04:
and minimize and might want to regulate here.

[00:49:01] Speaker 04:
And, you know, gambling is one of the very common, and in some dictionaries, it's the first definition of game.

[00:49:11] Speaker 04:
And so I take your point that

[00:49:18] Speaker 04:
gambling is broad and then that might swallow up the whole statute.

[00:49:24] Speaker 04:
But if you're just kind of looking at this as what was Congress's purpose, it would seem that what Congress's purpose was more likely that they were concerned about gambling than whether, you know, who's gonna win the Super Bowl just as a game.

[00:49:48] Speaker 05:
Well, Your Honor, the legislative history is exclusively about sports when it talks about gaming.

[00:49:53] Speaker 05:
So I think there is a reason to believe Congress was particularly concerned at the time it enacted this statute about sports betting and that that was probably what they were getting at with the word gaming.

[00:50:06] Speaker 05:
Certainly Congress was aware that state laws had these bucket shop statutes that if taken on their face would prohibit all sorts of derivatives contracts and futures markets.

[00:50:17] Speaker 05:
And that's been true for

[00:50:18] Speaker 05:
a very long time, decades.

[00:50:20] Speaker 05:
I mean, Justice Holmes talked about this in that case that we cite in the brief.

[00:50:24] Speaker 05:
So I think it's pretty clear Congress was not trying to cover the waterfront because we have these markets, they're supposed to cover something.

[00:50:33] Speaker 05:
And if you read gambling in its broadest possible sense, or if you read involve unlawful activity in

[00:50:39] Speaker 05:
the way the commission wants to read it.

[00:50:40] Speaker 05:
You do swallow up everything.

[00:50:42] Speaker 05:
And I think that's what really the district court was was driven by and recognizing this.

[00:50:46] Speaker 05:
This just can't be right.

[00:50:48] Speaker 05:
Your honor asked about the express preemption that mentions the Bucket Shop laws.

[00:50:53] Speaker 05:
So it's not it's not in any of the briefing because we looked at it and concluded it doesn't apply, but it is sort of confusing.

[00:50:59] Speaker 05:
So my understanding of that provision is that it deals with transactions that are not on

[00:51:06] Speaker 05:
a regulated exchange, but that are carved out by other parts of the statute.

[00:51:12] Speaker 05:
So it talks about excluded from the act.

[00:51:16] Speaker 05:
So that's why nobody talks about it.

[00:51:18] Speaker 02:
You talk about being permitted unregulated?

[00:51:20] Speaker 05:
In other words, there are certain situations where the commission can authorize off-exchange stuff to happen, even though generally speaking, the rule is if you're going to trade these, it has to be on a regulated exchange.

[00:51:32] Speaker 05:
The commission is allowed to carve certain things out from that.

[00:51:36] Speaker 05:
And if it carves it out, then this express preemption provision says the state law doesn't apply.

[00:51:40] Speaker 05:
But that's not the preemption rule that we relied on, that the commission relied on, that anyone discussed in the order

[00:51:48] Speaker 05:
or the briefs up below or on appeal.

[00:51:49] Speaker 02:
So when you said that preempts bucket shop laws, what you're saying now is that more precisely that preempts bucket shop laws as applied to this activity that might be subject to a carve out that the CFTC is effectively blessing.

[00:52:06] Speaker 05:
Right.

[00:52:07] Speaker 05:
And that's why it's not really relevant in this case.

[00:52:09] Speaker 02:
It seems like there's sort of a structural preemption argument also.

[00:52:11] Speaker 02:
And I'd be interested in your thoughts on it.

[00:52:14] Speaker 02:
The very notion.

[00:52:17] Speaker 02:
The Bucket Shop law is problematic, as you say, because some states still have them.

[00:52:24] Speaker 02:
And if we read involved to say that trading on things that if a state law outlaws certain trading, then similar trading is what the contrary state law refers to, that's going to make the

[00:52:49] Speaker 02:
give the commission the ability to review every event contract.

[00:52:55] Speaker 02:
But nobody thinks that this, and I know this sort of cuts both ways, your argument is, and nobody thinks that.

[00:53:03] Speaker 05:
Yes, exactly.

[00:53:04] Speaker 02:
Therefore you can't read this language as involve

[00:53:09] Speaker 02:
points to trades of event contracts that amount to activity unlawful under state law.

[00:53:17] Speaker 02:
It has to be trades of event contracts, the underlying of which is activity unlawful under state law.

[00:53:26] Speaker 05:
Or relates to, yes.

[00:53:27] Speaker 02:
That's your view.

[00:53:29] Speaker 02:
But I guess once you put the bucket shop off the table, which I think the very structure of the statute effectively does,

[00:53:38] Speaker 02:
then it seems to me it's open to say actually what Congress is worried about is states regulation of things like betting on elections and gambling.

[00:53:56] Speaker 02:
And so if the state has done the work of narrowing down what kinds of gambling it thinks is unlawful, what kinds of, you know,

[00:54:06] Speaker 05:
I understand the question.

[00:54:08] Speaker 05:
I just don't understand how we can take it off the table, consistent with the text of the statute, other than through our interpretation.

[00:54:15] Speaker 02:
But interpretation involves looking at words and dictionaries and meaning.

[00:54:19] Speaker 02:
And also, really uncontroversially, looking at the structure of the statute.

[00:54:24] Speaker 02:
And the statute lists a bunch of things that are, none of which would be necessary if

[00:54:30] Speaker 02:
The first one gave CFTC authority to do everything that could conceivable be in the rest.

[00:54:38] Speaker 05:
Right.

[00:54:39] Speaker 05:
So we offer an interpretation of the statute that avoids that problem.

[00:54:42] Speaker 02:
Only because you read the first part.

[00:54:45] Speaker 02:
To involve.

[00:54:45] Speaker 02:
I mean, I understand gambling has a similar, or gaming has a similar problem.

[00:54:48] Speaker 02:
But the first category only has that problem because of the book.

[00:54:56] Speaker 05:
Yeah, I agree.

[00:54:57] Speaker 05:
I agree.

[00:54:57] Speaker 05:
But the problem is, look, if Congress wanted to say any unlawful activity, any activity unlawful under state law, but for the bucket shop laws, then I would understand the point.

[00:55:08] Speaker 05:
And Congress did refer to the bucket shop laws elsewhere in the act.

[00:55:10] Speaker 05:
So it's not like they didn't know that these laws are out there.

[00:55:13] Speaker 05:
They didn't say that.

[00:55:14] Speaker 05:
They said any state law.

[00:55:15] Speaker 05:
And again, I think the natural reading of that, that again, aligns it with the terrorism, war, and assassination, is that it relates to the under.

[00:55:23] Speaker 02:
I think you have a problem with looking at all these enumerated categories as exclusively dealing with the underlying if you look at enumerated category six.

[00:55:35] Speaker 02:
So category six gives the commission residual power to define additional categories of activity subject to public interest review.

[00:55:42] Speaker 02:
Right, you read your client reads category six as this has Mrs bizarre right as assigning to this commission.

[00:55:51] Speaker 02:
The threshold decision of which activities in the world, not which activities on the market to regulate but which activities in the world are contrary to the public interest.

[00:56:01] Speaker 02:
That can't be right.

[00:56:04] Speaker 05:
Let me say a couple things about that, because I had a feeling your honor might ask this question.

[00:56:09] Speaker 05:
So first of all, I'll just say six is not an issue, and we actually haven't taken a position on six.

[00:56:14] Speaker 02:
Just as we've pushed them on, your reading has to make sense.

[00:56:18] Speaker 05:
I agree.

[00:56:19] Speaker 05:
But what I would say is, whatever we think about six, the point about one

[00:56:25] Speaker 05:
holds.

[00:56:27] Speaker 05:
So I don't want to lose sight of that.

[00:56:29] Speaker 05:
Even if we think, oh, six is just different from the others because it's this residual thing and they're getting at something else, that doesn't really take away from our point that with respect to the unlawful activity, it's got to be referring to the underlying.

[00:56:41] Speaker 05:
But let me go to the merits of it.

[00:56:44] Speaker 05:
I was thinking, what is an example of something Congress could say is similar in that it is contrary to the public interest in a way that is similar

[00:56:52] Speaker 05:
war, terrorism, assassination.

[00:56:54] Speaker 05:
So one example I came up with is natural disasters.

[00:56:58] Speaker 05:
So I think the commission could say, look, natural disasters are similar to

[00:57:02] Speaker 05:
war and assassination and terrorism.

[00:57:05] Speaker 05:
And they're contrary to public interests.

[00:57:06] Speaker 05:
And you know what?

[00:57:07] Speaker 05:
We don't want people trading contracts on whether the wildfires in LA are going to consume a certain number of acres by a certain date.

[00:57:16] Speaker 05:
That would be bad.

[00:57:17] Speaker 05:
That would be bad in the same way that trading on unlawful activity is bad and trading on war is bad.

[00:57:22] Speaker 05:
We don't want people to profit from it.

[00:57:24] Speaker 05:
And we don't want to give people incentives to go commit arson.

[00:57:26] Speaker 01:
It's like a strange example, given that so much of commodities trading

[00:57:30] Speaker 01:
generally was designed to hedge against natural disasters.

[00:57:34] Speaker 01:
And everything on this list is a human agency.

[00:57:38] Speaker 05:
Yeah, and so maybe somebody could challenge it.

[00:57:41] Speaker 01:
But it seems like a strange example.

[00:57:42] Speaker 05:
But I do think that when you're dealing with at least a disaster that can be affected by human behavior in a way like a fire, there would be a better argument for them to say we don't want this.

[00:57:52] Speaker 05:
We think it's similar.

[00:57:53] Speaker 05:
It's just an example.

[00:57:54] Speaker 05:
I mean, look, they've never they've never used this authority.

[00:57:57] Speaker 05:
So we're all sort of guessing about what it means, what its scope is, how they can use it.

[00:58:00] Speaker 05:
I don't think it's unusual to say, look, they want things that are similar to these other listed activities.

[00:58:07] Speaker 05:
The other listed activities are things that are, at least some of them, things that are bad, right?

[00:58:11] Speaker 05:
We don't want, we don't like terrorism.

[00:58:13] Speaker 05:
We don't like war.

[00:58:15] Speaker 05:
We don't want people trading on it.

[00:58:16] Speaker 05:
And so the commission can say, look, there are other things like that that are similar.

[00:58:21] Speaker 05:
The problem with your honor, can I just make one more point about this?

[00:58:24] Speaker 05:
The other problem, I think, with what your honor is suggesting about six is it would have the commission make the same inquiry

[00:58:30] Speaker 05:
to six.

[00:58:34] Speaker 05:
If you get added to six, you then get subjected to public interest review.

[00:58:39] Speaker 05:
So if the question under six looks at the trading of the contract rather than the underlying.

[00:58:44] Speaker 05:
And we will would be saying is, well, Congress, the commission can pass a regulation that says, um, trading a contract of this sort is contrary to public interest.

[00:58:53] Speaker 05:
And if it does that, then the commission can pass a

[00:58:54] Speaker 05:
it gets to review those contracts to decide if trading them would violate the public interest.

[00:58:59] Speaker 05:
So it actually duplicates the step one and step two.

[00:59:02] Speaker 02:
You can see it as a category.

[00:59:04] Speaker 02:
So just like it sort of makes a virtue of the fact that this is a threshold for a public interest review.

[00:59:13] Speaker 02:
So you can say, well, the category of trading on

[00:59:21] Speaker 02:
things that are contrary to state law is subject to public interest review.

[00:59:25] Speaker 02:
But it may be that there are certain things that are contrary to state law where we really want the information forcing to.

[00:59:31] Speaker 02:
And so the commission might look at that and say, yeah, we had review, but we say go ahead and offer that.

[00:59:38] Speaker 02:
So it is a different inquiry.

[00:59:41] Speaker 02:
And it just makes much more sense to say that Category 6 empowers the commission to determine whether

[00:59:47] Speaker 02:
trading on certain events is contrary to the public interest or really, and I think you're you have pointed to something as a little clumsy.

[00:59:56] Speaker 02:
One thing that's a little clumsy about the way this statute is written, which is it really should say to consider whether trading on certain events is

[01:00:06] Speaker 02:
likely to be or raises an atypical risk of being contrary to public interest, such that public interest review of individuals such contracts is warranted.

[01:00:15] Speaker 02:
But when you look at this as whether it is better read as referring to CFTC making determinations about underlines,

[01:00:25] Speaker 02:
or CFTC making determinations about whether it's contrary to public interest or might well be contrary to public interest to trade on certain events, to me, the latter is much more powerful.

[01:00:36] Speaker 02:
And if you agree, then I think you're back in hot water on involves.

[01:00:44] Speaker 05:
Well, I think what I would say is, I'm not sure I agree that that is the better reading.

[01:00:49] Speaker 05:
To me, the better reading is one through six is looking at the underlying and then if you pass

[01:00:56] Speaker 05:
One through six looks at the underlying.

[01:00:58] Speaker 05:
And if you get past that, then the public interest inquiry looks at the trading.

[01:01:03] Speaker 05:
So it's two different levels.

[01:01:04] Speaker 05:
But I would also say, look, six is a bit of a, I think,

[01:01:08] Speaker 05:
for reasons that have come out in the discussion.

[01:01:10] Speaker 05:
Six is a bit of a poor fit with the others.

[01:01:14] Speaker 05:
But again, I don't think that really detracts from the point that one, two, three, and four clearly go together in a way that makes sense and is aligned and doesn't walk into the over-breadth swallowing the rule problem.

[01:01:27] Speaker 05:
So I still think that's the better reading of one through four.

[01:01:30] Speaker 05:
And that's enough for purposes of this case.

[01:01:33] Speaker 05:
The issues with six are really not presented.

[01:01:36] Speaker 01:
Mr. Ruff, I wanted to just understand something about the logic of your argument.

[01:01:40] Speaker 01:
So it seems to me for the CFTC to have the authority to do this, they need to prevail across the board, both on involves and on whether this involves gaming or something prohibited by state law.

[01:01:53] Speaker 01:
They need to show both.

[01:01:54] Speaker 01:
It seems to me to disprove their authority, you need to prevail, Kalshi needs to prevail on only one of those things because

[01:02:03] Speaker 01:
Commission needs both.

[01:02:05] Speaker 01:
But when I asked you a question about this earlier, you suggested that it really, you know, your interpretation relies on both parts.

[01:02:13] Speaker 01:
So for Kalshi to win, do you need to show both that your meaning of involves and your meaning of gaming or prohibited by state law is the correct one?

[01:02:24] Speaker 05:
There's different ways it can shake up.

[01:02:25] Speaker 01:
Because it seems that maybe you've conceded that you need to show more than I thought was necessary.

[01:02:30] Speaker 05:
I just think the easiest argument on gaming is that there needs to be a game, and that doesn't get you into the whole issue.

[01:02:39] Speaker 01:
Right.

[01:02:39] Speaker 01:
So that's just one problem.

[01:02:41] Speaker 05:
Yeah.

[01:02:41] Speaker 05:
I think you're right.

[01:02:42] Speaker 05:
Your Honor is correct.

[01:02:42] Speaker 05:
Involve would cut across and is enough to win across the board.

[01:02:48] Speaker 01:
That's sufficient.

[01:02:48] Speaker 05:
It's sufficient.

[01:02:49] Speaker 05:
But I think the involve argument, it just

[01:02:53] Speaker 05:
it's tied much more closely to the unlawful activity.

[01:02:59] Speaker 05:
prong than the gaming prong because gaming by its nature sort of can capture both levels.

[01:03:05] Speaker 05:
It's just not as doesn't seem to fit.

[01:03:08] Speaker 05:
The argument doesn't do as much on gaming.

[01:03:10] Speaker 05:
I just think the easier understand argument on gaming is the definition of gaming and the over breath of gambling as a as an alternative and the inability of the commission to draw a line that is rooted in any legal authority to that would keep us in while also not covering the waterfront.

[01:03:30] Speaker 05:
But, you know, involve, I think you're, you're honest, correct involved.

[01:03:33] Speaker 01:
I guess I'm not sure I understand why involved doesn't have the same intersection with gaming.

[01:03:40] Speaker 01:
Then that it does.

[01:03:41] Speaker 01:
Like, why do you, why do you think that that connection is harder to, I'm not sure I fully understand that argument.

[01:03:48] Speaker 05:
It's just that, um, gaming, as the district said, can cover both the playing of the game and the betting on the game.

[01:03:56] Speaker 05:
So if we can persuade the court that gaming requires a game, it doesn't really matter.

[01:04:06] Speaker 05:
They can say, we should look at the whole transaction.

[01:04:10] Speaker 05:
It doesn't matter.

[01:04:10] Speaker 05:
There's still no game at the bottom.

[01:04:13] Speaker 05:
And so we still win on that.

[01:04:15] Speaker 05:
And you never really grapple with the involve issue.

[01:04:17] Speaker 05:
It just depends on what sequence the court considers the questions.

[01:04:22] Speaker 05:
trying to present what I view as the simplest path on the two prongs.

[01:04:31] Speaker 05:
Well, Your Honor, if there are no further questions, I'll just conclude by noting, as I said at the outset, I know there are some people who don't think we should have these markets.

[01:04:40] Speaker 05:
And actually, there has been a bill introduced in Congress that would prohibit them.

[01:04:46] Speaker 05:
But as the law currently stands,

[01:04:48] Speaker 05:
that they are permissible.

[01:04:50] Speaker 05:
Prohibit, um, then contracts on on elections.

[01:04:54] Speaker 05:
But as the law currently stands, they are permissible.

[01:04:58] Speaker 05:
The commission overreached and subjecting them to public interest review, and we think Judge Cobb's order should therefore be a firm.

[01:05:04] Speaker 02:
But you do have the courage of your convictions that if it came to public interest review.

[01:05:08] Speaker 02:
They need the perfect.

[01:05:09] Speaker 05:
Oh, yeah, and we made that argument robustly in the district

[01:05:18] Speaker 05:
didn't have to reach it.

[01:05:19] Speaker 05:
I don't think this court has to reach it.

[01:05:21] Speaker 05:
Well, this court can't really reach it because it hasn't been briefed.

[01:05:24] Speaker 05:
But no court needs to reach it because we prevailed.

[01:05:28] Speaker 04:
I meant to ask you earlier, I asked your friend on the other side, what, if any, impact excluded commodities and the definition of excluded commodities?

[01:05:44] Speaker 04:
Does it help

[01:05:46] Speaker 04:
inform the definition of either gaming or the definition of involved in Europe?

[01:05:53] Speaker 05:
Well, I think it helps us in the sense that the definition of excluded commodity includes the events, right?

[01:06:00] Speaker 05:
The occurrences, extent of occurrences or contingencies.

[01:06:05] Speaker 05:
And our point is that means by definition, an event contract involves staking money on a contingency.

[01:06:14] Speaker 05:
If that's the definition of an event contract, we can't possibly read gaming to mean gambling in its broadest sense, because that would then fully overlap with the definition of event contract, and that would render the other prongs superfluous and also sort of flip the statutory structure on its head.

[01:06:38] Speaker 02:
say that again.

[01:06:39] Speaker 02:
You said the excluded commodities refers to the event.

[01:06:47] Speaker 05:
So excluded commodity is defined to include the occurrence, extent of occurrence.

[01:06:54] Speaker 05:
I don't have the exact statute or phrase, but an occurrence.

[01:06:58] Speaker 05:
That is what the act defines as the excluded commodity, which is a type of commodity.

[01:07:03] Speaker 05:
And so a contract on an occurrence

[01:07:08] Speaker 05:
is subject, that's why we're subject to this whole regime in the first place.

[01:07:14] Speaker 05:
It's got to be a contingent, it's got to be an event all within the control of the party.

[01:07:17] Speaker 05:
So it's a contingent event.

[01:07:19] Speaker 05:
And if it's a contingent event, wagering on a contingent event is, again, under the broadest definition of gambling, that is gambling.

[01:07:29] Speaker 05:
So that can't be what Congress is getting at with the special rule, because that would sort of flip everything upside down.

[01:07:38] Speaker 04:
Yeah, it's I've been like I've been feel like a dog chasing its tail trying to figure out the statute.

[01:07:47] Speaker 04:
Because excluded commodity talks about, as you said, an occurrence, the extent of an occurrence or contingency.

[01:07:58] Speaker 04:
Right.

[01:07:58] Speaker 04:
Beyond the control of the party.

[01:08:00] Speaker ?:
Right.

[01:08:01] Speaker 04:
So one way that I could gamble would be I could go to local casino and play blackjack.

[01:08:12] Speaker 04:
And so I am actively playing and my skill at the game is going to impact whether I win money or lose money.

[01:08:31] Speaker 04:
But that's not something that is outside the control of the parties to the gambling transaction because I have some control and I'm a party to that transaction, right?

[01:08:46] Speaker 04:
But if I go to the casino and place a bet on the playoff game,

[01:08:52] Speaker 04:
that event is outside of my control.

[01:08:56] Speaker 04:
So there's different ways that one can gamble.

[01:09:02] Speaker 04:
One might be seen as inside my control, outside my control.

[01:09:11] Speaker 04:
What does that do?

[01:09:12] Speaker 04:
Does that undermine the definition of gaming as gambling, or does it support it, or not?

[01:09:22] Speaker 05:
Your Honor, I'm not sure I have any insights into that.

[01:09:25] Speaker 05:
Nobody's really discussed the control of the parties element of the definition in this litigation from the beginning.

[01:09:32] Speaker 05:
And so how that kind of plays into it, I'm not sure.

[01:09:36] Speaker 05:
I haven't thought it through.

[01:09:37] Speaker 05:
I don't think the commission thought it through.

[01:09:40] Speaker 05:
It certainly wasn't.

[01:09:41] Speaker 05:
related to the district court's analysis or, for present purposes, the commission's arguments about why the district court erred.

[01:09:49] Speaker 05:
So I'm not sure of the answer, but I don't think the court necessarily has to get into that to understand.

[01:09:56] Speaker 04:
Well, I thought that we might because the whole definition in the special rule starts out that it's in connection with agreements, contracts, transactions, or swaps in excluded commodities.

[01:10:10] Speaker 04:
So all of the things

[01:10:12] Speaker 04:
in Roman one through six are necessarily excluded commodities.

[01:10:18] Speaker 04:
Right.

[01:10:19] Speaker 04:
That's correct.

[01:10:19] Speaker 04:
And so if there's a definition of gaming that does not comport with outside the control of the party.

[01:10:33] Speaker 04:
I see what you're saying.

[01:10:34] Speaker 04:
I see what you're saying.

[01:10:35] Speaker 04:
Transaction, then that definition can't be right.

[01:10:42] Speaker 05:
Right.

[01:10:42] Speaker 05:
So I think what you're saying is, if one was himself involved in a, say, a poker game, then that might not be outside his control.

[01:10:54] Speaker 05:
And therefore, a contract on that event would not be subject to this rule in the first place, because it wouldn't be an excluded commodity.

[01:11:04] Speaker 05:
That might be right, but that just kind of takes the whole fit, that whole category of situations where you are yourself involved and have some control over it out of the analysis.

[01:11:14] Speaker 05:
And I don't know that that changes anything about the big picture arguments parties are making.

[01:11:19] Speaker 05:
Sorry if that's unsatisfying.

[01:11:23] Speaker 05:
Thank you, Your Honors.

[01:11:24] Speaker 02:
Thank you.

[01:11:26] Speaker 02:
And we'll hear from Mr. Schwartz.

[01:11:30] Speaker 03:
All right.

[01:11:31] Speaker 03:
I think it's pretty clear at this point that other than our disagreement about what the word gaming means, they have no textual argument about the rest of the statute.

[01:11:39] Speaker 03:
It is about whether it would, quote, align better or if it would suit their policy purposes better if it read the way they said.

[01:11:49] Speaker 03:
So I think the court doesn't need to proceed any further on meaning of the word involve and its close connection to at least the illegal activity.

[01:11:59] Speaker 02:
What do you mean we don't need to proceed any further?

[01:12:02] Speaker 03:
Well, on what the word involved means, they have no textual argument about that.

[01:12:06] Speaker 03:
I think the plain meaning are involved.

[01:12:07] Speaker 03:
Well, we need to decide it, right?

[01:12:08] Speaker 03:
Right.

[01:12:08] Speaker 03:
And we lay out the textual argument about that.

[01:12:11] Speaker 03:
We agree that it means to relate to, to entail, to have as a necessary feature or consequence.

[01:12:17] Speaker 03:
They agree with that.

[01:12:18] Speaker 03:
We agree it covers a variety of relationships and it has its ordinary meaning.

[01:12:22] Speaker 03:
in Section 5C.

[01:12:24] Speaker 03:
So thinking about whether it would align better if Congress had chosen some other words, I don't think the Court needs to get there or ought to get there.

[01:12:36] Speaker 03:
I am a little puzzled about two things that my friend, Mr. Roth, said.

[01:12:45] Speaker 03:
He started out as they do by saying the commission announced a rule that any and all gambling.

[01:12:53] Speaker 03:
is gaming within the meaning of 5C.

[01:12:55] Speaker 03:
I mean, that's their argument.

[01:12:56] Speaker 03:
It's not what we said.

[01:12:57] Speaker 02:
I don't take them to be saying that.

[01:12:59] Speaker 02:
I take them to be saying that the implications of your initial position in the order that gaming included, the gaming meant gambling, which frankly, I think you're right that gaming means gambling.

[01:13:13] Speaker 02:
That the problem with that is that it swallows the whole decision in 2000 to generally to no longer have

[01:13:23] Speaker 02:
sort of general public interest review.

[01:13:27] Speaker 02:
And so it's contrary to the project of the statute, which has these enumerating.

[01:13:30] Speaker 03:
Right.

[01:13:31] Speaker 03:
Yeah.

[01:13:31] Speaker 03:
So I think if the commission had said,

[01:13:34] Speaker 03:
Dictionary definition of gaming is gambling.

[01:13:37] Speaker 03:
Therefore, these event contracts involve gaming.

[01:13:40] Speaker 03:
That would be a problem.

[01:13:42] Speaker 03:
But what the commission did, there's a list of the sources of the interpretation of gaming.

[01:13:48] Speaker 03:
I think it's pages eight and nine of the order.

[01:13:50] Speaker 03:
And it starts with the dictionary.

[01:13:52] Speaker 03:
It talks about state statutes that

[01:13:56] Speaker 03:
include betting on contests of others in their gambling definition.

[01:14:00] Speaker 03:
By the way, New Mexico, their statute says that betting on elections is gaming.

[01:14:07] Speaker 03:
So that is a pretty clear connection that at least supports the reasonableness of what

[01:14:12] Speaker 03:
commission did here and we look to state statutes because states are the almost exclusive regulators of gaming so it was it was perfectly appropriate to to do that the only implications of the order are that if somebody comes to the commission with a contract on a contest then the commission will either have to follow what it said here that betting on contests of others is gaming

[01:14:35] Speaker 03:
or we'll have to announce a change and explain why.

[01:14:38] Speaker 03:
If somebody comes with a contract that does not involve, and there's a footnote that says this, if there were a contract presented that did not involve betting on a contest of others, that would be different.

[01:14:50] Speaker 03:
So I mean, it's a bit like the common law process in courts, and SEC versus Channery, or Channery II as it's called, talks about this, right?

[01:14:57] Speaker 02:
You got a new- What does the of others do for you?

[01:15:00] Speaker 02:
Is that just to distinguish it from their playing a game or playing a game for stakes?

[01:15:05] Speaker 02:
your own contest that you're betting on when you're playing for stakes.

[01:15:09] Speaker 02:
It just seems like it feels more gerrymandered when you say a contest of others as opposed to just a contest.

[01:15:18] Speaker 03:
Right now, I think it's as Mr. Roth said that if he and I, to give another example, he and I decide to play basketball for $50, that's not

[01:15:25] Speaker 03:
what we're talking about here.

[01:15:27] Speaker 03:
And the state statutes use the word contest of others, I think for precisely that reason.

[01:15:32] Speaker 03:
They don't mean to sweep into the anti-gambling laws, something that Mr. Roth might bet me on in terms of feats of strength or something like that.

[01:15:42] Speaker 03:
And in terms of what the word contest means, I think I heard him to say that

[01:15:50] Speaker 03:
contests other than sporting events are not within the scope of state gambling laws, which I find remarkable.

[01:15:56] Speaker 03:
I think the gaming commissions would be surprised to hear that the Wisconsin, the excuse me, the Washington state gambling commission has put out a statement.

[01:16:06] Speaker 03:
expressing near outrage, I think, of the fact that what was illegal betting on elections is now available across the United States there.

[01:16:15] Speaker 03:
I don't think it's tenable to say that, well, if what you're offering is a bet on the presidential election, that's not covered by state law.

[01:16:22] Speaker 03:
Go ahead.

[01:16:23] Speaker 04:
And indeed, I mean, the numbers for many years, that was really

[01:16:30] Speaker 04:
kind of the primary anti-gambling, you know, enforcement of local officials, you know, used to call it policy, but it's a contest or that's a betting that doesn't involve sports, but that's always been illegal and, you know, regulated by states, right?

[01:16:55] Speaker 03:
Right.

[01:16:56] Speaker 03:
And if you want to list a new bet, you offer a new bet at your casino, typically you have to go to the State Gaming Commission and get their approval to put it on there.

[01:17:04] Speaker 03:
I don't think it's accurate to say that these types of bets, because they're not on games, are outside the jurisdiction of the state regulators.

[01:17:13] Speaker 03:
And again, we're not applying state statutes as a whole.

[01:17:16] Speaker 03:
We're just looking to them for some guidance on what gaming means, because it's their business, typically.

[01:17:22] Speaker 02:
making a preemption argument?

[01:17:24] Speaker 02:
Are you making an argument that the special rule preempts Bucket Shop laws, but not state laws that prevent betting on elections?

[01:17:35] Speaker 03:
No, I don't think we are.

[01:17:36] Speaker 03:
I don't think we are making that argument.

[01:17:38] Speaker 03:
I think the argument we're making about the Bucket Shop laws is, number one,

[01:17:43] Speaker 03:
The statute elsewhere deals with bucket shop laws.

[01:17:47] Speaker 03:
I think Your Honor commented that seems to be the kind of whole overriding and is the motivating force of futures regulation, right?

[01:17:56] Speaker 02:
So it doesn't deal with them by the term bugger shop laws or expressly, but just structurally, you're saying?

[01:18:02] Speaker 03:
Right.

[01:18:03] Speaker 03:
Yes.

[01:18:03] Speaker 03:
I mean, the reason that Congress preempted the application of state law regarding online, excuse me, on exchange trading is because there was a national interest in hedging and price discovery, which we contend is not served by these contracts, but as Mr. Roth said, is

[01:18:20] Speaker 03:
a question for another day.

[01:18:21] Speaker 03:
They wanted to have this act.

[01:18:23] Speaker 03:
It's important to have derivatives where you can hedge against risks and where prices can be formed and disseminated.

[01:18:32] Speaker 03:
So I think that is the bucket shop laws are structurally tied up in the rest of the statute.

[01:18:39] Speaker 03:
That's number one.

[01:18:40] Speaker 03:
But number two is that the commission did not have occasion to and should not take it on its own initiative to examine

[01:18:50] Speaker 03:
hypothetical contracts about an uncertain time in the future with an unknown legal landscape about what might be legal or illegal under state law.

[01:18:59] Speaker 03:
So even if we were talking about state laws here, there is no way for the commission to know what at some future date will be outlawed by the states.

[01:19:09] Speaker 03:
The way this would come up is somebody.

[01:19:11] Speaker 01:
But the commission has argued that the reasoning of this adjudication would apply in a future case.

[01:19:17] Speaker 03:
Uh, the if you could, you've said that in this argument, right?

[01:19:22] Speaker 03:
Yes, it would.

[01:19:22] Speaker 03:
It would.

[01:19:24] Speaker 03:
But if the facts are different in the future, then that would be the distinction between this case and others.

[01:19:30] Speaker 01:
So I think what we've said can't be tried to have it both ways.

[01:19:33] Speaker 01:
You can announce a new rule in an adjudication or you can decide, you know, in a future adjudication to discard that rule.

[01:19:40] Speaker 03:
No, I don't think so.

[01:19:41] Speaker 03:
In fact, no, I don't think we're trying to respectfully.

[01:19:43] Speaker 03:
I don't think we're trying to have it both ways.

[01:19:45] Speaker 03:
I think, in fact,

[01:19:47] Speaker 03:
What we did here is very, very narrow.

[01:19:48] Speaker 03:
We decided the case on the facts before us.

[01:19:51] Speaker 03:
And it is only the facts before us that, just like a court, would serve as a precedential for other cases.

[01:20:05] Speaker 03:
With the court's indulgence, I will see if there is anything else that I wanted to bring up.

[01:20:14] Speaker 03:
No, I will just conclude by saying to the extent that there is a textual argument on one side and no textual argument on the other side, particularly in light of a major intrusion on state election law here, the court should not look at the statute in a way that runs counter to the text and apply it to these case.

[01:20:36] Speaker 03:
I think even if it were ambiguous, the court would have to be absolutely sure.

[01:20:41] Speaker 03:
I think when the text cuts against,

[01:20:44] Speaker 03:
interpretation that my friends are asking for.

[01:20:46] Speaker 03:
I don't think it's defensible to read the statute that way.

[01:20:51] Speaker 02:
Thank you, Mr. Schwartz.

[01:20:53] Speaker 02:
Thank you.

[01:20:53] Speaker 02:
The case is submitted.