Comment on CFTC-2026-1321, CFTC-2026-1321-0001, De Silva Law Offices, LLC
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Summary: De Silva Law Offices, LLC, a financial regulatory and litigation firm, argues that the Commission should establish formal rules governing vertical integration in event contract markets rather than relying on individual no-action letters. They emphasize that while they do not oppose integration, the Commission must set clear terms for customer protection, surveillance, and marketing to ensure the structural safeguards of the traditional futures model are preserved.
De Silva Law Offices, LLC submits the attached comment letter in response to the Commission's Request for Information (RIN 3038-ZA24).
The letter addresses a structural change now underway in the event contract markets. The Commission's registration and designation framework, and the Core Principles at its center, were built on the assumption that the exchange, the clearing organization, the intermediary that carries the customer, and any proprietary trading operation reside in separate entities. Much of the customer protection the framework delivers comes from that separation rather than from any single rule. Prediction market platforms are now consolidating these functions within single corporate families, and the industry has asked the Commission to permit common ownership of a designated contract market, a clearing organization, an intermediary, and an affiliated market maker.
The firm makes three points. First, functional separation is itself a customer protection: it safeguards segregation, preserves independent surveillance, and gives force to the prohibition on trading ahead of customers. The customer-protection record of the separated model is strong, and its rare failures, such as MF Global, arose from breaching that separation, while the orderly resolution of LedgerX in the FTX collapse illustrates its value. Second, vertical integration leaves these rules formally in place while removing the structural assurance behind them, and it reduces the visibility through which conflicts and misconduct would ordinarily be detected. Third, the appropriate response is a rule of general application specifying how segregation, surveillance independence, best execution, order handling, marketing, and the transparency needed to verify them apply to an integrated entity, rather than continued reliance on firm-by-firm no-action relief.
The firm does not urge the Commission to prohibit vertical integration. It urges the Commission to establish the governing terms before authorizing further integration. The letter also addresses the marketing of integrated venues and the registration status of technology providers. The full analysis and supporting authorities are set out in the attached letter.
This comment is submitted by R. Tamara de Silva, Managing Attorney of De Silva Law Offices, LLC.