Regulating designated contract markets and providing penalties

An “event-driven contract” is limited under the bill to those financial derivatives that provide a fixed binary payout related to sporting activities, lotteries, elections, legislative actions, and economic indicators. The bill requires a market to prohibit a person under years of age to trade contracts on the market, and to implement controls to identify such persons. The bill requires a market to maintain and enforce policies to exclude certain persons from trading including allowing persons to self-exclude from trading contracts. The other persons required to be excluded from trading on the market include (1) officers, employees, and family members of the officers and employees of the market, (2) any person with inside information on a particular contract, (3) any public employee, public official, lobbyist, and family member of such persons trading contracts related to legislation or other governmental actions, and (4) officers, employees, and family members of the officers and employees of the settlement source. The bill defines “settlement source” to mean an entity from which the market obtains or sources information for the purpose of determining the outcome of a contract. The bill requires a market to maintain a comprehensive list of all settlement sources that are used to determine outcomes of the contracts and is required to make the list readily accessible to persons. The bill prohibits a market from settling a trade based upon proprietary or confidential information. The bill requires each market to implement and adhere to responsible trading measures to protect persons who may be at risk of at-risk trading behaviors. The measures include (1) allowing a person to set personal limits on trading, (2) implementing features that allow persons to view the amount of time spent trading, (3) posting clearly the statewide telephone number approved by the department of health and human services related to gambling, and (4) requiring all advertisements to include an at-risk trading message and the statewide telephone number. The bill places limitations on advertising by the markets including limiting push notifications, depictions of persons under years of age, targeting certain at-risk consumers, implying trading is risk-free, and implying endorsement by the state. The bill requires any offers, bonuses, free credits, referral rewards, or other promotions offered to persons be described in plain language. If a market uses a third party for advertising, the bill specifies the market is responsible for ensuring the third parties comply with the advertising requirements of the bill. The bill prohibits a market from allowing a person to use a credit card or other credit-based product to add funds to any account with the market. The bill prohibits a market to offer a contract if the market includes as a liquidity provider or market maker, any entity who engages in gaming activities in the normal course of business, whether within or outside the state. A market is also required to implement commercially reasonable and technically feasible measures to detect and prevent fraudulent or manipulative conduct by traders. The attorney general is designated to administer and enforce the provisions of the bill. Any market that violates the bill is subject to civil penalties, not to exceed $10,000, for each violation. If the attorney general determines the market engaged in a persistent course of conduct in violation of the bill, the attorney general may impose a civil penalty not to exceed $50,000 for each violation. Whenever the attorney general believes that a market has engaged in a persistent course of conduct in violation of the bill, the attorney general may seek injunctive relief or a temporary restraining order. In situations where a designated contract market continues to operate after an injunction or a temporary order has been issued, the market shall incur a civil penalty in the amount of $1 million for each day the market is operating in violation of the order. A public employee, public official, or lobbyist who trades state or local legislative actions or other governmental actions on the market is guilty of a serious misdemeanor, and may be dismissed from the person’s position or otherwise sanctioned. Prior to permitting persons to trade on a market in this state, the market shall provide the attorney general with a description of the internal controls implemented by the designated contract market to comply with the bill including but not limited to age verification, measures to identify the traders, prevention of insider trading or market manipulation, ability to receive and act upon tips related to insider trading or market manipulation, monitoring trades within the state boundaries, standards used to monitor event-driven contracts and restrictions placed by known violators, prevention of unauthorized withdrawals from the account of a trader, the manner contract funds are segregated from other funds, and the protection of any personal and private information of a trader. The attorney general is required to adopt rules pursuant to Code chapter 17A to administer the bill.