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Introducing the new rules of capital, the Competitive Enterprise Institute’s regular update on developments in financial regulation.

Prediction markets

CEI sues Wisconsin over prediction markets ban. Court denies preliminary relief.

On October 17, CEI filed a lawsuit in the federal district court for the Eastern District of Wisconsin against the Wisconsin Elections Commission (WEC) over its threat to disqualify and prosecute voters who participate in prediction market trades about elections in which they cast a ballot. This policy violates the US Constitution’s guarantees of free speech, equal protection, and the right to vote. The lawsuit sought an injunction to protect voters who wish to participate in these markets without forfeiting their civil rights. On November 2, the court denied CEI’s motion for a preliminary injunction against the rule. CEI and Mr. Giganti remain committed to fighting against Wisconsin’s unconstitutional infringements on the right to vote. 

CFTC sues states to protect prediction markets. Utah AG files criminal charges anyway.

The Commodity Futures Trading Commission (CFTC) filed suit on October 26 to stop Utah from using state law to shut down CFTC-registered contract markets, arguing that the Commodity Exchange Act of 1936 and the Constitution’s Commerce Clause give it “exclusive jurisdiction” over commodity derivatives, including event contracts. “Event contracts do not just serve hedging and investment purposes,” said Chairman Michael Selig, “they also provide the public with information about the outcome of future events.” Prediction markets improve the reliability of forecasts by harnessing the profit incentive of investors who stake their own money on the accuracy of their predictions, yet state officials have imposed barriers against investors’ access to this innovation. 

Since April, the Commission has brought preemption actions against state attempts to assert authority over prediction markets in Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. Courts granted the government preliminary injunctions against Arizona, Illinois, and Minnesota. As commodities exchanges, prediction markets belong under the sole regulatory jurisdiction of the CFTC.

In the face of this ongoing litigation, Utah Attorney General Derek Brown filed criminal charges on October 28 against the prediction market platform Kalshi and its two co-founders for allegedly promoting illegal online gambling in the Beehive State. The charges include 13 felony counts stemming from undercover agents placing wagers on sports events through the platform in September.  

The state-level geofencing that prediction markets like Kalshi put in place in response to state enforcement actions has created a shifting regulatory patchwork. On November 5, the CFTC issued an interpretation of its Impartial Access Requirements under Commission Regulation 38.151(b), directing designated contract markets to end domestic geographic access restrictions.


Crypto

Comptroller of the Currency allows interest on stablecoins but requires reserve liquidity.

The GENIUS Act, enacted July 18, 2025, charged the Office of the Comptroller of the Currency (OCC) with writing rules clarifying the legal obligations of stablecoin issuers. On October 21, the OCC issued its final rule governing the issuers of payment stablecoins, largely adopting the regulatory restraint recommended earlier this year by CEI Senior Fellow John Berlau. The rule allows cryptocurrency exchanges such as Coinbase to continue paying users interest or rewards on their stablecoin balances, rejecting pushback from the banking industry which sought to ban the practice. While the Act prohibits stablecoin issuers from paying interest or rewards to token holders, it places no such restriction on third-party token exchanges.

The rule would subject stablecoin issuers to OCC examinations at least once a year, closely resembling long-standing bank examination rules. Unlike banks, however, stablecoin issuers must operate on a full reserve basis, holding assets equal to or exceeding their liabilities. Under the rule, effective January 18, 2027, issuers must hold at least $5 million in reserve plus a backstop covering 12 months of operating expenses. Though payment stablecoin issuers have enjoyed flexibility in determining the composition of their reserves, the new rule will require issuers to keep at least five percent of their reserves in liquid assets such as bank deposits, short-term Treasury bonds, or other assets redeemable within two business days.

Major payment stablecoin issuers USD1 and Ripple USD have maintained reserves in relatively illiquid assets such as money market funds and long-term Treasuries. By requiring these issuers to convert much of their reserves, which stood at a combined $6.3 billion as of June 30, from illiquid assets to liquid ones, the GENIUS Act will reduce the diversity of risk profiles among American payment stablecoin issuers. The Act’s OCC examination and reserve composition requirements do not apply to “offshore” tokens such as Tether. The British Virgin Islands-incorporated issuer’s USDT token made up more than 60 percent of the nearly $291 billion stablecoin market capitalization as of November 9.


Banking

FDIC scraps a costly recordkeeping requirement.

The Federal Deposit Insurance Corporation (FDIC) has, since 2016, offloaded part of the administrative work of insuring deposits onto its largest member banks. A new rule would bring that work back in-house.

On October 30, the FDIC Board of Directors voted to rescind its 2016 12 CFR Part 370 rule, which required banks with two million or more deposit accounts to build and maintain private IT systems that can calculate deposit insurance coverage for every account. Under the new rule, the nation’s 31 largest banks will instead fall under the lighter data requirements of 12 CFR section 360.9, which FDIC Chairman Travis Hill said would relieve banks subject to the Part 370 recordkeeping requirement while preserving “streamlined recordkeeping requirements important for the FDIC’s ability to conduct a prompt deposit insurance determination.” Comments on the proposed Large-Bank Deposit Insurance Determination Modernization rule are due 60 days after its November 4 publication in the Federal Register.


Corporate governance

SEC intends to rescind shareholder proposal rules, devolving authority to states.

On September 21, the Securities and Exchange Commission (SEC) published a Notice of Proposed Rulemaking expressing the Commission’s intent to rescind Rule 14a-8 and amend Rule 14a-4(c) under the Securities Exchange Act of 1934. By rescinding Rule 14a-8, the Commission would relinquish its regulatory authority to determine what shareholder-submitted proposals companies must submit to their shareholders for a vote.

Rule 14a-8 establishes eligibility thresholds (currently $2,000 in voting shares held for three years, $15,000 for two years, or $25,000 for one year) for shareholders qualified to submit proposals and sets procedural and substantive bases on which a company may exclude proposals from consideration. The rule’s low thresholds have enabled small groups of activist shareholders to capture the shareholder voting process to advance environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) agendas unrelated to shareholder value.

This national, one-size-fits-all rule has also implicitly preempted state-level rules and discouraged companies from adopting their own individualized shareholder-engagement standards in their governing documents. Determinations about the proposals that shareholders may consider properly belong with states and with individual firms and their investors. The SEC’s rescission will facilitate interstate competition, allowing Wyoming, for example, to craft shareholder-proposal rules distinct from those in Delaware, much as states already compete on incorporation terms, fiduciary standards, and board structure rules. Rescinding Rule 14a-8 will allow firms to compete to attract capital by implementing shareholder voting rules tailored to a spectrum of investors’ preferences.


Futures and derivatives

CFTC prepares for round-the-clock trading.

The Commission will host a public roundtable on December 15 on moving derivatives markets to 24/7 trading, covering overnight sessions, tokenization, staffing, and operational readiness. The roundtable follows a request for comment on 24/7 trading that the agency issued on July 28.