SF 2494 (LSB 6960SV (1) 91)

SENATE FILE 2494

BY  COMMITTEE ON WAYS AND MEANS

(SUCCESSOR TO SSB 3195)

A BILL FOR

An Act regulating designated contract markets and providing penalties.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  68B.9  Prohibition on buying or selling event-driven contracts relating to legislative or governmental actions.
   A public employee, public official, or lobbyist, or an immediate family member of the public employee, public official, or lobbyist, shall not buy or sell an event-driven contract on a designated contract market relating to state or local legislative actions or other governmental actions. As used in this section, “event-driven contract” and “designated contract market” mean the same as defined in section 99H.1.
    Sec. 2.  Section 68B.34, Code 2026, is amended to read as follows:
   68B.34  Additional penalty.
   In addition to any penalty contained in any other provision of law, a person who knowingly and intentionally violates a provision of sections 68B.2A through 68B.8 68B.9, sections 68B.22 through 68B.24, or sections 68B.35 through 68B.38 is guilty of a serious misdemeanor and may be reprimanded, suspended, or dismissed from the person’s position or otherwise sanctioned.
    Sec. 3.  NEW SECTION.  99H.1  Definitions.
   1.  “Consumer” means an individual who is a resident of this state.
   2.  “Designated contract market” means a digital marketplace for trading event-driven contracts that is also regulated by the federal commodity futures trading commission.
   3.  “Economic indicators” means a statistic or data point about an economic activity that allows an analyst to assess current economic performance.
   4.  “Event-driven contract” means a financial derivative traded on a designated contract market that provides a fixed binary payout based upon the occurrence or nonoccurrence of a specific future event that is contingent upon and determined solely by the definitive outcome of a verifiable specific event or external measure rather than being based upon the continuous fluctuation of a security price, commodity value, or interest rate that may or may not correlate with traditional market prices or broad economic measures. An “event-driven contract” is limited to those financial derivatives that provide a fixed binary payout related to sporting activities, lotteries, elections, legislative actions, and economic indicators.
   5.  “Settlement source” means an entity from which the designated contract market obtains or sources information for the purpose of determining the outcome of an event-driven contract.
   6.  “Sporting activities” means the outcome of a sporting event, outcomes with the event, or outcomes surrounding the event.
   7.  “Statewide telephone number” means a telephone number authorized by the department of health and human services that provides gambling information.
   8.  “Trade” means a format in which a trader submits an offer to buy a position on a designated contract market at a specific price or range of prices or offers to sell a position at a specific price or range of prices, with market prices determined through the matching of the offers.
   9.  “Trader” means any person buying or selling event-driven contracts on a designated contract market.
    Sec. 4.  NEW SECTION.  99H.2  Age restrictions.
   1.  A designated contract market shall not permit a consumer under twenty-one years of age to register or otherwise open an account, trade, or be a trader of an event-driven contract on the designated contract market.
   2.  If a designated contract market has inadvertently permitted a consumer under twenty-one years of age to register, trade, or otherwise become a trader, the designated contract market shall immediately suspend the account, close all positions of the account, pay out to the consumer any funds in the account, and prohibit the consumer under twenty-one years of age from trading until the consumer has attained twenty-one years of age.
    Sec. 5.  NEW SECTION.  99H.3  Exclusions from trading.
   1.  A designated contract market shall maintain and enforce policies to exclude certain persons from trading including the following:
   a.  (1)  A consumer who voluntarily self-excludes from trading.
   (2)  A designated contract market shall establish a process to allow a consumer to voluntarily self-exclude being a trader. The process shall provide that an initial request by a consumer to be voluntarily excluded shall be for a period of five years or life and any subsequent request following any five-year period shall be for a period of five years or life. The process established shall also require a consumer requesting to be voluntarily excluded be provided information compiled by the department of health and human services on gambling treatment options. The state and any designated contract market shall not be liable to any person for any claim which may arise from this process. In addition to any other penalty provided by law, any money or thing of value that has been obtained by, or is owed to, a voluntarily excluded consumer as a result of trades made by the consumer after the consumer has been voluntarily excluded shall be forfeited by the consumer and shall be credited to the general fund of the state.
   (3)  If a consumer voluntarily self-excludes, the designated contract market must immediately block the access of the consumer to trade and take reasonable steps to prevent the consumer from creating new accounts.
   b.  Any officer, director, employee, or agent of the designated contract market, or any family member of such a person.
   c.  Any officer, director, employee, or agent of a source settlement provider, or any family member of such a person.
   d.  Any person who has insider information on a particular event-driven contract.
   e.  Any person prohibited pursuant to section 68B.9.
   2.  Any exclusion shall be enforced by the designated contract market until the purpose for the exclusion no longer applies.
    Sec. 6.  NEW SECTION.  99H.4  Settlement sources.
   1.  A designated contract market shall maintain a comprehensive list of all settlement sources that are used to determine outcomes of the event-driven contracts and shall make the list readily accessible to consumers at all stages of the registration process.
   2.  Each designated contract market shall display on every section of the internet site of the designated contract market in which a trade may be made the settlement source for the settlement of the trade.
   3.  A designated contract market shall not settle any trade based upon proprietary or confidential information.
    Sec. 7.  NEW SECTION.  99H.5  Limitations on trading.
   1.  Each designated contract market shall implement and adhere to responsible trading measures to protect consumers who may be at risk of at-risk trading behaviors.
   2.  The measures shall include all of the following:
   a.  Allowing a consumer to set daily, weekly, or monthly limits on the amount that can be deposited into an account or spent on trading.
   b.  Implementing features that allow consumers to limit the amount of time spent on the internet site of the designated contract market, including periodic notifications that remind consumers of how long the consumer has been active on the designated contract market, and the net winnings or losses during the session of trading.
   c.  Posting clearly the statewide telephone number and other extensive responsible gaming features including the ability to self-exclude pursuant to section 99H.3.
   d.  Requiring all advertisements and marketing materials to include an at-risk trading message and the statewide telephone number.
    Sec. 8.  NEW SECTION.  99H.6  Advertising.
   1.  Every designated contract market shall comply with the advertising standards set forth in this section.
   2.  Advertisements by a designated contract market shall not do the following:
   a.  Send push notifications to consumers which pertain to bonuses on trades the consumer has not taken a position on.
   b.  Depict persons under twenty-one years of age, except incidentally.
   c.  Target consumers under twenty-one years of age.
   d.  Target consumers in a manner that is calculated to reach consumers that have voluntarily self-excluded or have engaged in problem gambling.
   e.  Imply trading is risk-free or use similar language.
   f.  Imply endorsement by the state.
   3.  Advertisements by a designated contract market shall do the following:
   a.  Be truthful and not misleading.
   b.  Include the statewide telephone number that is visible for the entire duration of the advertisement, or in circumstances where the advertisement is auditory, the statewide telephone number shall be stated at the beginning and the end of the advertisement.
   c.  Provide consumers with a readily accessible way to opt out of direct marketing, upon the request of the consumer.
   4.  If the designated contract market offers bonuses, free credits, referral rewards, or other promotions to consumers, the terms and conditions of the offers must be described in plain language.
   5.  If a designated contract market uses a third party to promote the designated contract market, the designated contract market is responsible for ensuring the third party complies with the advertising requirements of this section.
    Sec. 9.  NEW SECTION.  99H.7  Extending credit.
   A designated contract market shall not permit a consumer to use a credit card or other credit-based product to add funds to an account of the consumer.
    Sec. 10.  NEW SECTION.  99H.8  Restrictions on market making.
   1.  A designated contract market shall not offer an event-driven contract in this state if the designated contract 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.
   2.  The prohibition in subsection 1 applies to any affiliated entities, subsidiaries, parent companies, joint ventures, partnerships, agents, employees, or any other entity acting at the direction of, or in cooperation with, or for the financial benefit of the entity acting as a liquidity provider or market maker.
    Sec. 11.  NEW SECTION.  99H.9  Insider trading and market manipulation.
   1.  A designated contract market shall implement commercially reasonable and technically feasible measures to detect and prevent fraudulent or manipulative conduct by traders.
   2.  If the designated contract market detects potential manipulation by traders, the designated contract market shall notify the attorney general, and, if appropriate, law enforcement.
    Sec. 12.  NEW SECTION.  99H.10  Penalties —— injunction.
   1.  The attorney general shall administer this chapter and enforce the provisions of this chapter.
   2.  Any designated contract market that violates any provision of this chapter is subject to civil penalties, not to exceed ten thousand dollars, for each violation.
   3.  If the attorney general determines the designated contract market engaged in a persistent course of conduct in violation of this chapter, the attorney general may impose a civil penalty not to exceed fifty thousand dollars for each violation.
   4.  a.  Whenever the attorney general believes that a designated contract market has engaged in a persistent course of conduct in violation of this chapter, the attorney general may seek injunctive relief or a temporary restraining order pending the outcome of an enforcement proceeding under this chapter. In such an action, any injunctive relief or temporary restraining order granted shall be governed by the applicable Iowa rules of civil procedure.
   b.  Where a designated contract market continues to operate in the state after an order has been granted under paragraph “a”, the designated contract market shall incur a civil penalty in the amount of one million dollars for each day the designated contract market is operating in violation of the order.
   5.  Nothing in this section shall be construed to preclude criminal prosecution under any other law.
    Sec. 13.  NEW SECTION.  99H.11  Internal controls —— reporting.
   1.  Prior to permitting consumers to trade on a designated contract market, the designated contract market shall provide the attorney general with a description of the internal controls implemented by the designated contract market to comply with this chapter 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, standards used to monitor event-driven contracts and restrictions placed on known violators, monitoring trades within the state boundaries, prevention of unauthorized withdrawals from the account of a trader, the manner event-driven contract funds are segregated from other funds, and the protection of any personal and private information of a trader.
   2.  After receiving the information provided in subsection 1, the attorney general shall have thirty days to approve trading on the designated contract market by consumers, or to request additional information, and if such additional information is requested, the thirty-day time period shall begin anew.
   3.  If, after the approval of the internal controls in subsection 1, the designated contract market changes any of the approved internal controls, the designated contract market shall be required to submit the changes to the attorney general for review at least fifteen days prior to implementing any changes to the internal controls.
    Sec. 14.  NEW SECTION.  99H.12  Rules.
   The attorney general shall adopt rules pursuant to chapter 17A to administer this chapter.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill regulates designated contract markets.
   The bill defines “designated contract markets” (market) to mean a digital marketplace for trading event-driven contracts that is also regulated by the federal commodity futures trading commission.
   The bill defines “event-driven contracts” (contract) to mean a financial derivative traded on a designated contract market that provides a fixed binary payout based upon the occurrence or nonoccurrence of a specific future event that is contingent upon and determined solely by the definitive outcome of a verifiable specific event or external measure rather than being based upon the continuous fluctuation of a security price. 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 21 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 21 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.