Novig loses court shield, and New York gambling laws strike back
A judge said state rules could apply even if its sports contracts were swaps; Novig appealed the preliminary denial. Read the full story on CryptoSlateUnderstand the crypto stories that matter and what to watch next. Get The Catalyst in your inbox
Sports event-contract exchange Novig was denied preliminary protection from New York's gambling laws on Nov. 10, with a federal judge concluding that the sports contracts at issue remained subject to state rules despite its federal exchange designation.
The opinion goes beyond whether those contracts qualify as swaps under federal commodities law. The judge reasoned that even assuming they do, New York could still apply its gambling rules to the betting activity.
Novig filed a notice of appeal to the US Court of Appeals for the Second Circuit that same day, challenging the denial of its preliminary-injunction request.
The dispute separates permission to operate a federally designated exchange from protection against state sports-betting requirements.
According to the opinion, the Commodity Futures Trading Commission (CFTC) designated Novig as a contract market on June 16, and Novig announced availability of New York sports contracts on Aug. 4.
Related ReadingAt this preliminary stage, US District Judge McMahon first concluded that Novig's sports contracts fell outside the Commodity Exchange Act's definition of swaps.
The judge accepted that sporting outcomes could qualify as events or contingencies. Applying her contextual reading of the statute, she found that Novig's contracts lacked the required inherent financial, economic or commercial connection.
Federal designation of the exchange left the court to decide the classification of the particular contracts.
The opinion also considered the alternative assumption that the contracts are swaps.
McMahon reasoned that even then, the CFTC's exclusive jurisdiction left room for some state rules affecting an exchange. She distinguished federal control over the licensing and operation of designated contract markets from the incidental application of New York gambling laws to betting conducted on them.
That creates a second obstacle for Novig's federal-shield argument, which is that establishing swap status alone would leave the opinion's separate reasoning about the survival of state gambling law to be addressed.