Regulatory Strategy & Compliance
How TheSixNines Differs from Binary Options
Executive Summary
TheSixNines is NOT a binary options platform. We operate as a skill-based entertainment platform with competitive prediction elements, similar to fantasy sports and poker rather than financial derivatives.
This distinction is critical for regulatory classification in the US and internationally.
🚫 Why We Are NOT Binary Options
| Binary Options | TheSixNines | Difference |
|---|---|---|
| Investment Product - Marketed as financial investment | Entertainment Platform - Marketed as skill-based prediction game | ✓ Not an investment vehicle |
| CFTC/SEC Jurisdiction - Falls under commodities/securities regulation | Gaming/Gambling Jurisdiction - Falls under state gaming commissions | ✓ Different regulatory body |
| All-or-nothing payout - Fixed return or total loss | Skill-weighted outcomes - Multiple prediction types, parlay options, strategic elements | ✓ Not binary outcome |
| No social element - Solo trading only | Competitive leaderboards, leagues, social features - Community-driven | ✓ Social gaming aspect |
| Marketed to investors - Promises returns | Marketed as entertainment - Emphasizes skill, competition, fun | ✓ Entertainment focus |
Legal Classification Strategy
1. Skill-Based Entertainment Platform
Positioning: TheSixNines is a skill-based competitive platform where users predict market movements using analysis, strategy, and timing—similar to daily fantasy sports (DFS).
Legal Precedent: Daily Fantasy Sports (DFS)
- DraftKings & FanDuel: Classified as skill-based gaming, not gambling, in 45+ US states
- Key factor: Outcome depends on participant skill, knowledge, and strategy
- TheSixNines parallel: Users must analyze price trends, timing, and market conditions to succeed
Strategic elements that demonstrate skill:
- Choosing optimal entry timing (which 10-minute window to predict)
- Analyzing recent price trends and volatility
- Asset selection based on market knowledge
- Parlay strategy and risk management
- League progression through consistent performance
2. Peer-to-Peer Competitive Gaming (Not House vs. Player)
Model: Implement peer-to-peer prediction pools where users compete against each other, not the house.
- House role: Platform operator taking a rake/fee (similar to poker)
- User role: Competing against other users' predictions
- Outcome: Distributed payouts from a shared pool
Regulatory Advantage: P2P gaming is more favorably regulated than house-banked games. Poker rooms operate legally in many jurisdictions where casinos cannot.
3. Clear Distinction from Financial Products
Explicit Terms of Service Language:
"TheSixNines is an entertainment platform offering skill-based prediction games. This is not investment advice, financial trading, or a securities product. Users are predicting outcomes for entertainment purposes only. No participant should expect financial returns, and all predictions are for recreational purposes."
Marketing Guidelines:
- ❌ Never use: "Investment", "Trading", "Returns", "Profit", "Portfolio"
- ✅ Always use: "Prediction", "Betting", "Entertainment", "Competition", "Skill-based gaming"
Jurisdiction-Specific Strategy
United States
1. Avoid CFTC/SEC Oversight
- CFTC: Regulates commodity derivatives (including binary options on stocks)
- SEC: Regulates securities and investment products
- Our approach: Position as gaming/entertainment under state gaming commissions, not federal financial regulators
2. State-by-State Licensing
- Target states where skill-based gaming is explicitly legal (CO, NJ, MI, PA, IN)
- Obtain gaming licenses, NOT money transmission or securities licenses
- Partner with state-approved gaming operators for compliance
3. Referencing the UIGEA Carve-Out
The Unlawful Internet Gambling Enforcement Act (2006) exempts:
"Fantasy sports games that meet specific criteria"
Criteria:
- ✅ Outcome based on skill → TheSixNines requires market analysis
- ✅ Outcome determined by statistical performance → Stock prices are publicly available data
- ✅ Not based on score/performance of a single event → Multiple 10-minute windows daily
4. US Market Entry Strategy: The FCM Partnership Path
Following Polymarket & Kalshi's Legal Precedent
Three Paths to US Market Entry:
| Approach | Cost | Timeline | Example |
|---|---|---|---|
| 1. Acquire a DCM | $112M+ | Immediate (if approved) | Polymarket bought QCX |
| 2. Apply for DCM | $2M-$5M | 18-24 months | Kalshi (approved 2020) |
| 3. FCM Partnership ✓ | $250k-$500k | 6-12 months | FanDuel, PrizePicks, Robinhood |
Our Recommended Path: FCM Partnership Model
What is an FCM? A Futures Commission Merchant acts as an intermediary, offering DCM-listed contracts to customers. Think of it as "white-labeling" Kalshi or Polymarket's CFTC-approved event contracts.
How the FCM Model Works:
- Register as FCM with CFTC/NFA ($500 application fee)
- Meet capital requirements ($1M minimum adjusted net capital)
- Partner with a DCM (Kalshi, Polymarket, or Crypto.com)
- Integrate their API to offer event contracts on TheSixNines
- Launch to US users with CFTC-compliant contracts
Real-World Examples (2025):
- FanDuel + CME Group: FanDuel operates as FCM, offering CME's event contracts via partnership
- PrizePicks + Kalshi: FCM partnership allows PrizePicks to offer prediction markets
- Robinhood + Kalshi: Robinhood provides Kalshi markets through its existing FCM status
FCM Registration Requirements:
| Requirement | Details | Cost |
|---|---|---|
| Minimum Capital | $1M adjusted net capital | $1,000,000 |
| Application Fee | Form 7-R (firm) + Form 8-R (principals) | $500 + $85/person |
| NFA Membership | Annual registration maintenance | $100/year |
| Proficiency Exams | Series 3 exam for associated persons | $130/exam |
| Background Checks | FBI fingerprinting for principals | $50/person |
| Legal & Compliance | Law firm, compliance setup | $150k-$250k |
The Polymarket & Kalshi Precedent:
Polymarket's Journey:
- January 2022: CFTC fined Polymarket $1.4M for operating unregistered event-based binary options
- 2022-2024: Blocked from US, operated only internationally
- July 2024: DOJ & CFTC ended investigations without charges
- September 2025: Bought QCX (licensed DCM) for $112M, regained US market access
- Result: Now legal in US through DCM ownership
Kalshi's Journey:
- 2020: Registered as CFTC Designated Contract Market (DCM)
- 2024-2025: Court battle with CFTC over political event contracts
- May 2025: CFTC dropped appeal, Kalshi won right to offer political contracts
- 2025: Listed 2,000+ event contracts, processed $500M+ during March Madness alone
- Result: Self-certifies new contracts without CFTC pre-approval
Why FCM Partnership is Best for TheSixNines:
- Fast time-to-market: 6-12 months vs 18-24 months for DCM approval
- Capital efficient: $250k-$500k total vs $112M to acquire DCM
- Proven regulatory path: CFTC-approved model used by major players
- Immediate access to contracts: Kalshi has 2,000+ pre-approved event contracts
- Lower regulatory burden: DCM handles contract approval, we handle distribution
- Scalable: Can partner with multiple DCMs (Kalshi, Polymarket, Crypto.com)
Regulatory Risks & Mitigation:
| Risk | Mitigation |
|---|---|
| State-level challenges California tribes sued Kalshi claiming contracts are illegal gambling |
• Partner with DCM for legal defense • Geographic restrictions for hostile states • Focus on CFTC-friendly states first |
| CFTC policy changes No-action letters can be rescinded |
• Diversify: Maintain Curacao license for international • Monitor regulatory developments • Maintain multiple DCM partnerships |
| Capital requirements $1M minimum + ongoing compliance costs |
• Raise dedicated compliance fund • Project $100k/year ongoing costs • Build into US expansion budget |
Canada
Classification: Gaming/lottery under provincial jurisdiction
- Work with provincial gaming authorities (e.g., AGCO in Ontario)
- Obtain gaming operator license
- Emphasize skill-based nature (legal in most provinces)
European Union
MiFID II Concerns: Binary options on financial instruments are BANNED in EU since 2018
Our differentiation:
- TheSixNines is entertainment prediction platform, not a financial instrument
- Not marketed to retail investors
- Obtain gambling licenses from individual EU member states (Malta, Gibraltar for remote gambling)
Brazil
Status: Sports betting legalized January 2025
Opportunity: Apply for sports betting license, position as "prediction gaming" similar to sportsbook
- Crypto-friendly payment infrastructure
- Massive underserved market (203M people)
Compliance Infrastructure
1. KYC/AML Requirements
- Identity Verification: All real-money users verified via Jumio/Onfido
- Age Verification: 18+ or 21+ depending on jurisdiction
- Transaction Monitoring: Flag suspicious activity, large deposits/withdrawals
- Sanctions Screening: Block users from OFAC-sanctioned countries
2. Responsible Gaming
- Deposit limits ($500/day, $2,000/month default)
- Self-exclusion tools
- Reality checks (time limits, session reminders)
- Partnership with National Council on Problem Gambling
3. Legal Counsel & Advisory
- Gaming law firm: Dickinson Wright (specialists in skill-based gaming)
- Regulatory consultants: Advise on each jurisdiction's licensing
- Government relations: Proactively engage with regulators
Risk Mitigation
| Regulatory Risk | Mitigation Strategy | Status |
|---|---|---|
| Classified as binary options by CFTC |
|
✓ Low Risk |
| State gambling violations (US) |
|
✓ Managed |
| EU MiFID II binary options ban |
|
✓ Addressed |
| Payment processor restrictions |
|
✓ Multiple options |
Timeline to Full Compliance
Month 1-2: Legal Foundation
- Engage gaming law firm (Dickinson Wright)
- Draft Terms of Service emphasizing entertainment/skill
- Establish corporate entity in gaming-friendly jurisdiction (Malta or Delaware)
Month 3-4: Pilot Jurisdiction Licensing
- Apply for gaming license in 1-2 US states (Colorado, New Jersey)
- Apply for remote gambling license (Malta or Curaçao)
- Implement KYC/AML infrastructure
Month 5-6: Limited Launch
- Launch in licensed jurisdictions only
- Real-money beta with 100-1,000 users
- Monitor regulatory feedback
Month 7-12: Expansion
- Apply for additional state licenses (MI, PA, IN)
- Launch in Canada (provincial licenses)
- Launch in Brazil (newly legalized market)
Year 2: International Growth
- EU expansion (member state licenses)
- UK Gambling Commission license
- Australia (gray area, but possible)
Investor Implications
✅ Why This Strategy Works
- Clear legal differentiation from banned binary options platforms
- Multiple regulatory pathways (gaming, not financial)
- Proven precedent (DFS model is legal in 45+ states)
- Proactive compliance from day one
- Geographic diversification reduces single-jurisdiction risk
Licensing Costs (Estimated)
| Jurisdiction | Initial Cost | Annual Renewal | Timeline |
|---|---|---|---|
| US State License (e.g., NJ) | $50,000 - $150,000 | $25,000 - $50,000 | 6-12 months |
| Malta Remote Gambling License | €25,000 | €15,000 | 6-9 months |
| Curaçao Gaming License | $15,000 | $10,000 | 2-3 months |
| UK Gambling Commission | £5,000 - £10,000 | £3,000 - £5,000 | 6-12 months |
Total Year 1 Compliance Budget: $300,000 - $500,000
Final Conclusion
TheSixNines is positioned as a skill-based entertainment platform, NOT a financial product or binary options platform.
By emphasizing:
- ✅ Entertainment and competitive gaming aspects
- ✅ Skill-based decision making
- ✅ Social and community features
- ✅ Peer-to-peer competition model
- ✅ Clear distinction from investment products
We establish a clear legal framework that is defensible, scalable, and aligned with successful precedents like DFS platforms.