As preparations for the 2024 US congressional elections ramp up, the Commodity Futures Trading Commission has made a significant decision regarding political betting contracts. The regulator announced that Kalshi, a futures market based in San Francisco, would not be allowed to offer contracts allowing investors to bet on the control of different chambers of the US Congress by political parties.
The proposed contracts by Kalshi, which would have been binary, cash-settled, and based on the question of which party would control Congress chambers, were deemed to involve gaming and activities that are unlawful under state law and against the public interest. Despite disagreements from Kalshi’s CEO Tarek Mansour, the decision stands, raising concerns about the potential impact of mixing gambling and trading on US democracy.
In the past, the CFTC rejected similar proposals for political event futures, highlighting the importance of upholding the public interest in regulatory decisions. Tyler Gellasch, president of the Healthy Markets Association, noted that while the decision may not be surprising, there could be potential legal challenges in the future. With the increasing willingness of courts to question regulatory decisions, the outcome remains uncertain.
Currently, investments related to political outcomes can be made through traditional financial instruments like currencies, stocks, and bonds affected by political events. Banks may also offer politically focused derivatives, but these contracts are largely unregulated and traded bilaterally. Kalshi’s request sought to bring its contracts under regulatory oversight, potentially opening the door for similar offerings from other exchanges.
If approved, Kalshi’s contracts would have allowed investors to predict the political party controlling the US House of Representatives or Senate, with correct guesses resulting in payouts and incorrect ones leading to the loss of the original investment. As the US approaches the 2024 election, the decision has implications for the broader financial landscape and potential future regulatory actions on political betting contracts.
Looking ahead, the CFTC’s decision underscores the complexities of allowing speculative bets on political outcomes and the need to balance innovation with regulatory oversight. With the upcoming election presenting high stakes for both parties and President Joe Biden’s potential re-election campaign, the implications of the decision could have far-reaching consequences for the intersection of money and politics in the race for the White House. Unlock the US Election Countdown newsletter for free to stay informed on the latest developments in the money and politics landscape.
Discussion about this post