A top Wall Street regulator hopes to send a strong message that gambling on democratic outcomes has no place in its financial markets.
Recent moves from the Commodity Futures Trading Commission (CFTC) have intensified a battle over the future of political betting sites in the US.
Politico reported that the CFTC voted 3-2 on May 10 to issue a new rule proposal that would effectively ban wagers on political elections. The CFTC regulates the vast and complex derivatives markets in the US, and for years has rejected applications to offer day traders and political junkies the chance to bet on elections including for the White House and Congress. Its new plan would also prohibit bets related to award ceremonies like the Oscars.
“Contracts involving political events ultimately commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process,” said CFTC Chair Rostin Benham. “Allowing these contracts would push the CFTC, a financial market regulator, into a position far beyond its Congressional mandate and expertise. To be blunt, such contracts would put the CFTC in the role of an election cop.”
What’s At Stake?
The ‘contracts’ Benham refers to are designed to provide investors a way to bet on any range of outcomes while offering companies a new tool to protect their businesses and portfolios from geopolitical risks, economic downturns, or in the case of election-betting contracts, policy swings.
In recent years, the CFTC has rejected an election-betting bid by derivatives exchange startup Kalshi, a firm that offers markets related to whether the US will ban TikTok within the year, Costco membership rates, and how many times the Federal Reserve will cut interest rates. The regulator also moved to ban popular platform PredictIt, which offers election-specific contracts including ones related to the upcoming November election.
Benham also said that more event contracts have been listed for trading in the last three years than in the previous 15 combined, so the markets are clearly showing increased interest in these political wagering products. The data created by these markets could be used by economists, journalists, and Washington insiders looking to gauge voter sentiment.
Yay Or Nay
The 3-2 vote split the 5-person Commission by political party, with the three Democratic commissioners supporting the proposal and the two Republicans voting against it.
Both Kalshi and PredictIt have fired back with lawsuits challenging the agency’s decisions, and PredictIt’s co-founder and CEO John Aristotle Phillips called the proposal “ill-conceived” and “a mistake.”
Democratic Commissioner Kristin Johnson cited the need to preserve the integrity of the US’s electoral Democratic processes as a key force driving the new proposal:
“Free and fair elections have served as a foundational cornerstone of power in Democracy and the decision-making process underlying our elections must remain sacrosanct.”
Many Democratic lawmakers and critics have raised similar concerns about these election products, with Oregon’s Senator Jeff Merkley calling Kalshi’s proposal “a clear threat to our democracy and elections.”
Proponents of election betting and related political betting sites cite concerns that investors will just move their money to unsanctioned, offshore markets where consumer protection goes out the window. Rep. Dusty Johnson (R-SD) wrote a letter to the CFTC that six other lawmakers on both sides of the aisle co-signed, raising concerns about pushing the event contracts market out of the US.
Kalshi CEO Tarek Mansour said his company will be engaging the CFTC and Congress about the new plan “to ensure that our customers can participate in legitimate trading with legitimate use cases on a legitimate, regulated exchange and not on offshore and illegal markets where there is no customer protection or market integrity.”
2024 President Election Betting Odds
It’s all but assumed at this point that it will be Joe Biden versus Donald Trump on the Presidential ballot come November. Will Diamond Joe shine? At present, Biden trails Trump by a thin margin in 2024 Presidential Election odds, with overseas conflicts, inflation, and border control all impacting his low approval rating at the moment.
bet365 currently lists Trump as the odds-on-betting favorite at -110 even though the former President has been indicted in four criminal cases on a total of 91 felony counts. If everything were to somehow add up in those cases, Trump could serve up to… (this is a real number) … 717.5 years in prison with convictions on all of his charges.
Meanwhile, former First Lady Michelle Obama has even swooped into the mix with bet365 listing her at +2,500 to win the election.
