Kalshi wants to offer event contracts on congressional control US has long refused to greenlight derivatives on elections

The top US derivatives regulator is poised to deny a plan that could let Americans bet on politics ahead of next month’s elections.

Commodity Futures Trading Commission staff have recommended that the agency reject a bid by the exchange Kalshi Inc. to offer contracts that would let people wager $25,000 on which party will control Congress, according to people with knowledge of the matter. While the agency’s five politically appointed commissioners must also vote, they don’t typically override such recommendations.

Although betting on politics is common in countries like the UK, Washington regulators have generally blocked derivatives to wager on elections. 

A representative for the agency declined to comment. Kalshi didn’t immediately respond to a request for comment. 

Political-gambling enthusiasts have been optimistic on the prospects of the CFTC greenlighting the plan from Kalshi. The exchange is already registered with the regulator and has legally let people wager on everything from President Joe Biden’s approval ratings to the next Covid-19 wave. 

In event contracts like the ones that Kalshi offers, prices settle at either $1 if the event happens, or zero if not and the price fluctuates before then, depending on how likely the market considers the occurrence.

Kalshi has argued that adding political outcomes to the mix would let people hedge against how changes in congressional control may impact everything from climate to health policies. 

As of Friday afternoon, Kalshi had a clock on its website titled, “Countdown to election markets.” It appeared to be ticking off seconds to midnight New York time, and included a disclaimer that read: “Pending regulatory approval.”

In general, prediction markets have been viewed with a mixture of fascination and skepticism by the US news media and election watchers. Backers say they’re more accurate than polling, but there have been occasional concerns about market manipulation to increase the perception of a candidate’s performance.

The space is also fraught with questions over what runs afoul of US rules. The CFTC has the power to stop exchanges from listing derivatives contracts relating to “terrorism, assassination, war” and “gaming” if it deems them to be “contrary to the public interest.” 

Gaming?

However, the regulator hasn’t defined what constitutes gaming under its rules. 

Exchange operators have asked the CFTC for more clarity on how its rules apply to events contracts. CME Group Inc. has started offering non-political event contracts that are tied to daily trading in major financial indexes, foreign exchange rates, or the price of commodities like gold and oil. 

The CFTC recently revoked the legal authority that PredictIt, another exchange, had used to offer betting on elections. That move sent shockwaves through the political-gambling industry and raised the stakes for the regulator’s decision on Kalshi’s plan. 

https://www.bloomberg.com/news/articles/2022-10-28/cftc-poised-to-deny-us-political-gambling-before-november-polls