US regulators deny derivative exchange’s bid to offer wagers on congressional elections.
US Regulators Reject Kalshi’s Bid to Offer Bets on Congressional Elections
The Commodity Futures Trading Commission (CFTC) has denied prediction market Kalshi’s request to allow bets on America’s congressional elections. In a 23-page order, the CFTC stated that Kalshi’s proposed contracts for congressional control political events constitute prohibited gaming activity.
Kalshi, overseen by the CFTC, enables traders to bet on various outcomes, ranging from inflation rates to government shutdowns and even the emergence of new COVID-19 strains.
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In June, Kalshi proposed cash-settled, binary contracts for congressional elections, allowing market players to bet up to $100 million on which political party would gain control of Capitol Hill.
However, the CFTC determined that these contracts violated state laws and were contrary to the public interest. The Commodity Exchange Act lists gaming and activities that violate state or federal laws as commodities for which derivatives may be against the public interest.
CFTC Chairman Rostin Benham stated that betting on elections, as proposed by Kalshi, falls under the definition of gaming and is prohibited in many states.
The CFTC’s decision means that Kalshi’s proposed election wager contracts are prohibited from being listed or traded on its platform.
CEO of Kalshi, Tarek Mansour, expressed disagreement with the decision and stated that the company is evaluating its options. He compared the skepticism faced by Kalshi to other now-common financial products such as insurance and exchange-traded funds.
While one Republican commissioner abstained from the vote, the CFTC’s decision was reached in a 3-1 vote, with all three Democratic commissioners voting against approval.
Dennis Kelleher, CEO of Better Markets, praised the CFTC’s decision, stating that Kalshi’s proposal violated provisions of the Commodities Exchange Act and could lead to election interference and illegal conduct.
Overall, the CFTC’s rejection of Kalshi’s bid to offer bets on congressional elections aims to prevent potential manipulation and maintain the integrity of the political system.
What are the potential benefits of prediction markets, as acknowledged by the CFTC, and how do they improve the efficiency of markets?
The decision to reject Kalshi’s request comes as a blow to the platform, which had aimed to become the first provider of prediction markets for political events in the United States. The company’s goal was to allow traders to bet on the control of Congress, providing an alternative way for individuals to participate in the political process and potentially profit from their predictions.
Prediction markets have been gaining traction in recent years, with platforms like PredictIt and Augur allowing users to bet on various outcomes, such as election results and the likelihood of certain events occurring. These markets are considered valuable tools for assessing public sentiment and aggregating information, as they allow individuals to back their beliefs with their own money.
However, the CFTC’s rejection of Kalshi’s request highlights the regulatory challenges faced by prediction market operators. The agency argued that allowing bets on political events would raise concerns about potential market manipulation, as well as ethical considerations regarding the monetization of political outcomes. They emphasized that such markets could undermine the integrity of the political process by incentivizing participants to put their financial interests above the collective good.
In their order, the CFTC acknowledged the potential benefits of prediction markets, stating that they “can lead to more accurate forecasts and improve the overall efficiency of markets.” However, they emphasized that the prohibition on gaming activities under the Commodity Exchange Act should not be disregarded, as it serves to protect public interests and maintain the integrity of the financial system.
While the rejection of Kalshi’s request is a setback for the company, it is not necessarily the end for prediction markets on political events in the United States. The CFTC’s decision leaves open the possibility for future regulatory frameworks that could allow for such markets under specific conditions and safeguards.
In the meantime, prediction market enthusiasts will have to rely on platforms like PredictIt to engage in political betting. As the demand for these markets continues to grow, it will be interesting to see how regulators strike a balance between innovation and public protection in this evolving industry.
Overall, the CFTC’s rejection of Kalshi’s bid to offer bets on congressional elections underscores the challenges faced by prediction market operators in navigating the complex regulatory landscape. While the potential benefits of prediction markets are recognized, concerns over market manipulation and ethical considerations have led regulators to maintain a cautious approach. As the industry continues to develop, it is crucial for regulators and market operators to engage in dialogue and explore potential frameworks that strike a balance between innovation and protection.
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