Tuesday, December 6, 2022
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CFTC to Rule on Elections Market Bets

The Commodity Futures Trading Commission (CFTC), which is the primary derivatives regulator in the US, is expected to decide on a very important matter by the end of this week: should traders be allowed to place market bets on the upcoming elections in the country? Opposing voices have issued warnings regarding the risks associated with a favorable decision, should one be taken. 

The Kalshi Decision

The commission has until Friday to decide whether to grant retail-focused futures market Kalshi the right to offer contracts for Democrats VS Republicans wagers. The wagers would, of course, focus on who will come out with flying colors out of the midterm battle. If Kalshi is given the green light, the historical decision would prepare the ground for important establishments ready to buy and sell on the results of the US election result.

Healthy Markets Association’s president Tyler Gellasch is one of the voices that oppose the idea. He argued that while financial products and gambling situations can be easily generated by “most events in the world,” the question of whether it is also a good idea to do it still remains. He also raised concerns over the idea of “market integrity and market manipulation.”

On the other hand, Kalshi’s co-founder and ex-quant dealer Tarek Mansour spoke about the company’s proposal as an effort to offer retail traders the same types of instruments that are normally used by institutional traders to obtain hedged publicity for the outcomes of elections. He further added that the risk from an election “is not just borne by big institutions, it is borne by everyone.”

A Long-Term Ban on US Elections

The US has banned betting on US elections for a long time. In 2012, the CFTC said NO to a similar proposal made by Nadex, a small derivates market, which was asking for futures for political events. The commission used the argument that the respective proposal was going against the curiosity of the general public.

Moreover, binary choices continue to be controversial topics for a number of global regulators. For example, they are outlawed in the UK, where they are considered “gambling products dressed up as financial instruments.” A similar argument was used by Dennis Kelleher, the president of Better Markets, a client monetary reform group in the US. In a letter addressing the CGTC, Kelleher spoke about Kalshi’s proposed contract as something that would add to the “deeply troubling trend toward the ‘gamification’ and ‘realization’ of finance.”

On the other hand, Kalshi’s co-founder Mansour argued that the buying and selling of futures should not be equated with a form of gambling. He spoke about the artificial risk in roulette and sports betting and explained that, in the futures market, that type of risk already exists in a natural way, suggesting that buying and selling futures would resemble insurance more than a type of gambling.

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