CFTC Proposes Ban on Political Betting Contracts

The CFTC proposes to ban trades on political events, deeming them "contrary to the public interest" and equivalent to illicit contracts on war and terrorism. The proposed rule would affect online prediction market platforms, including PredictIt and Kalshi, and is open to a 60-day public comment period.

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CFTC Proposes Ban on Political Betting Contracts

CFTC Proposes Ban on Political Betting Contracts

The U.S. Commodity Futures Trading Commission (CFTC) has proposed a formal rejection of trades that bet on the outcome of political activity, deeming them "contrary to the public interest." The proposed rulemaking, approved by the three Democratic appointees to the CFTC, would legally equate such contracts with illicit contracts on war, terrorism, and assassination.

Why this matters: This proposal has significant implications for the integrity of the democratic process, as it raises questions about the role of financial markets in influencing political outcomes. The ban could also have far-reaching consequences for the online prediction market industry, potentially driving users to unregulated platforms.

CFTC Chair Rostin Behnam stated,"Contracts involving political events ultimately commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process. "He added,"To be blunt, such contracts would put the CFTC in the role of an election cop."

The proposed rule would ban contracts on election contests, awards contests, and the outcome of games for U.S.-regulated companies. Prediction platforms, including PredictIt, Polymarket, Zeitgeist, and Kalshi, would be affected by the proposed rule. The CFTC argues that it is not a gambling regulator and would not be capable of ensuring market integrity in this field.

The proposal still needs to pass through a 60-day period of public comments and then a process to approve a final rule. Commissioner Caroline Pham called the proposed rulemaking "misguided" and requested a study by the Government Accountability Office, stating, "A third-party review can help us get back to the basics and on track."

Brian Quintenz, a former CFTC commissioner and current adviser to KalshiEx, criticized the move as "bad government" and argued that it would push individuals to offshore and unregulated venues, potentially exposing consumers to significant harm. "Instead of regulating these new markets and letting them flourish responsibly, the Commission is simply going to ban a large swath of it," Quintenz said.

votes, rules, banning, political, events, event, ccomes amid a significant increase in event contracts listed for trading on exchanges registered with the agency since 2021, with more contracts listed in 2021 than in the prior 15 years combined. The move is part of an ongoing battle over the future of political betting markets in the U.S., as the CFTC has previously shut down the popular platform PredictIt and rejected an election betting bid by derivatives exchange startup Kalshi, leading to lawsuits from both companies.

to event contract rules aim to support responsible market innovation and uphold the public interest. By prohibiting contracts related to political contests, gaming, war, terrorism, and unlawful activities, the CFTC seeks to prevent the commoditization and degradation of the democratic electoral process. The agency maintains that allowing such contracts would push it into a role far beyond its congressional mandate and expertise as a financial market regulator.