WASHINGTON — American political junkies may get to bet tens of thousands of dollars legally on the outcome of November’s U.S. congressional elections.
After years of refusing to approve derivatives for betting on elections, Washington regulators are privately weighing a plan that could let people place as much as $25,000 on which political party will control the U.S. Congress. The Commodity Futures Trading Commission may begin taking public feedback on the proposal from prediction-market operator Kalshi Inc. as soon as this month, according to people with knowledge the deliberations.
A greenlight for Kalshi, which already offers so-called event contracts that let people wager on everything from President Joe Biden’s approval ratings to the next COVID-19 wave, would represent a shot in the arm for political gambling. Backers say the nascent industry can yield data that’s more accurate than opinion polling. But, the future of the whole sector in the U.S. was thrown into doubt recently when the CFTC revoked a regulatory permission that a popular Kalshi competitor called PredictIt had been using.
The CFTC will likely make a decision by Oct. 28 on Kalshi’s application, said the people, who asked not to be named discussing internal deliberations. The proposal would need approval from at least three of the CFTC’s five members and it could still be tweaked.
Since registering with the CFTC as an exchange in late 2020, Kalshi has steered clear of elections contracts and instead focused on political and economic topics like Federal Reserve rate decisions and whether a hurricane will hit Miami.
Because a $25,000 limit is significantly higher than PredictIt’s $850 cap, a listing on Kalshi could attract a new cadre of more sophisticated traders.
A representative for the CFTC declined to comment on Kalshi’s application. The company also didn’t comment specifically on the plan, but said in a statement that it has “always enjoyed a constructive and productive relationship with the CFTC.”
In general, prediction markets have been viewed with a mixture of fascination and skepticism by the U.S. 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.
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.
The CFTC has the power to stop exchanges from listing contracts relating to “terrorism, assassination, war” and “gaming” if it deems them to be “contrary to the public interest.” The regulator hasn’t defined what constitutes gaming under its rules.
