Proposed CFTC Ban on Election Betting Closer
Three of Five Commissioners Approve Ban
Three of the five commissioners of the Commodity Futures Trading Commission approved a rule proposal that would ban derivatives used to bet on U.S. elections and other events. “The Commodity Futures Trading Commission issued a Notice of Proposed Rulemaking to further specify types of event contracts that fall within the scope of Commodity Exchange Act section 5c(c)(5)(C) and are contrary to the public interest,” the commission said in a press release. That’s basically government-speak for a proposed CFTC ban on election betting.
There is no question that betting on politics is a popular activity. Long before the legalization of sports betting throughout the U.S., offshore sportsbooks carried odds on the major U.S. elections. Most U.S. sportsbooks still don’t accept wagers on U.S. politics, such as the US presidential election.
Kalshi, which offers “a financial market to trade on the outcome of world events” was turned down by the CFTC to offer political betting, such as the winners of Congressional seats and politics prop bets.
One area of concern to those who partake in sports betting is the press release put by the CFTC, which states, “Further, the proposal defines ‘gaming’ in detail, and the proposal lists illustrative examples of gaming that include staking or risking something of value on the outcome of a political contest, an awards contest, or a game in which one or more athletes compete, or an occurrence or non-occurrence in connection with such a contest or game. Thus, event contracts involving these illustrative examples of gaming could not be listed for trading or accepted for clearing under the proposal.”
Dissenters Have Strong Opinions
The proposed CFTC ban on election betting wasn’t a slam dunk. Two of the five commissioners dissented from the majority opinion for different reasons.
“The CFTC has a role in regulating event contracts as a market regulator, but it is essential that the CFTC does not encroach upon the prerogatives of States,” said Commissioner Caroline D. Pham. “An appropriate Event Contracts Proposal would have struck a balance between Federal oversight and State autonomy by focusing on the CFTC’s core mandate of promoting market stability and protecting market participants from fraud and abusive practices. In doing so, the CFTC could have maintained the integrity of event contracts without undermining the authority of State governments.”
Commissioner Summer Mersinger said the possible CFTC ban on election betting was venturing into areas the CFTC has no knowledge of.
“At first blush, it appears to be ‘much ado about nothing,’ as it seems to do little more than rubber-stamp what the Commission has already said and done,” she said. “Upon closer inspection, though, it is a ‘wolf in sheep’s clothing’ because where the Proposal departs from our past practice, it lays the foundation to prohibit entire categories of potential exchange-traded event contracts whose and conditions the Commission has never even seen.”
Mersinger also says the CFTC is over-stepping its bounds by lumping elections and awards into “gaming.” She would have been happier if the matter was never raised.
“The fact that certain portions of the Proposal are inaccurate, extremely weak, or simply make no sense suggests that it either was hastily prepared, or is motivated primarily by the sheer hatred that the Commission seems to bear towards event contracts,” she said.
There is a required 60-day comment period and the Commission has to vote again when the comment period ends.
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