KalshiEX LLC’s bid to offer “event contracts” for betting on the 2024 federal elections has been denied by the Commodity Futures Trading Commission (CFTC). These contracts would have allowed investors to wager on which political party would control the House and Senate.

This decision has sparked controversy in the financial and political spheres, as KalshiEX LLC, a futures exchange, is now prohibited from enabling investors to place bets on the election outcomes.

CFTC Chair Rostin Behnam, voiced his concerns in a recent statement. He emphasized that the CFTC is obligated by federal law to thoroughly evaluate proposals like these to ensure they don’t violate any state laws and serve the public interest. According to Behnam, the event contracts put forward by KalshiEX failed to meet both criteria.

Behnam expressed apprehensions over this type of contract, as approving it could essentially turn the CFTC into an “election cop.” This would require the agency to actively monitor elections, candidates, and participants across traditional and digital media to prevent manipulation and the spread of false information. However, the CFTC does not currently have the mandate to take on this responsibility.

KalshiEX joins a select group of companies that have delved into regulated event contracts for US investors. New Zealand-based platform, PredictIt, previously offered such contracts with the support of a special arrangement from Victoria University of Wellington. Their goal was to explore the effectiveness of prediction markets in forecasting events.

However, last year the CFTC made a significant move by revoking PredictIt’s special arrangement, leading to the discontinuation of their US political contracts. In addition, the CFTC settled charges with Polymarket, a New York-based company, for offering event contracts without proper registration. The hefty fine of $1.4 million was a part of the settlement. While Polymarket stopped offering contracts to US customers, it continued operating in other parts of the world.

CFTC commissioner Summer Mersinger, a Republican, voiced her disagreement with the CFTC’s decision on KalshiEX. Mersinger believed that the agency might be overstepping its authority and suggested a formal rulemaking process that involves public input to clarify how political event contracts could potentially violate existing laws.

The CFTC’s decision has ignited a debate on the boundaries of regulation for financial contracts connected to political events, raising questions about the agency’s role in overseeing such markets and its impact on the wider political landscape.

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