The Commodity Futures Trading Commission plans to decide by October whether to allow Kalshi LLC to offer the public a way to wager on which party will control the House and Senate.
Kalshi is proposing to offer event contracts that allow participants to put up money on the question of which party will control the House or Senate. The event contracts will have a price of between 1 cent and 99 cents, with the amount determined by market interest.
The CFTC maintains that it has jurisdiction over prediction wagers in the U.S. because they are binary options, which either provide or do not provide a set payout.
In July, Kalshi asked the CFTC to evaluate its proposal.
The agency is asking the public to comment on the company’s proposal and outlined a number of specific questions. It wants to hear if the contracts would be gambling and whether the CFTC should allow activity similar to that currently done by casinos.
If the activity is prohibited by state law, the CFTC wants to know if it should allow the activity, including on an interstate basis. Federal agencies are able to preempt state restrictions.
The New York-based Kalshi is the first federally regulated financial exchange that allows users to trade directly on the likelihood of a particular event. While it offers products that are financially similar to those that have been offered for years by the Chicago Mercantile Exchange and the Chicago Board of Trade, Kalshi covers whether there will be delays at Chicago’s O’Hare International Airport, for example, instead of futures on the price of pork bellies.
It is currently offering contracts on whether powerful hurricanes will hit New York City or Miami this year, if 2022 will be the hottest year on record, and how the U.S. Supreme Court will rule on the affirmative action policy at Harvard University.
The CFTC in 2012 rejected another proposal for political event contracts. It currently allows those offered by the Iowa Electronics Markets, run by the University of Iowa. It recently told another political market, PredictIt, to stop its operations. PredictIt is run by the Victoria University of Wellington, New Zealand, and Aristotle Inc., a U.S. political data firm. The agency determined PredictIt was not in compliance with a staff letter allowing it to operate.
The CFTC is examining whether Kalshi’s contracts could affect the integrity, or perception of integrity, of U.S. elections. It is also considering whether there is a chance that insiders, such as those with internal polling data, could manipulate the contracts.
Commissioner Caroline Pham, who joined the CFTC in April, said the agency is overstepping its authority, resulting in uncertainty in the industry.
Robin Hanson, an associate professor of economics at George Mason University who has studied prediction markets, told CQ Roll Call in an email that the CFTC’s process is costly. “Having to ask for permission for each such topic is a big overhead that heavily taxes this industry.”
Kalshi currently offers contracts on interest rates, the stock market, mortgage rates, whether the government will shut down due to Congress and whether the U.S. will achieve a moon landing before early 2025, among others.