(NewsNation) — The 2022 congressional midterms are nearly here, and President Joe Biden has been encouraging voters to turn out at the polls. This election cycle could have more at play than just control of the House of Representatives and Senate.
If the Commodity Futures Trading Commission (CFTC) approves Kalshi Inc.’s request to list options for Election Day outcomes, the derivatives exchange would become the first U.S.-based election-wagering market in the 21st century since the practice was banned.
“Control the chaos. Stocks are imperfect trading tools because they’re influenced by many factors. Filter out the noise and trade events on your terms,” Kalshi Inc. states on its site. Investors can already bet on another moon landing, a hurricane hitting Miami and monkeypox being named a pandemic this year.
While betting on elections is not a new concept, with roots dating back to before World War II, the practice became uncommon after 1940 as states outlawed it and newspapers started relying on public opinion polling to predict election results.
During this potential revival of election betting — with sports betting and other forms of gambling having been adopted in some form in 48 states — Kalshi and its backers vow operationally safer markets for users than foreign venues for election betting.
The derivatives exchange also argues allowing wagering on elections will provide useful data and information for data scientists.
“It would be illegal to block these contracts,” Kalshi Inc.’s founder, Tarek Mansour, said to Fox News in a Wednesday interview.
Mansour went on to explain how Kalshi’s proposed election contracts would allow individuals and small businesses a chance to reduce the financial risk of bad elections by placing money with investors willing to assume it.
In addition, Kalshi’s contracts are relatively cheap compared to traditional derivatives, reportedly offering options contracts between $0.01 and $0.99 based on Republicans’ or Democrats’ odds of capturing control of either the House or the Senate.
It only takes a couple of minutes for users to sign up for trading, with a maximum position of $25,000 per participant.
As Collin Sherwin, who is the college deputy editor at DraftKings Nation, explained on NewsNation’s “Rush Hour” Thursday, there are markets inside the U.S. that allow bets on the election, only you’re capped on the amount of money you can spend.
“What they’re asking here is to take cap off,” Sherwin said of Kalshi’s proposal.
Critics of the proposal say election betting leaves a door open for politicians or others on the political spectrum to sell nonpublic information to raise money and that it could lead citizens to vote financially, not politically, for certain candidates.
“I think you could see hedge funds involved. I think you would maybe even see parties involved. I think you would see businesses potentially betting one side as a hedge against potential future policy, so it opens up a whole range of other issues that haven’t really been discussed before,” Sherwin said.
Legal commentator Chris Melcher agreed. He said political betting presents a host of problems, including widespread election fraud.
“And in this climate, with so many allegations having been made about election fraud in the past, this does not seem like a good idea because the foundation of our democracy is to have free and open elections. And we don’t want to have questions about somebody profiteering off of an election,” Melcher said on NewsNation’s “Rush Hour” on Thursday.
Furthermore, federal law directs the CFTC to prohibit what it calls event contracts involving “war, terrorism, assassination or gaming or any activity” that violates federal or state laws or is against the public interest.
Kalshi Inc. responded to critics’ concerns saying in a statement to NewsNation:
Election trading has been alive in the United States for many years and on off-shore exchanges popular in the U.K. and other liberal democracies. These fears have never come to fruition. The only change here is bringing regulation to these markets.kalshi statement to newsnation
The CFTC shut down previous attempts to bring election contracts into regulated financial markets: The North American Derivatives Exchange back in 2012 and the Victoria University of Wellington in New Zealand saw permissions revoked by the CFTC in August.