New Congress may support regulatory push over election betting

There’s a lot of money at stake on the composition of the 119th US Congress, and some of these newly elected and re-elected legislators may be very interested in the legality and regulation of all these bets even now that voting is over.

More than a dozen Republican House members who wrote a letter to the Commodity Futures Trading Commission this summer about proposed rules for event contracts were re-elected on November 5.

Also re-elected were Democratic Sens. Elizabeth Warren of Massachusetts and Amy Klobuchar of Minnesota, who also wrote to the CFTC chairman this summer regarding event contracts. In their case, however, the letters were meant to raise concerns about the stakes in the election.

A complete Republican victory is now up to 95% likely pic.twitter.com/X4YgfdyFwX

— Kalshi (@Kalshi) November 6, 2024

This re-election, as well as any other stakeholders joining the new Congress, could mean the CFTC’s next steps to regulate election betting will be closely watched.

The CFTC is fighting in court to stop Kalshi and others from offering contracts for election-related events, but has so far lost.

This legal cover allowed prediction markets to make a lot of bets on the November 5 election. For example, the trading volume on the Kalšin question “Who will win the presidential election?” The market was worth nearly $460 million as of Thursday afternoon.

However, in May, the CFTC also proposed a rule prohibiting election-related contracts on regulated exchanges.

It was this proposal that prompted letters to the regulator from some GOP House members, such as South Dakota Rep. Dusty Johnson and Arkansas Rep. French Hill.

Among other things, these now largely re-elected lawmakers warned that the CFTC proposal represents a “rethinking of long-standing legislative text” that could have a “broad impact” on the derivatives industry.

“This proposal comes at a time of significant increase in new product offerings for event contracts, many of which may be impacted by the proposed rule,” 16 representatives wrote in a July 3 letter to CFTC Chairman Rostin Benham. “On Issues of Complexity and Consequences.” like this proposed rule, the Commission should have the opportunity for robust public comment and varied and comprehensive information.”

The CFTC has not yet committed these House members, although it has extended the public comment period on its notice of proposed rulemaking until August 8. The regulator also has not yet finalized the proposed rule.

Welcome

Nevertheless, given the boom in betting on this fall’s electionsIt seems possible that the topic could spark some debate among lawmakers and regulators before voters return to the polls. already there US election chances ready to participate in the 2028 presidential race.

Moreover, the re-election of most interested parties may mean that they will remain concerned and interested when the new Congress is sworn in next year.

“Betting on election results may incentivize those with financial or political interests to interfere in elections and pose risks to public confidence in our democracy,” Klobuchar wrote in her letter to the CFTC in July.

Also returning to Washington are Democratic Senators Jeff Merkley, Richard Blumenthal, Chris Van Hollen and Sheldon Whitehouse. The same can be said about Democratic Representatives Eleanor Holmes Norton and Jamie Raskin.

Along with Warren, lawmakers spoke out over the summer and called on Behnam to finalize the rule and ban political betting markets, which they feared could “influence and interfere” with democracy.

“Political stakes change the motivation behind every vote, replacing political conviction with financial calculations,” the lawmakers wrote in the letter. “Allowing billionaires to make extreme bets while also contributing to support for a particular candidate or party, and political insiders to bet on elections using non-public information, will further reduce public confidence in the electoral process.”

Not everyone agrees

But Democrats aren’t the only ones with opinions on election betting. Three Republican senators also wrote a letter to Benham expressing concern that the regulator was potentially restricting “the use of a critical investment vehicle.”

“Elections have a tangible impact on the markets and businesses of derivatives market users, and political event contracts can serve as a valuable hedge against these risks,” Chuck Grassley of Iowa, Roger Marshall of Kansas and Cindy Hyde-Smith of Mississippi wrote in a Letter dated 10 May: “These markets also provide valuable data on trends in the sentiment of the voting public, with legitimate public and academic utility. Other new asset classes, such as sports-related interests, have expressed a need for similar risk management products, as well as yours. rulemaking would also presumably predetermine the validity of these products.”

Like their House Republican colleagues, three Republican senators asked the CFTC to consider holding a public hearing on its proposal, noting ongoing litigation that could be affected by the regulator.

The senators added that US investors have “demonstrated a clear desire to participate in these markets” – as has been more than proven in this election – and that it is preferable that they do so using US-supervised platforms.

“The CFTC’s ban on the use of these markets in the US will only encourage US investors to participate in offshore markets where they are left without sufficient safeguards,” they warned.

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