Entrepreneurs are building political betting platforms that operate under different regulatory restrictions from real-money prediction markets yet provide many of their benefits. 

A notable example is the over-the-counter (OTC) swaps offered by the American Civics Exchange (ACE), which allow traders to bet on a wide array of political outcomes. Because ACE OTC operates as the sole counterparty and liquidity provider, it is subject to different regulatory restrictions from the event contracts on PredictIt and Kalshi which match orders to other traders. ACE OTC does not operate on an exchange model with an order book. Contracts have a $500 minimum payout value, but no trading fees or fixed upper position limits. Unlike Kalshi and PredictIt Exchange, ACE OTC has not sought to register with the CFTC as a DCM.

While there is no regulatory limit on the size of bets allowed on the site, participation on ACE OTC is limited by statute to a small class of investors—generally institutions and high net worth individuals. Because the site can only serve U.S.-based eligible contract participants, as defined by the Commodity Exchange Act, the vast majority of retail traders have no legal way of opening an account, usually because they do not have an investment portfolio of more than $10 million. The extent to which ineligible traders face the threat of sanction for using the site remains unclear. ACE verifies biographical information and requires users to affirm they meet eligibility requirements during the onboarding process. However, ACE does not do independent financial vetting of its customers beyond asking them to affirm that they understand the site’s terms of service and that they meet the legal specifications. To date, neither the site, nor any of its users, have faced any kind of enforcement action.

Transactions on ACE OTC do not, in a pure sense, reflect the ‘wisdom of the crowd’ and are not as transparent as those on prediction markets. However, prices of the OTC swaps may prove to be more accurate or informative than those in more democratized prediction markets with betting limits. This could be the case in particular on events that tend to attract irrational speculation in prediction markets by low-information and unskilled traders with minimal ‘skin in the game.’ The swaps also facilitate speculation and hedging on conditional and custom contracts, which are not typically offered in prediction markets. 

Pratik Chougule is the executive director of the Coalition for Political Forecasting. Solomon Sia is a board member of the Coalition for Political Forecasting. This post is an excerpt of the report, “Political Betting Regulation in the United States: Pathways to Liberalization.” Citations are included in the original report.