By Pratik Chougule, Mick Bransfield, and Solomon Sia
The definition of gaming as it pertains to event contracts is ambiguous.
While we favor as a policy matter a relatively narrow definition of gaming, we believe that each of the commissioners, as well as lawyers representing the CFTC, Kalshi, and various public interest groups, have all offered reasonable arguments that will be adjudicated in the federal courts for the foreseeable future.
As these deliberations proceed, we would encourage the Commission to provide clarity on two of the most important types of event contracts that could be prohibited under an expansive definition of gaming.
Mention Markets
One is “mention” markets.
Among the most important event contracts for the public interest are those that ask whether political leaders will say certain words on occasions such as debates and speeches.
Mentions by political candidates of certain companies, legislation, and policy agendas can provide critical clues for market participants seeking to hedge or otherwise navigate economic risk. This is particularly true considering how sensitive financial markets can be to the words of political candidates.
We would encourage the Commission to indicate clearly that these markets do not constitute gaming under the final approved amendments.
Legal Markets
The second is markets on the outcomes of legal cases.
We are pleased to see that the Commission permits Kalshi to offer markets on the outcome of court decisions, which are highly pertinent to the public interest.
We are concerned, however, that an expansive reading of the amendments could interpret court cases as constituting a “contest of others”, thereby running afoul of the Commission’s definition of gaming.
The Commission should explicitly indicate which types of legal markets are permissible.
Relatedly, it would be helpful for the Commission to explain why legal markets are acceptable, notwithstanding the perverse financial incentives they can create among a small number of highly influential insiders.
Other event contracts are prohibited on these grounds despite the fact that the alleged perverse incentives to manipulate or degrade the integrity of democratic institutions are considerably weaker in these contexts, insofar as they exist at all.
To be clear, we are not suggesting that the Commission should prohibit legal markets. To the contrary, we are hoping that the Commission will bring greater clarity and consistency by treating comparable event contracts under an intuitive regulatory framework.
Pratik Chougule (@pjchougule) is the executive director of the Coalition for Political Forecasting. Mick Bransfield (@mickbransfield) is the research director of the Coalition for Political Forecasting. Solomon Sia (@sia_solomon) is a board member of the Coalition for Political Forecasting.
This blog post is an excerpt of the authors’ August 2024 comment letter to the CFTC.
