Ever since Chairman Behnam raised the possibility of the CFTC turning into an “election cop” in his interview on the Odd Lots podcast, we have interviewed numerous elections and compliance officials to explore this issue. 

We are not aware of anyone in Congress or the policymaking community who believes that the CFTC has authority to be an “election cop” in the electoral process or in political fundraising. Indeed, this concern is so speculative that it provokes suspicion about whether it is merely a pretense for the CFTC to avoid decisions on political event contracts. 

It is important to consider that the CFTC has had oversight over several political prediction markets that offered contracts for the 2000, 2020, and 2022 U.S. elections. In each of these years, election disputes were litigated across state and federal electoral apparatuses and courts. Notwithstanding the deep, widespread, and, in some cases, violent public reactions that these disputes engendered, they did not require any meaningful CFTC intervention in betting markets. Nor did they even generate any significant legislative or public demand for CFTC involvement.

The easiest way to prevent the Commission from becoming involved in the electoral process is to establish clear settlement rules for the contracts. 

We believe that Kalshi and other political betting operators need to prepare for the possibility that election disputes could leave unresolved the question of which party controls Congress well after election day. It would be reasonable for the Commission to encourage Kalshi to develop and publicize contingency plans for this scenario. 

Clarity among traders and the public on precisely when and under what circumstances the contracts will pay out would prevent the types of outcomes that could invite CFTC involvement.

This blog post is adapted from our comment to the CFTC.