ATLANTIC CITY, N.J. — The prospect of permitting individuals to wager on the results of U.S. elections carries a significant risk of market manipulation attempts, potentially further undermining the already shaky trust voters have in the legitimacy of election outcomes. This is the view of a federal agency advocating for a ban on such betting activities.
The Commodities and Futures Trading Commission is currently engaged in efforts to stop New York-based startup Kalshi from continuing to offer bets on the results of the upcoming congressional elections this autumn.
Last Friday, Kalshi accepted an undisclosed number of such bets during an eight-hour period, which started when a federal judge gave the green light and ended when a federal appeals court put a stop to it.
These bets are now in limbo as the appellate court prepares to review the matter at a hearing scheduled for Thursday.
The crux of the matter is whether Kalshi, along with other similar companies, should be allowed to issue predictive futures contracts — essentially binary wagers — on election outcomes. This practice is regulated in the U.K., but is currently not permitted in the U.S.
The commission has expressed concerns that such betting markets are likely to be targeted by misinformation and collusion attempts, which could cause irreparable damage to the integrity, or at least the perceived integrity, of elections during a period when public confidence is already at a low ebb.
“Kalshi and others have interpreted the district court’s order as a green light for election gambling,” the commission stated in a brief filed on Saturday. “A surge in election gambling on U.S. futures exchanges would be detrimental to the public interest.”
The commission pointed out that there have already been instances of manipulation attempts on at least two similar unapproved platforms. One such instance involved a bogus poll claiming that singer Kid Rock was ahead of Michigan Sen. Debbie Stabenow, which influenced the price of re-election contracts for the senator during a period when the singer was rumored to be mulling over a run for office. He ultimately decided against it.
Another case from 2012 involved a trader who wagered millions on Mitt Romney in an attempt to make the presidential race appear tighter than it actually was.
“These instances are not mere conjecture,” the commission stated. “Manipulation has occurred and is likely to happen again.”
Unlike unregulated online platforms, Kalshi actively sought regulatory oversight for its election bets, hoping to gain the advantage of government approval.
“Other election prediction markets … are currently operating without any federal oversight, and their predictive data is regularly quoted by the media,” it stated. ”So a stay would do nothing to enhance election integrity; its only effect would be to restrict all election trading activity to unregulated exchanges. This would be detrimental to the public interest.”
The commission dismissed this argument as “naive.”
“Just because cocaine is sold on the black market, it doesn’t mean a pharmacy should be allowed to dispense it,” it stated. “The commission has determined that election gambling on U.S. futures markets poses a serious threat to election integrity. The fact that another platform is offering it without CFTC oversight is not a valid reason to allow election gambling to spread.”
Before the betting window was closed, the market seemed to suggest that bettors believed the GOP would retake the Senate and the Democrats would reclaim the House: A $100 bet on Republican Senate control was priced to pay $129, while a $100 bet for Democratic House control would pay $154.
Disagree – Election betting is a form of free speech and should not be prohibited. Trust in the voting process should not be dependent on limiting personal freedoms.
Agree – It’s important to protect the integrity of the voting process by eliminating any potential for corruption or manipulation through election betting.