The CFTC will decide whether to look into a contract that allows users to bet on who will control the US Congress at prediction market operator KalshiEX. KalshiEX is reapplying for CFTC certification after withdrawing it last year. The outcome will determine whether or not binary contracts with a monetary settlement will be offered in connection with the November 8 U.S. election.
KalshiEX awaits regulatory approval for election markets
On June 26, the Commodity Futures Trading Commission will determine whether to begin a formal 90-day investigation of the contract between prediction market operator KalshiEX and users who can wager on which party will control the U.S. Congress.
As a designated contract market, the corporation is governed by the CFTC, and the agency has the legal authority to accept or reject contracts through 90-day reviews. Last year, Kalshi submitted the agreement for CFTC approval. However, the exchange withdrew that request recently and is now offering the deal to the regulator.
According to Bloomberg, users could forecast and wager on which party would control the majority in each of the two chambers of Congress using these specific cash-settled, binary contracts.
According to Kalshi on its website, the CFTC has an unpredictable history with prediction markets, which allow investors to buy and sell contracts on whether events will happen. Other businesses, like Polymarket and PredictIt, which have been using the CFTC since last year, had been told to stop operating in the United States.
Kalshi takes a cautious approach and collaborates with CFTC for a contract launch
On June 5, Kalshi made a strong implication that it anticipates U.S. regulators will accept its request to introduce contracts related to the November 8 U.S. election.
There is a clock ticking down from midnight in the United States at the top of its webpage under the description “Countdown to election markets.” However, a disclaimer reads, “Pending regulatory approval.”
In contrast to some rivals, Kalshi has launched its service and introduced contracts cautiously, working closely with the U.S. Commodity Futures Trading Commission (CFTC) to obtain authorization. Brian Quintenz, a former CFTC commissioner, sits on its board.
Others have struggled to continue serving Americans. Another prediction market, PredictIt, was instructed early this year by the CFTC to cease operations in the United States; however, PredictIt has now filed a lawsuit to challenge that order. A blockchain serves as Polymarket’s engine, but it is not permitted to conduct business there.
An in-depth look at Kalshi
According to CNBC, The Commodity Futures Trading Commission designated Tarek Mansour and Luana Lopes Lara’s company Kalshi as a contract market in late 2020. However, it was formally established in June.
The marketplace offers binary, yes-or-no contracts that, if chosen correctly by the investor, pay out $1. Current predictions include “will a recession start by the second quarter of 2022” and “will income taxes on the highest income bracket increase by the end of 2021.” Traders cannot use margins to open trades.
In some aspects, Kalshi is similar to foreign betting markets that occasionally attract investors around critical political events or even online sports betting, which is booming in the United States.
Mansour stated that Kalshi differs from a casino in two ways: the economic value of hedging outcomes and market pricing.
In casinos and gambling houses, the revenue they make is out of their customer’s losses. You get these weird incentives in the industry … for us, we take transaction fees. We don’t take money out of anyone’s losses.
Tarek Mansour
The company’s yes-or-no contract in November, which was focused on whether President Joe Biden would pick a successor for Jerome Powell to lead the Federal Reserve, served as a significant early test of the program. Before Biden decided to stick with the plan, according to Mansour, the market had been stable.
The CEO of Kalshi, Tarek Mansour, observed that the market remained steady without experiencing any abrupt volatility despite binary headlines about the expected successor for Jerome Powell, including significant opposition from Senator Elizabeth Warren. When the contract was introduced in September, the market saw its highest closing price for a “yes” on the Powell replacement.
