The Commodity Futures Trading Commission voted to propose rulemaking prohibiting event contracts that allow bets on political events as those markets quickly expand.
Three of the CFTC's commissioners voted to approve the proposal during a meeting on Friday, and the public will be able to comment on the proposed rulemaking.
"Contracts involving political events ultimately commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process," said CFTC Chair Rostin Behnam on Friday morning. "Allowing these contracts would push the CFTC, a financial market regulator, into a position far beyond its Congressional mandate and expertise. To be blunt, such contracts would put the CFTC in the role of an election cop."
Events markets, such as Kalshi and Polymarket, allow users to bet on the outcome of future events, from the total snowfall in New York City this month to the severity of a possible recession this year. Last year, the CFTC issued an order disapproving Kalshi's contract that allowed people to bet on political events. Kalshi has accused the CFTC of exceeding its authority and has received support from investment firm Paradigm.
Behnam said there has been a "significant uptick" in event contracts listed for trading on exchanges registered with the CFTC since 2021.
"To put that increase into perspective, more event contracts were listed for trading in 2021 than had been listed in the prior 15 years combined. And that has continued to be true each year since," Behnam said.
The proposal says that event contracts involving gaming, war, terrorism and assassination would not be allowed to be listed for trading or accepted for clearing and are "contrary to the public interest," Behnam added.
"To be clear, that means that even contracts on the outcome of a political contest such as an election could not be listed for trading or accepted for clearing under the proposed rule," Behnam said.
Commissioner Caroline Pham called the proposed rulemaking "misguided."
"It pains me to say that despite the road here being paved with good intentions, today’s event contracts rulemaking is yet another example of how far the Commission has strayed from the requirements of the Administrative Procedure Act and the Constitution, and how little the Commission seems to care for fairness and due process under the law," Pham said.
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