Public opinion polls show the Nov. 5 presidential race has tightened in recent days, with President Joe Biden and ex-President Donald Trump running nearly neck and neck. And in case you don’t trust polls, which underestimated Trump’s support in 2016 and 2020, you can check out the latest odds on one of the online gaming sites based offshore to sidestep U.S. laws against gambling on elections.
In fact, it’s easier than ever to bet on the outcome of elections these days.
The legalization of online sports gambling in the late 2010s has made colorful, easy-to-use betting apps practically ubiquitous in Illinois and elsewhere, a trend that might partially explain the struggles of Chicago’s underperforming new temporary casino as gamblers’ preferences change and sports betting clobbers once-lucrative slot machines.
Similar apps for trading on the financial markets have followed close behind, increasing small-investor participation in the futures and options contracts pioneered in Chicago. That’s a good thing, at least in that it expands the benefits of trading to those who do not arrive at the table with bucketloads of money.
But the growth of both gaming platforms and exchange trading apps has blurred the line between gambling and investing, reminding us of the 1970s, when the Chicago exchanges were challenging the dominant New York exchanges for a piece of the financial markets. At the time, those affronted New Yorkers tried to portray Chicago as a shady gambling den.
In that conflict, the Chicago exchanges prevailed, and their financial products grew to become an essential part of the global economy. Now, regulators are trying to draw a new line, under pressure from upstart markets that want to home in on the latest gambling action.
As it stands, customers can go to regulated markets such as Chicago’s CME Group and speculate on all sorts of market events. Think gold will close today above yesterday’s closing price? You can make a yes-or-no wager on CME. These “event contracts” have the OK of the industry’s key regulator, the Commodity Futures Trading Commission, and they’re guaranteed by the exchange, just like its other contracts.
The next logical step, arguably, is to allow a wider variety of event contracts, including a contract on whether Democrats or Republicans will control Congress after Nov. 5, for instance.
In fact, an exchange called KalshiEX LLC petitioned the CFTC for approval of that very product, only to be denied late last year. KalshiEX has sued to challenge the decision, and the CFTC reportedly is considering new rules that would categorically outlaw all political-event contracts on the markets it regulates.
This page has long supported free markets, and the Chicago experience suggests that those opposing market-driven innovation often wind up on the wrong side of history — just like the New Yorkers in the 1970s who fought financial futures.
Still, making election contracts widely available on regulated exchanges strikes us as a terrible idea, and we urge the CFTC to proceed with rules to forbid political trading. As a matter of public policy, no other course of action makes sense.
For starters, the CFTC already has confronted this issue, concluding a decade ago that the law does not permit election contracts. Further, the agency is obligated to guard against fraud and manipulation in the underlying markets it oversees. If it did allow election contracts, logic dictates it would need to insert itself into the electoral process, and that way madness lies.
The CFTC is not remotely equipped to referee U.S. or local elections in the same way that it polices gold, pork bellies or Treasuries. Nor should it be.
Consider, for instance, if someone had a fortune riding on the GOP retaining control of the House. As the election approached, if Democrats were pulling ahead in key races, there could be a financial incentive for the trader to interfere by, for example, funding an undercover effort to attack congressional candidates or something even more nefarious. That scenario could happen anyway, given the prevalence of offshore gambling sites, but at least in that instance, it wouldn’t simultaneously threaten the integrity of the nation’s financial regulators and its markets.
The CFTC is aware of the risks facing it. In a note explaining the agency’s decision against KalshiEX, Chairman Rostin Behnam warned that approving political event contracts would turn the agency into “an election cop,” positioning it far beyond its lawful mandate.
CME, for its part, also opposed the KalshiEX petition to trade election futures, and one of its longtime leaders and a pioneer in the futures market agrees.
At age 92, Leo Melamed, who was named a Lincoln Laureate in 2016, still serves as CME’s chairman emeritus, and while he has decades of experience fighting for free markets, he sees election futures as a nonstarter.
“I’ve spent my entire life literally proving to the world that futures markets are not gambling. They perform an immensely important economic function, like insurance,” Melamed told us. Election contracts, he said, are “very, very obviously political and it would hurt the futures markets to host such an idea.”
We’re with Leo. The nation does not need one more reason to distrust elections, which are fundamental to democratic stability. Nobody should be betting on their outcomes. The stakes for the nation are too high.
Let’s take a hard pass on political futures contracts.
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