CFTC Disapproves Options Contract on Control of Congress

The CFTC disapproved a designated contract market's ("DCM's") proposed options contract based on which political party will have control of Congress.

The DCM submitted the self-certified contract dated June 12, 2023 that addressed the question, "Will <chamber of Congress> be controlled by <party> for <term>?" The CFTC determined that such a contract is (i) based on gaming and other activities deemed unlawful under state law, (ii) "contrary to public interest" and, therefore, (iii) prohibited for clearing or trading on or with the DCM.

According to the CFTC, the contracts are disallowed and cannot be listed or made available for trading in accordance with Section 5c(c)(5)(C) of the CEA ("Common provisions applicable to registered entities") and CFTC Rule 40.11(a) ("Review of event contracts based upon certain excluded commodities"). The cited rule and section refer to contracts that relate to terrorism, assassination, war, gaming or illegal activity.

Commissioner Statements

CFTC Chair Rostin Behnam agreed with the CFTC's decision to disapprove of the offering of the DCM's Congressional control contracts, stating that the analysis and process followed by the CFTC was proper and found within its "duty and discretion."

CFTC Commissioner Caroline D. Pham abstained from the vote on the DCM's contracts under review, asserting that any action by the CFTC on this DCM's congressional control contract would violate the United States Court of Appeals for the Fifth Circuit's Order in Clarke v. CFTC, which enjoined the CFTC from otherwise "prohibiting or deterring the trading" of contracts listed on the PredictIt Market, where this DCM offering was listed.

CFTC Commissioner Summer K. Mersinger dissented from the CFTC Order rejecting the proposed contract, stating that the action is not consistent with the CFTC's statutory authority. Ms. Mersinger explained that the Order "creates confusion rather than clarity by adding words that are not present in the statute and contradicting the provisions of the CEA they purport to construe." Mr. Mersinger said that her dissent should not be taken as support for the contract being considered.