Democratic Legislators Urge CFTC to Finalize Ban on Election Betting
Commentary by Steven Lofchie
influenced by big money bets."
influenced by big money bets."
Senate and House Democrats urged the CFTC to ban betting on the 2024 presidential election. The legislators expressed support for the CFTC's proposed rulemaking banning the listing and clearing of "events contracts" and "gaming" derivatives.
In a letter to CFTC Chair Rostin Behnam, the legislators urged the CFTC to "promptly finalize and implement this rule to prevent the commodification of U.S. elections." (See previous coverage.) They claimed that such markets "could influence and interfere with elections and further erode public trust in democracy."
The legislators supported the CFTC reasoning that "the outcome of a political contest, including an election, constitutes 'gaming,' and is as such contrary to the public interest and may not be listed on CFTC regulated markets." The legislators argued that (i) "political event contracts do not serve the economic purpose of futures markets, and the Commission does not have the congressional mandate to regulate election and campaign activity;" and (ii) "placing a bet or wager on the outcome of an election is already prohibited by well over a dozen states nationwide – to offer these bets at the federal level potentially represents an unlawful pre-emption of State responsibilities in regulating and administering federal elections."
The letter was signed by Senators Jeff Merkley, Richard Blumenthal, Chris Van Hollen, Elizabeth Warren, Sheldon Whitehouse and Representatives Jamie Raskin, John Sarbanes and Eleanor Holmes Norton.
Commentary
One may reasonably believe that permitting betting on elections is unseemly and should be prohibited on that basis. But the economic and legal arguments made against futures contracts on elections are weak, particularly as to the Presidential elections.
As to the authority of the states to regulate federal elections, surely, the federal government has authority to pre-empt any control that the states might claim over federal elections. The argument that the federal government should defer to the states is dubious as to CEA-regulated derivatives, given that the CEA pre-empts virtually all state regulation of such products.
The question is whether the CFTC has the authority under the CEA to prohibit futures contracts on elections. Under CEA Section 5c(c)(5)(C) ("Special rule for review and approval of event contracts and swaps contracts"), the CFTC may prohibit a contract as to the following:
(I) activity that is unlawful under any Federal or State law;
(II) terrorism;
(III) assassination;
(IV) war;
(V) gaming; or
(VI) other similar activity determined by the Commission, by rule or regulation, to be contrary to the public interest.
Elections are not covered by the above list, at least without some serious stretching. In light of the demise of Chevron, it would be a positive if the regulators treated themselves as fully bound by the legislation that provides the regulators with their authority. If futures contracts on elections are to be prohibited, that prohibition ought to come from Congress. Time for regulators to stop doing the right thing when they lack legislative authority.
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The CFTC proposed a rule to ban the listing and clearing of "events contracts" and "gaming" derivatives.