Comment Text:
Addressing some of the questions the commission presented:
2) Should the Commission consider whether similar offerings are available in traditional gaming venues such as casinos or sports books and/or whether taking a position on elections or congressional control is defined as gaming under state or federal law?
If the Commission examined whether those similar offerings were available, it would discover that there is no election betting available at casinos or sports books in the United States, because they are generally understood to be illegal according to federal and/or state law. The sports betting firm DraftKings has opened US elections betting in Canada, where US residents are prohibited from participating.
The CFTC has previously interpreted elections betting as gaming (essentially, gambling) and thus denied a request from Nadex. There is no substantive difference between Nadex's rejected proposal and the proposal here. Given that the laws on this topic haven't changed since Nadex's rejected proposal, there is no basis for permitting Kalshi's proposal here.
6) Do the contracts serve a hedging function? Are the economic consequences of congressional control predictable enough for a contract based on that control to serve as a hedging function? Please provide tangible examples of commercial activity that can be hedged directly by the contracts or economic analysis that demonstrates the hedging utility of the contracts.
These contracts cannot serve a hedging function because electing a particular Congress does not actually guarantee that anything will happen, besides the new Congress being sworn in the January after the election. Thus, they cannot serve as an effective basis for actually hedging anything in the common way hedging is understood. The economic consequences of congressional control are highly unpredictable, which makes such election betting contracts a poor way to hedge. For example, there was extreme uncertainty over the past year and a half over whether Congress would ever pass a reconciliation bill (Build Back Better or something else), and if it did, what that bill would actually do and how much spending it would actually contain. Pundits understand well that Congress is known for its unpredictability, which seriously undermines the supposed hedging value of election betting contracts.
17) What other factors should the Commission consider in determining whether these contracts are "contrary" to the public interest?
The Commission should consider whether approving elections betting contracts would run contrary to recent Supreme Court precedent.
In June 2022, the Supreme Court of the United States released its opinion in West Virginia v. EPA, which endorsed a standard for federal agency actions known as the Major Questions Doctrine, which requires explicit Congressional authorization for "extraordinary cases" of agency actions.
The CFTC should consider whether permitting large-scale elections gambling, which is unprecedented in scale and appears to lack explicit Congressional authorization, would raise legal issues with the Major Questions Doctrine and the holdings of West Virginia v. EPA.
From the opinion:
"our precedent teaches that there are “extraordinary cases” that call for a different approach—cases in which the “history and the breadth of the authority that [the agency] has asserted,” and the “economic and political significance” of that assertion, provide a “reason to hesitate before concluding that Congress” meant to confer such authority." - Opinion of the Court, p.17
Given what the Supreme Court has held, there are serious concerns that the CFTC granting approval of large-scale elections gambling to a for-profit firm would be in conflict with the Major Questions Doctrine and Supreme Court precedent.
It is eminently reasonable to believe that the CFTC granting approval to a for-profit firm to conduct large-scale elections gambling constitutes an "extraordinary case", given that such action is -
a) unprecedented, as the CFTC in the past has only permitted highly restricted political betting (not more than $850) for explicitly academic purposes, operated explicitly by academic institutions that do not seek to earn a profit. The CFTC just recently pulled its no-action letter that allowed one of those institutions to operate, so on that regard CFTC is heading in the direction of disapproving of explicit political betting. The CFTC has also in the past interpreted elections contracts as gaming (essentially gambling), which is the correct interpretation as it is evidently clear from the time PredictIt has been running markets (in violation of its no-action letter, according to CFTC's judgment), no one actually used its markets to hedge anything; they used them to gamble and speculate.
b) certainly of significant economic and political significance. The existence of large-scale elections betting has significant potential to affect how election campaigns may operate, whether ethically or unethically (large scale betting incentivizes insider trading, which, given the large number of individuals that can influence elections markets, including pollsters, media outlets, candidates and campaign staffers among others, can make insider trading difficult to police). It also has the potential to affect election integrity or the perception of election integrity, mostly in a bad way. Given the consequences of the chaos over elections the nation experienced in 2020 and 2021, CFTC should strongly consider whether this is the course to take.
c) unlikely to have been authorized by Congress. The Congress that gave legislative authority to shut down markets regarding war, terrorism, and gaming evidently viewed trading on these events negatively, only giving explicit legislative authority to terminate such markets. Under the standard of the Major Questions Doctrine and West Virginia v. EPA, a regulatory agency cannot embark on a "transformative expansion" while justifying its action in "the value language of ancillary provisions" of laws. Large scale elections betting has never existed before in the United States, because they have been understood to be illegal by federal or state law. Indeed, federal law bans interstate online gambling and numerous states explicitly have statutory bans on elections betting and other forms of online gambling. Given that green-lightning large-scale elections betting would indisputably be a "transformative expansion" in this light, CFTC appears to lack the explicit Congressional language in the United States Code that would give it the kind of authority to enact that scale of elections betting.
Conclusion: The Commission should reject the proposal on the grounds that its approval likely conflicts with the Major Questions Doctrine and the holding in West Virginia v. EPA.
