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Betting on Congress: High-Stakes Trading Proposal on Political Outcomes Sparks Concerns Over Democracy’s Integrity

A New York-based exchange is considering a controversial move that could enable high-value trading based on the political divisions in Congress, leading to concerns from lawmakers and observers about potential negative impacts on electoral confidence.

The Commodity Futures Trading Commission (CFTC) is currently evaluating a proposal put forth by the trading platform Kalshi, which seeks to allow trading in derivatives centered around which political party will control Congress. This move could effectively turn Election Day into a political version of a high-stakes event like the Super Bowl.

Proponents of this idea, led by Kalshi, argue that it offers large corporations a way to manage risk by hedging against unfavorable policy outcomes, particularly those linked to tax, energy, and environmental issues, which can be influenced by the party in power. They also contend that it could offer more accurate election sentiment data compared to traditional polling.

However, this potential practice of major corporations investing up to $100 million in these bets is causing concern among lawmakers and Wall Street watchdogs. Critics fear that such a development could foster widespread political gambling in the United States and potentially harm the public’s trust in elections, especially given the existing suspicions surrounding electoral outcomes.

Senator Jeff Merkley of Oregon, a Democrat, expressed his reservations, stating that linking monetary incentives with democracy could be immensely detrimental to the electoral process. Other lawmakers share this sentiment, viewing the proposal as a threat to the integrity of elections.

Kalshi, a startup supported by prominent Wall Street figures, seeks to expand beyond the limited political speculation facilitated by platforms like PredictIt. Their idea is to enable large-scale trading based on the control of Congress chambers, allowing individuals to invest up to $250,000 and larger companies up to $100 million.

In this proposed system, individuals who correctly predict certain “event contracts” related to political outcomes would receive payouts determined by market-established prices, with Kalshi earning fees for operating the exchange. Kalshi executives assert that their platform would be closely regulated and transparent, pointing out that similar betting on U.S. elections occurs overseas without domestic oversight.

Supporters of the proposal, including economists and researchers, argue that it could benefit companies whose fortunes hinge on legislative decisions and provide predictive data. However, opponents argue that allowing substantial investments in potential election results could motivate those with resources and insider knowledge to manipulate outcomes, further undermining the democratic process.

The debate over Kalshi’s proposal is ongoing, with the CFTC reviewing the plan and expected to make a decision by September 21. Despite the pushback and concerns, Kalshi’s executives and proponents remain committed to the idea, contending that it could offer opportunities for smaller entities without easy access to such avenues and that this type of trading is already taking place on unregulated markets.

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