The US election could be the next big bet for Wall Street

American political junkies could legally bet tens of thousands of dollars on the outcome of the November US congressional election.

After years of refusing to approve derivatives for election betting, regulators in Washington are privately evaluating a plan that could allow people to put up to $25,000 into the political party that will control the US Congress. The Commodity Futures Trading Commission could begin taking public comment on prediction market operator Kalshi Inc.’s proposal as early as this month, according to people with knowledge of the deliberations.

A green light for Kalshi, which already offers so-called event contracts that allow people to bet on everything from President Joe Biden’s approval ratings to the next wave of Covid-19, would be a boost for the game. Politics. Funders say the nascent industry can produce more accurate data than opinion polls. But the future of the entire industry in the United States was recently thrown into doubt when the CFTC revoked a regulatory clearance that a popular Kalshi competitor called PredictIt had been using.

The CFTC will likely make a decision by Oct. 28 on Kalshi’s candidacy, said the people, who asked not to be named to discuss internal deliberations. The proposal would require the approval of at least three of the five members of the CFTC and could still be modified.

Since listing with the CFTC as an exchange in late 2020, Kalshi has avoided election contracts and instead focused on political and economic topics such as Federal Reserve rate decisions and whether a hurricane will hit Miami.

Because a $25,000 limit is significantly higher than PredictIt’s $850 cap, a listing on Kalshi could attract a new cadre of more sophisticated traders.

A CFTC representative declined to comment on Kalshi’s candidacy. The company also did not comment specifically on the plan, but said in a statement that it has “always had a constructive and productive relationship with the CFTC.”

In general, forecast markets have been viewed with a mixture of fascination and skepticism by US media and election watchers. Funders say they are more accurate than polls, but there have been occasional concerns about market manipulation to increase perceptions of a candidate’s performance.

In event-driven contracts like the ones offered by Kalshi, prices settle either at $1 if the event occurs or at zero otherwise and the price moves before that, depending on how likely the market is to consider the event.

The CFTC has the power to prevent exchanges from listing contracts related to “terrorism, assassination, war” and “gambling” if it deems them “contrary to the public interest”. The regulator has not defined what constitutes gambling under its rules.

This article was provided by Bloomberg News.