On August 7, 2024, the Center for American Progress submitted comments to the Commodity Futures Trading Commission (CFTC) regarding its proposal to update its event contracts rule and, among other changes, codify its long-standing position that financial agreements based on political election outcomes constitute gaming, are contrary to the public interest, and are thus prohibited from being listed on derivatives exchanges.
A derivative is a financial agreement between two or more parties that is based on an underlying asset or benchmark, such as the future price of a bushel of corn or the interest rate at some point in the future. Event contracts are a type of derivative contract that is based on the outcome of a particular event, such as a political election. They are considered gaming contracts, which are deemed contrary to the public interest and cannot be listed on exchanges where many other derivative contracts are traded.
Under the CFTC’s proposed changes to the event contract rule, derivative contracts based directly or indirectly on political elections would be explicitly identified as prohibited event contracts, along with other clarifications of contracts that are contrary to the public interest. In addition, the proposal would adopt an expansive view of how the commission will assess potential public interest harms, noting in particular that national security and the public good are relevant factors to consider in determining whether a contract is contrary to the public interest.
The proposal is consistent with comments CAP submitted to the commission in 2023 expressing deep concerns about derivatives based on control of Congress. At that time, CAP warned that allowing contracts based in any way on election outcomes could lead to election interference, voter manipulation, and disinformation campaigns, which ultimately would erode public trust in the democratic process.
While applauding the commission’s acknowledgment of these concerns and its clarification of the event contracts rule, CAP expresses concern in its comment letter that the proposal leaves in place the CFTC’s existing inadequate process for reviewing and analyzing exchange listings and rule changes, raising the likelihood that prohibited contracts and other contracts contrary to the public interest could elude review and still be listed for trading.
Click here to read CAP’S comment letter on the CFTC’s proposal.