War Markets Have Some Bugs
Rule 40.11, Nasdaq 100 binaries, a DAT proxy fight, paralinguistic features, lying to VCs and Lloyd Blankfein’s memoir.
The US Commodity Futures Trading Commission, which regulates prediction markets, has a rule, Rule 40.11, that prohibits those markets from listing any contract “that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.” I don’t know how seriously the CFTC or the prediction markets take that rule. Certainly until about a year ago, everyone understood that rule to prohibit prediction markets from offering sports betting (“gaming”); now the prediction markets are mostly venues for sports betting, and the CFTC has explicitly endorsed this. So I am tempted to assume that, if Kalshi started offering war or assassination markets, the CFTC would be like “sure that’s cool whatever.”
But for now the rule is on the books, and Kalshi has real lawyers, so it does not explicitly offer assassination contracts. This can get awkward. For instance, Kalshi offered a series of contracts on “Ali Khamenei out as Supreme Leader” of Iran, which would pay out $1 if Ayatollah Ali Khamenei “leaves office” as of the contract expiry date, or $0 if he was still in office. Total volume is in the tens of millions of dollars. As of Friday, the April 1 expiry was trading at about 26 cents on the dollar, implying about a 26% probability that Khamenei would be out by the end of March.