| | | | |  | | By Declan Harty and Zachary Warmbrodt | | Presented by |  | | | Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.
| | Wall Street’s top derivatives regulator has been warring with prediction market operators and their high-profile backers for years over the merits and legality of wagering on American elections. Now the Commodity Futures Trading Commission is on the brink of delivering what could be a death knell to the U.S. political betting scene. CFTC commissioners will vote later this morning on a rule proposal that would ban so-called event contracts that allow traders to wager on elections, two people familiar with the drafted plan told MM. Contracts related to sports and awards ceremonies like the Oscars could also be prohibited under the plan, said the people, who were granted anonymity to discuss the pending proposal. A CFTC spokesperson declined to comment. The CFTC has long rejected proposals to launch political-betting contracts. Instead, the agency has only allowed a few select academic ventures that operate within certain parameters to do so. And even then, the CFTC has cracked down: In late 2022, it moved to shut down the popular election-betting site PredictIt after determining the platform was no longer being operated “for academic purposes only.” But the latest plan, if proposed, would represent the CFTC’s strongest message yet that election-wagering products simply won’t fly in the U.S. derivatives markets — a move sure to escalate what is already a fierce battle over the issue between the agency and prediction market operators like PredictIt and Kalshi. Last year, the regulator rejected an election-betting bid by Kalshi, a derivatives exchange startup, over concerns that the products would have violated the law. It is currently fighting both PredictIt’s backers and Kalshi in court. The CFTC argues that election-betting products would violate laws that prohibit event contracts from dealing in “gaming,” running afoul of “the public interest” or involving activity that would break state law. Others have fretted over how the products could influence elections, allowing supporters of a particular candidate to bet heavily and skew the results. CFTC Chair Rostin Behnam told our Zach Warmbrodt earlier this week in Los Angeles that he is looking to clear up “ambiguities” over those event-contract laws with the upcoming proposal. Event contracts are designed to provide investors a way to bet — or, as proponents would say, hedge — on the outcome of, well, events. On Kalshi, for instance, you can currently wager on whether the U.S. will ban TikTok before May 2025, if Costco will raise membership rates this year, or how many times the Federal Reserve will cut interest rates. PredictIt, meanwhile, specializes in elections. A contract for President Joe Biden winning in November cost 51 cents late Thursday on PredictIt, versus 47 cents for former President Donald Trump. Each contract pays out $1, if you’re right. Backers say the products are a new tool that companies and investors can use to protect their businesses and portfolios from geopolitical risks, economic downturns or, in the case of election-betting contracts, policy swings. Think of someone with heavy exposure to electric vehicle stocks who is also bracing for a second Trump administration. They may turn to an event contract to offset the risk of Biden losing in November. And the data created by the markets where they trade is often used by economists, journalists and other Washington insiders — especially in the case of election-betting contracts, since they can offer yet another barometer to gauge where voters stand on candidates. “They’re going to exist,” said Aristotle CEO John Phillips, whose company operates PredictIt. “It’s just a question of whether they’re going to exist and operate in an orderly, regulated [and] fair fashion with common sense regulation or whether there’s going to be another spasm of ill-conceived, overbroad, ultimately doomed [attempts] to suppress these markets.” The CFTC has long rejected election-betting proposals under current law. But the fears go further: Behnam warns that the products could force the CFTC into the awkward position of “election cop.” Commissioner Christy Goldsmith Romero said to MM: “There is a question immediately before the commission about whether there are overriding public interest [concerns] in the sanctity of elections that may cause us to ban those political election contracts in our markets.”
| | | | A message from the Electronic Payments Coalition: WORKING-CLASS AMERICANS DEPEND ON CREDIT CARD REWARDS: A new study finds credit card rewards like cashback empower low-income families to pay for the rising price of everyday essentials—like groceries and gas. So why are DC politicians partnering with corporate mega-stores to end those hard-earned rewards programs that Americans rely on? The Durbin-Marshall Credit Card Bill takes billions from American families, lining corporate pockets instead. Tell DC politicians to OPPOSE the Durbin-Marshall Credit Card Bill. | | | Not everyone at the CFTC seems fully onboard with the plan. Commissioner Summer Mersinger, a Republican member of the panel, told MM that the proposal “may create more uncertainty and confusion” around event contracts. The CFTC’s proposal, if approved, would still likely be months away from becoming a final rule. In the meantime, a lobbying fight is primed to break out on Capitol Hill. Democrats like Sens. Jeff Merkley of Oregon and Amy Klobuchar of Minnesota, as well as some investor advocates, have previously sounded the alarm about the contracts’ potential ripple effects on elections. Merkley called Kalshi’s proposal “a clear threat to our democracy and elections.” And in the weeks since the CFTC’s proposal began coming together, other lawmakers have begun to press the agency to be cautious. “Limiting event contracts could stifle responsible and regulated innovation and encourage industry participants to move their trading overseas to work under the watch of foreign regulators who would not provide the level of safety standards, customer protections, and market oversight as the CFTC,” a bipartisan group of seven lawmakers led by Rep. Dusty Johnson (R-S.D.) wrote in a letter to Behnam last week. Happy Friday — Send tips to Zach at zwarmbrodt@politico.com, and keep up with Declan at dharty@politico.com and @declanharty.
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Get the premier news and policy intelligence service, SUBSCRIBE TO POLITICO PRO TODAY. | | | | | | | | | Fed Governor Michelle Bowman speaks on financial stability risks at the Texas Bankers Association Annual Convention at 9 a.m. … The CFTC votes on rules for event contracts at 10 a.m. … NEC Director Lael Brainard discusses tax policy at the Hamilton Project at 10:30 a.m. …Fed Vice Chair for Supervision Michael Barr gives a commencement speech at American University School of Public Affairs … The Financial Stability Oversight Council holds a closed session on market developments related to corporate credit and a public session on a report on nonbank mortgage servicing at 2:45 p.m. Treasury personnel move could derail CFTC — Bloomberg reports that the White House is poised to nominate CFTC Commissioner Kristin Johnson to serve in a Treasury Department role overseeing banks. POLITICO first reported she was under consideration in February. If nominated and confirmed — the latter being a big if because of political dynamics and the calendar — it could leave the CFTC’s five-person commission in a 2-2 deadlock on certain rulemakings. Yellen’s legacy, in her words — Marketplace host Kai Ryssdal in an interview airing Thursday asked Treasury Secretary Janet Yellen, “What’s the first line of your New York Times obit?” Here’s how she responded. “That I tried to work with President Biden, and in other ways throughout my life, to create economic conditions that make Americans feel that they're getting ahead and enjoying good lives, that they have opportunity and that they're able to realize their dreams.” On a lighter note, Yellen also shared her reaction to the social media loves she gets when she dines out in China. “You know, I think the Chinese are happy to see a person who appreciates Chinese culture and is a regular person that they can identify with.” Gruenberg on the Hill — Eleanor Mueller reports that FDIC Chair Martin Gruenberg, who is facing new scrutiny over misconduct at his agency, is setting up one-on-one meetings with Senate Banking and House Financial Services members ahead of hearing appearances next week. Some House members received emails offering "a call with FDIC Chairman Gruenberg to get an update on what the FDIC is doing to address workplace culture issues.” More on Trump’s crypto play — Jasper Goodman has new reporting on former President Donald Trump’s embrace of crypto and what it means, including interviews with Vivek Ramaswamy and Ohio GOP Senate candidate Bernie Moreno. Blockchain Association CEO Kristin Smith calls it a “sea change in the importance of digital assets this election cycle.” Some in the industry see a risk if crypto support leans heavily toward one party. "I don't want this to become a partisan issue," Chamber of Digital Commerce chief policy officer Cody Carbone said. "I think this presents an opportunity for Democrats to start to really have an introspective look and educate themselves on the benefits of digital assets." Buyback boom — Per the WSJ, S&P 500 companies that have reported first-quarter results have disclosed buying back $181.2 billion worth of their shares, a 16 percent increase year over year. Big tech companies are driving it. “Investors are taking the increase in buybacks as a sign of rising confidence among executives, despite persistent fears that the economy could weaken or that interest rates will stay high for longer than hoped.” Coming soon: House votes on the SEC — Eleanor reports that House Financial Services is expected to vote soon on Republican legislation that would fence in SEC regulations. The bills target the SEC’s Consolidated Audit Trail system and the agency’s mandate for cost-benefit analysis. First in MM — WARREN PRESSES JUDICIARY OVER ETHICS RULING: Sen. Elizabeth Warren is slamming a federal judicial ethics panel’s move last month to bless a judge’s decision to continue hearing a lawsuit over the CFPB’s cap on credit card fees despite reporting stock holdings in Citigroup, a larger credit card issuer. Fifth Circuit Judge Don Willet, a Trump appointee, said he didn’t think the situation required his recusal from the industry’s challenge to the policy. The Judicial Conference’s ethics committee issued an advisory opinion in April that essentially backed him up. Warren today is leading a letter to the head of the Judicial Conference, Judge Bob Conrad, that accuses the top policymaking body for the nation’s courts of “aiding and abetting” Willet’s “obvious conflict of interest” in the CFPB late fee case in which billions of dollars of fees are at stake. The letter — joined by Sens. Ron Wyden (D-Ore.) and Jeff Merkley (D-Ore.) as well as Reps. Pramila Jayapal (D-Wash.), Adam Schiff (D-Calif.) and Katie Porter (D-Calif.) — says that the episode illustrates the need for stronger ethics policies. “Federal ethics law and judicial ethics guidance require Judge Willet to recuse himself here; to the extent they do not in the Committee’s view, revisions of those laws and guidance are urgently needed,” the letter says. A spokesperson for the Judicial Conference didn’t immediately respond to a request for comment. Oklahoma officials clash over ESG case — After a judge halted the state from enforcing a law penalizing financial giants accused of boycotting fossil fuels, Oklahoma Attorney General Gentner Drummond fired the outside attorney hired by State Treasurer Todd Russ while stripping him of “any decision-making authority in the lawsuit," the Tulsa World reports.
| | | | JOIN 5/22 FOR A TALK ON THE FUTURE OF TAXATION: With Trump-era tax breaks set to expire in 2025, whoever wins control of Congress, and the White House will have the ability to revamp the tax code and with it reshape the landscape for business and social policy. Join POLITICO on May 22 for an exploration of what is at stake in the November elections with our panel dissecting the ways presidential candidates and congressional leaders are proposing to reshape our tax rates and incentives. REGISTER HERE. | | | | | | | | | A Q&A with Robin Vince — Our Victoria Guida sat down for a short chat with Bank of New York Mellon CEO Robin Vince before the bank’s 240th birthday party at Café Riggs (where the firm showed off fun historical artifacts like the first U.S. debt instrument ever issued and the letter establishing the Treasury Department). Here are some of the highlights from the conversation: The U.S. economy is doing very well, he said, citing energy independence, labor supply, innovation, and policy among the reasons why: “We’ve had some light industrial policy in the form of the CHIPS Act and the Inflation Reduction Act. They’re a little bit controversial, but it’s probably incontrovertible that they've created a little bit of a boost to certain sectors of the economy.” On whether we’ll see lower interest rates this year: “There’s every reason to think that more likely than not, we'll see that play out. But you’ve got to be prepared.” On stress that the market for U.S. debt saw in 2020, and whether we might see that again: “That was something that we always have to recognize can happen when you have so many institutions around the world who use Treasuries as the ultimate safekeeping store of cash -- the piggy bank, if you will, for their own savings. When folks want to withdraw something from [the] piggy bank, they have to sell Treasuries, and so you're gonna have this dash for cash, as it was referred to. I think we have to accept that that’s a little bit of the tradeoff that we have to accept if we’re going to be the ultimate risk-free investment for the world. And I’m not sure we’d want it any other way. Having said that, we've got to reduce any consequences of that.” On rising interest costs for the U.S.: “Sometimes folks point to Japan as being a high level of debt to GDP, maybe we could grow that big. I think that they forget, sometimes, the fact that they have had rates, basically zero for a long time, you can borrow an awful lot of money at zero. It’s not quite the same thing as borrowing a lot of money at 5 percent.” On proposed capital requirements: “I'm optimistic that, over time, regulation tries to create the right incentives and outcomes for the United States and for consumers and businesses around the United States. And the industry’s had a very strong point of view that Basel III endgame needed modifications to do that. And so I'm hopeful that that’s how it’ll end up. But we’ll have to see how.”
| | | | A message from the Electronic Payments Coalition:   | | | | | Climate and the Fed — Per Michael Stratford, a Fed examination of how big banks look at climate risks found significant data gaps and modeling challenges. The Fed didn’t release company-specific results, but the participating banks included JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley. A big idea — Former FHFA Director Mark Calabria says it’s time to rethink the structure of the agency he led. “Congress needs to merge FHFA into OCC,” he posted on X. “I’ve reluctantly concluded standalone safety/soundness regulation of GSEs just isn’t politically sustainable or feasible over long periods of time.”
| | | | A message from the Electronic Payments Coalition: NEW STUDY DEBUNKS MYTH CREDIT CARDS REWARDS ARE ONLY FOR THE RICH: Politicians in DC are teaming up with corporate mega-stores to push a false narrative only the rich benefit from credit card rewards. New research disproves this, showing rewards have a significantly larger financial benefit for low- and middle-income Americans. These rewards, especially cashback, help working class families pay for everyday essentials--equivalent to a 17 cent per gallon gas price reduction. Yet, politicians are trying to pass a new law that would end rewards programs that Americans rely on, favoring corporations over people. The card mandates included in the Durbin-Marshall Credit Card Bill would weaken security measures, disrupt rewards, and burden households already grappling with rising costs. With food and rent prices soaring, stripping cashback rewards from hardworking American families would be devastating. Learn more here. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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