Commodity Futures Trading Commission (CFTC) officials are weighing whether to ban the use of derivatives to bet on the outcome of the US election. Derivatives are investments based on the value of an underlying security, group of assets, or benchmark, which can include stocks, bonds, commodities, index funds, and cryptocurrencies.
CFTC Chairman Rostin Behnam sits down with Yahoo Finance’s Brian Sozzi and Akiko Fujita at the 2024 Milken Conference to discuss this proposal as his agency seeks to prevent fraud or forms of manipulation that could compromise the election.
“We’ve had obviously issues around election integrity, allegations of it over the past few years, if there are issues around elections, we can end up becoming involved in a civil enforcement action with underlying elections, whether at the local level, state level, or federal level,” Behnam explains. “We play an important role in terms of risk management and price discovery, and I do hear from a lot of people how they benefit from these prediction markets. But there are other ways to use these prediction markets besides elections… The commission has to vote. That remains to be seen.”
Former FTX CEO Sam Bankman-Fried was convicted to 25 years in prison in March for defrauding the crypto exchange’s investors, customers, and lenders. Additionally, Binance Founder Changpeng “CZ” Zhao received four months in prison after a plea deal with US authorities in connection to money laundering charges.
Benham has seen a massive increase in suspected fraudulent activity in the crypto space, having to allocate “nearly 50% of our enforcement docket” in 2023: “That’s a staggering statistic for a derivatives regulator that oversees trillion dollar markets in FX, credit, agriculture, energy, metals, and interest rates as well.”
“The fact that I’m having to allocate 50% of my enforcement resources towards an unregulated market, again, is a staggering statistic. And I think one that demonstrates how much fraud and manipulation there is in the market and how much of a strong need there is for a traditional regulatory framework so that we can push that fraud and manipulation out.”
Catch more of Yahoo Finance’s coverage at the 2024 Milken Institute Global Conference.
This post was written by Luke Carberry Mogan.
