The U.S. Commodity Futures Trading Commission says that a derivatives exchange can’t offer contracts on political events, as this would constitute gambling.
The North American Derivatives Exchange was proposing to offer political event derivatives contracts, which are binary option contracts that pay out based upon the results of various U.S. federal elections to be held in 2012.
Earlier this year, the CFTC initiated a 90-day review of the proposed contracts, and on Monday it issued an order prohibiting them.
“As a result of reviewing the complete record, the CFTC determined that the contracts involve gaming and are contrary to the public interest, and cannot be listed or made available for clearing or trading,” it said.
The contracts would have allowed traders to take a position on the outcome of the upcoming presidential election and on the majority control of the House and Senate elections.
When the CFTC announced its intention to review the contracts, Nadex said it believed they met all the requirements for immediate listing, and that it was confident the commission would see the merits of providing a regulated market for political event contracts. It noted that similar contracts are currently offered only on unregulated venues.