Editorial: Chicago’s commodities exchanges now trade on sports, elections … and, Taylor Swift?

Looking youthful in his black hoodie, Kalshi co-founder Tarek Mansour visited Chicago last week on a redemption tour for his controversial derivatives exchange.

Barely a year ago, he noted, “The headlines were that Kalshi will ruin democracy” by offering markets based on the 2024 presidential election. Those markets were vulnerable to manipulation by big traders seeking to influence public opinion, critics warned. But after Kalshi won a case against U.S. regulators that allowed wagering on the outcome of the election, its customers predicted Donald Trump’s victory more decisively than traditional polls.

That happened again with this month’s election of Zohran Mamdani as mayor of New York City. “We have to let these markets play out,” Mansour told a packed house at the annual Futures Industry Association conference downtown. “The more they work, the more people will trust them.”

For anyone who cares about Chicago remaining a hub of financial market innovation, these are good times. The derivatives markets pioneered at the city’s futures and options exchanges are growing in promising new directions. Trading has taken off on everything from politics and sports to what Mansour described as the $100 billion “Taylor Swift Economy.”

Will the singer announce a new tour? Will she be the top artist on Spotify this year? Will the wife of football star Patrick Mahomes attend Swift’s wedding to his teammate Travis Kelce?

Kalshi and competing venues like Polymarket enable customers to bet yes-or-no on such questions, pitting them against each other rather than against a casino or betting site — as in traditional gambling where odds favor “the house” and the most successful speculators can be banned.

Chicago’s CME Group and Cboe Global Markets are starting to embrace these fast-growing “event-prediction contracts,” which Mansour brashly predicts will overtake stock exchanges. As for consumer protection, buyer beware.

The Trump administration is ushering in a new era of financial oversight marked by close cooperation between regulators, Congress and the most ambitious young sharks in the financial world. The dismantling of the Consumer Financial Protection Bureau is emblematic of the administration’s hostility to rules that impede plutocrats by protecting the little guy.

Among Trump’s few legislative successes this year was the bipartisan Genius Act signed into law over the summer. The new law provides a welcome framework for regulating stablecoins, one of the most widely used cryptocurrencies. It should help to bring that market back onshore after some practitioners fled the U.S. during a crackdown under former President Joe Biden.

The Clarity Act now being considered in the Senate, meantime, promises to settle a festering turf battle among regulators. It stands to empower the Commodity Futures Trading Commission, which under Biden took a friendlier approach to the latest market innovations than the rival Securities and Exchange Commission.

Regulatory agencies that were skeptical about crypto and event-prediction markets a year ago have become cheerleaders under Trump today: Just before Mansour appeared at the Chicago conference, Acting CFTC Chair Caroline Pham spoke glowingly about “reducing regulatory burdens” and welcoming a “golden age of crypto.” At the same time his minions take a weaker approach to investor safeguards, the president is enriching his family with trading in crypto assets.

This page has long supported financial innovation, and we see big efficiencies coming from technological breakthroughs connected to these new markets, such as using blockchain for electronic ledgers and turning assets into digital tokens for collateral.

But when Mansour brags about dreaming up and launching new contracts within an hour to keep up with the news, that’s alarming. Exchanges are supposed to ensure their products can’t be manipulated. Kalshi’s “yes-or-no” contract templates are simple, yes, but protecting their integrity is no simple matter.

Appearing at the futures conference shortly after Mansour, Cboe Chief Executive Craig Donohue said his exchange sees big growth ahead in Kashi-style contracts, especially those based on financial and economic indicators, as opposed to sports or celebrity news. Formerly head of CME, Donohue has occupied the hot seat during past financial crises. And while he told attendees that he sees “a lot of good” happening, “The reckoning always comes.”

Amen to that sentiment.

Does America need another boom-and-bust financial crisis to teach it the value of effective regulation? Do taxpayers need to fund another bailout of the banking system, this time to pay for the half-baked use of stablecoins, or some other huge risk taken with inadequate scrutiny?

While today’s innovations are full of promise, regulators should not hesitate to call timeouts as they play catch-up amid a breathtaking period of growth. Chicago’s financial markets can only be as good as the rules that govern them.

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