Wall Street's recent bid to profit from politics is set to come a cropper as financial regulators are expected to prohibit traders from betting on the outcome of the 2012 election, according to people briefed on the matter cited by The New York Times.
The Commodity Futures Trading Commission is set to reject plans for what are termed as political event contracts, involving lucrative derivative deals that would allow firms to bet on Congressional races as also on the presidential battle, the report said. It is expected that the such trades would be decided to amount to gambling - and that it could unduly influence election results.
According to the North American Derivatives Exchange, the Chicago-based firm that sought to offer the contracts, its efforts were consumer-friendly. It said it was pitching the offers more at mom and pop investors with minimum buy-in of $100, and a maximum payout of $250,000, rather than Wall Street.
According to Timothy McDermott, the firm's general counsel, who spoke in an interview last month, the company thought it was the perfect exchange to do it as it was a retail exchange.
It remains to be seen whether regulators would allow the exchange, known as Nadex, to come out with a fresh proposal and address the futures commission's concerns. The agency's decision is expected on Monday, the final day of a 90-day review period for the proposal.
With its plan to offer election derivatives, Nadex is said to be adding to a long line of unusual futures contracts emerging on Wall Street. Analysts say while traditional contracts are tied to stocks or commodities like oil and wheat, the industry has in recent times has been seen to be going creative, coming out with products that bet on everything from the future price of mortgages and next month's weather to the production of movies.