CFTC Criticizes Court's Decision on Kalshi's Election Markets

The United States Commodities Futures Trading Commission (CFTC) has criticized the district court judge presiding over the lawsuit brought by betting market Kalshi. The regulator claims that the judge made numerous errors in permitting Kalshi to list and trade election odds.

CFTC's Appeal to Washington Court

In an appeal filed on October 16 to a Washington, DC, appeals court, the CFTC argued that a federal court overlooked the clear definitions of terms under the Commodity Exchange Act (CEA). The regulator believes this prevented it from properly scrutinizing certain types of transactions. The CFTC maintains that the court made several mistakes when considering key details on whether Kalshi should be permitted to list political event contracts. The regulator contends that the court disregarded basic definitions of what constitutes "gaming" or "event-focused" contracts or transactions, thereby allowing Kalshi to list election odds on its platform.

Kalshi's Lawsuit Against CFTC

Kalshi initiated a lawsuit against the CFTC in November 2023, with the aim of overturning an order that prohibited it from listing political event contracts. The betting platform succeeded in its lawsuit in September, when a Washington, DC federal court ruled that the commodities regulator could not stop Kalshi from listing political election contracts. Despite the ruling, the CFTC appealed on September 6 and requested an "emergency stay" to prevent Kalshi from listing political contracts until the appeal's outcome was determined. However, on October 2, the US Court of Appeals for the District of Columbia Circuit ruled against the CFTC's appeal. As a result, Kalshi was legally allowed to list US election odds markets from October 7.

Kalshi's Election Contracts

Following its win over the CFTC, Kalshi listed numerous election betting contracts. These included odds on the presidential election's outcome, the popular vote winner, and the state with the smallest victory margin. In its latest filing, the CFTC argued that Kalshi's election contracts are similar to gambling and should be prohibited from being listed in the US. The regulator pointed out that Kalshi's website previews other contracts, including what it refers to as 'parlays' (a term used in sports betting) on various election outcomes, as 'coming soon.'

Expedited Final Ruling

On October 11, the judge presiding over the case agreed to expedite the final ruling on the CFTC's appeal. However, the final brief from the CFTC is not due until December 6, approximately one month after the election. Due to the ongoing legal proceedings, Kalshi has had to remain on the sidelines while other betting markets, such as Polymarket, have generated billions of dollars in betting volume.

Bottom Line

The ongoing legal battle between the CFTC and Kalshi raises important questions about the regulation of betting markets and the definition of gambling. While Kalshi has been allowed to list political event contracts, the CFTC's appeal and its arguments could lead to further scrutiny and potential changes in this space. What are your thoughts on this issue? Feel free to share this article with your friends and discuss it further. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.