The future of betting on elections has changed. On October 2, Kalshi won its federal court appeal of a CFTC ban on political contracts. Shortly after the ruling, KalshiEx resumed offering contracts for the upcoming US political election and various Senate races.
Ultimately, the CFTC could not prove that political contracts posed a risk to the election process. This ruling could open the door for other companies to offer similar contracts, changing how people speculate on future elections.
Key Highlights
- Kalshi wins appeal of CFTC ban on offering political contracts.
- KalshiEx has taken over $7 million in contract bets since the ban was lifted.
- CFTC appealing ruling, with appeal fast-tracked for December.
Kalshi Wins Appeal – Can Offer Political Contracts
Kalshi has officially won its appeal of a Commodity Futures Trading Commission (CFTC) ban that blocked exchange KalshiEX from offering political contracts. The ban implied that contracts constituted gambling and could cast doubt on the integrity of political elections.
In September, a Washington, DC federal district court ruled in favor of Kalshi, stating that the CFTC failed to prove that the contracts constituted gambling. However, the CFTC immediately appealed, and the appeals court blocked KalshiEx from offering contracts.
“The district court also ruled that the term ‘involve’ refers to the ‘event being offered and traded’ under a contract, not the contract itself. Thus, because the underlying events in the Congressional Control Contracts—’ elections, politics, Congress, and party control’—are not themselves unlawful under state law, the contracts did not “involve” ‘illegal or unlawful activity.’ “
– US Court of Appeals Panel
On October 2, a three-judge panel overturned the original ban, stating that the CFTC failed to demonstrate that any harm would come due to KalshiEx offering political contracts.
This supported the DC court ruling that claimed that regulators failed to prove that contracts were gambling. The CFTC was trying to get contracts blocked in accordance with a “special rule” in the Commodity Exchange Act.
The special rule gives the regulator the power to review and ban certain contracts if they feel they pose a risk to the public. Gaming, terrorism, and any activity illegal under federal or state law are included in this rule.
However, the DC court ruled that “‘gaming’ must refer to the ‘act of playing a game’ or playing games for stakes.'”
The appeals court panel supported this ruling, stating, “The district court also ruled that the term ‘involve’ refers to the ‘event being offered and traded’ under a contract, not the contract itself. Thus, because the underlying events in the Congressional Control Contracts—’ elections, politics, Congress, and party control’—are not themselves unlawful under state law, the contracts did not “involve” ‘illegal or unlawful activity.’ “
What Are Political Contracts?
Political contracts, also known as political futures, are a way that bettors can wager on the outcomes of political events.
The purchase and sale of these contracts are similar to what you would see in stock options, but you’re betting on the result of an event rather than the rights to purchase a stock.
A contract is purchased based on the outcome the purchaser believes will happen. These contracts can be held until the event is reached or can be sold early for a profit or loss.
CFTC Appealed and is Fast-tracking the Appeal Process
On Monday, CNBC reported that the CFTC had appealed the ruling and that the US Court of Appeals was fast-tracking the appeal.
The CFTC has until Wednesday, October 16, to file its brief, and Kalshi has until November 15 to answer. The CFTC must answer the reply by December 6.
In the appeal, the CFTC claims that election contracts are “subject to market manipulation” and pose a risk to both political elections and how the public perceives elections.
Kalshi CEO Tarek Mansour released a statement and is confident that contracts are allowed under the law. He is “looking forward to continuing to show how powerful these markets are at promoting election integrity and bringing more truth to the system!”
Two companies are already offering political contracts following the overturn of the CFTC ban: KalshiEx and Interactive Brokers. KalshiEx has already taken over $7 million in bets as of Monday.
Over 1 million contracts have been traded on Interactive Brokers since October 3, with founder Thomas Peterffy stating, “We’ve seen substantial demand for election-focused contracts on our platform in just a short time. This interest underscores the growing relevance of political prediction markets.”
Sources
https://www.cnbc.com/2024/10/09/kalshi-expands-election-betting-options-cftc-complains.html
https://www.cnbc.com/2024/10/02/bets-on-congressional-races-allowed-cftc-appeals-court.html
https://media.cadc.uscourts.gov/opinions/docs/2024/10/24-5205-2077790.pdf
https://www.cnbc.com/2024/10/14/election-bets-appeals-court-fast-tracks-cftc-vs-kalshi-case.html
https://storage.courtlistener.com/recap/gov.uscourts.cadc.41256/gov.uscourts.cadc.41256.1208671086.1.pdf
