Prediction Market Kalshi Sues U.S. CFTC for Denying Its Contracts for Congressional Elections

The CFTC denied a valid hedging option when it rebuffed a plan to offer event contracts for traders to bet on political outcomes, the company said.

AccessTimeIconNov 1, 2023 at 10:42 p.m. UTC
Updated Nov 1, 2023 at 10:49 p.m. UTC
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Prediction market Kalshi is suing the U.S. Commodity Futures Trading Commission (CFTC) for denying its effort to list derivatives for betting on the outcome of political events – specifically which party will control each chamber of the U.S. Congress after an election.

The U.S. regulator's denial of KalshiEx LLC's request to use event contracts – transactions in which a party is paid if they accurately bet on the outcome of an event – "exceeds its statutory authority," according to the lawsuit filed in the U.S. District Court for the District of Columbia. The company argued that such contracts are a classic way of hedging against risk.

"Political events carry enormous financial implications for businesses and individuals," Kalshi contended in the suit. "Uncertainty surrounding these events poses economic risk, no less than uncertainty over hurricanes, pandemics, or oil supply."

Kalsi is asking the court to vacate the CFTC's decision, which determined that the company was pursuing unlawful gaming "contrary to the public interest."

Last year, an appeals court ruled that another prediction market that the CFTC sought to shut down, PredictIt, should be able to keep operating until a final ruling from the courts.

While PredictIt has operated under a no-action letter from the CFTC, Kalshi went through the process of registering as a designated contract market with the agency, meaning the company has to certify compliance or seek approval for every single contract it lists. Polymarket, an unregistered, crypto-based prediction market that bills itself as the world's largest, is barred from doing business in the U.S. under a settlement with the CFTC.

Dennis Kelleher, CEO of Better Markets, a Washington group advocating for strong financial regulations, called Kalshi's effort a "backdoor attempt to unleash gambling on U.S. elections through so-called event contracts."

"At a time when there are already historically high concerns about the integrity of our elections, the CFTC properly evaluated the multiple fatal flaws in Kalshi’s self-certified contract and decided that it was a clear violation of public policy as well," Kelleher said in a Wednesday statement.

When the CFTC denied the application earlier this year, Commissioner Summer Mersinger dissented, arguing, "It is important for the commission to make this determination the right way – by undertaking a public rulemaking process." However, she added, "my dissent should not be taken as an endorsement of Kalshi’s Congressional Control Contracts."

Edited by Marc Hochstein.

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Jesse Hamilton

Jesse Hamilton is CoinDesk's deputy managing editor for global policy and regulation. He doesn't hold any crypto.


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