Kalshi Lists Long-Sought Election Contracts After Beating CFTC in Court

Kalshi has listed its long-anticipated election prediction markets after winning a nearly year-long court battle with the Commodity Futures Trading Commission.

The New York-based company's "which party will win the Senate?" and "which party will win the House?" contracts went live on its website Thursday, shortly after a federal judge rejected the CFTC's last-minute bid for a two-week stay of the court’s earlier decision to allow the contracts.

"Today markets the first trade made on regulated election markets in nearly a century," Tarek Mansour, Kalshi's co-founder and CEO, told CoinDesk through a spokesperson.

Latest news: Kalshi's New Political Prediction Markets Halted as CFTC Appeals Loss

The telephonic hearing took place shortly after U.S. District Court Judge Jia M. Cobb, the judge overseeing Kalshi’s case against the CFTC, issued her full opinion explaining her rationale for granting the prediction market’s motion for summary judgment last Friday.

A CFTC lawyer said during the hearing that the regulator plans to appeal the case brought by the trading platform, and even though Judge Cobb denied the agency's motion for a stay, it could still ask the higher court to stop the firm from listing the contracts while the appeal is pending.

Read more: CFTC Has No Authority to Second-Guess Election Contracts, Judge Says

Kalshi filed suit against the CFTC last November, after the regulator attempted to block the prediction market from listing contracts betting on whether Democrats or Republicans would control each house of Congress after the 2024 election. Cobb ruled Thursday that the CFTC had “exceeded its statutory authority” in trying to ban election betting.

As soon as Cobb’s ruling hit the docket last Friday, lawyers for the CFTC filed an emergency motion essentially asking the judge to reconsider staying her order for at least two weeks while the regulator appealed her decision to a higher court. The CFTC’s lawyers argued that Kalshi’s election markets contracts are “susceptible to manipulation” and could shake Americans’ faith in election integrity.

“The election gambling contracts pose significant public interest risk,” the CFTC’s lead attorney said during Thursday's hearing. “The Commission noted serious concerns about potential adverse effects on election integrity, or the perception of election integrity, at a time where confidence in election integrity is incredibly low. These contracts would give market participants a $100 million incentive to influence either the market or the election, which could very certainly undermine confidence in election integrity. This is a very serious public interest threat.”

While Cobb said that she was not unsympathetic to the regulator’s concerns in general, there would need to be definitive evidence of “both certain and great” irreparable harm in order to convince her to issue a stay – not just the nebulous possibility of future harm.

Read more: U.S. Election Betting: What's at Stake in Final (?) CFTC-Kalshi Showdown

Rather than giving a concrete example of the harm caused by Kalshi’s contracts, the CFTC’s lawyer argued that “the Commission is not required to suffer the flood before building a dam.”

Yaakov Roth of Jones Day, the lead attorney for Kalshi, argued that any delay in the company being able to list the elections contracts was causing economic harm to Kalshi – and furthermore, driving business to unregulated competitors, not least of all crypto-based Polymarket, which despite being barred from doing business in the U.S. has seen gangbusters volume.

“Whether the agency or the court or anyone else thinks that contracts are good or bad for public interest, they are already happening,” Roth said.

“At the end of the day, the court concluded that we're legally entitled to list these contracts," he said. "Staying that judgment would wipe out [Kalshi's] investment, while allowing the same trading activity to continue outside the confines of any CFTC regulation. That would amount to punishing the one party that is trying to play by the rules.”

Read more:U.S. Election Betting Delay Would Be 'Devastating' to Kalshi, Firm Says

Caroline Pham, one of the CFTC's five commissioners, called the agency's defeat self-inflicted.

"The Court's opinion in Kalshi echoes the concerns I raised more than two years ago when the CFTC first embarked on a creative reading of its own rules and governing statutes in this matter," she said. "Oftentimes, the simplest explanation for what a law means is the correct one. The Commission would do well to learn from this experience and respect the limitations of its authority."

Better Markets, a lobbying group that advocates robust regulation of financial markets, called the decision an example of the "harmful effects" of the Supreme Court's Loper decision, which ended a longstanding requirement for courts to defer to agencies' interpretation of the law.

"Had that requirement been in place here, perhaps the CFTC would still be empowered to protect the public from dangerous contracts like Kalshi's," the group said. "Moreover, although the Supreme Court in Loper Bright specifically allowed courts to still weigh the technical expertise and experience of agencies in interpreting a statute, the judge explicitly refused to do so here."

UPDATE (Sept. 12, 2024, 16:25 UTC): Adds background and quotes from both sides' lawyers at hearing.

UPDATE (Sept. 12, 2024, 20:15 UTC): Adds quotes from Kalshi CEO, CFTC commissioner, and Better Markets.