Federal Court Ruling Paves Way for US Election Betting, CFTC Seeks Delay

  • September 9, 2024
  • 25 Views

TLDR:

Kalshi won a lawsuit against CFTC, allowing it to offer election betting contracts
CFTC filed an emergency motion for a 14-day delay in implementing the ruling
Kalshi argues the delay would cause “irreparable harm” to its business
The company claims it has “staked its future” on these election markets
The ruling could potentially change the landscape of US election betting

A federal judge has overturned a Commodity Futures Trading Commission (CFTC) order that previously blocked Kalshi Inc. from offering election betting contracts.

The ruling, issued on September 6, 2024, by Judge Jia Cobb of the U.S. District Court for the District of Columbia, opens the door for Kalshi to list derivatives that allow Americans to bet on the outcomes of the upcoming November elections, including which party will control Congress.

Kalshi, a CFTC-regulated prediction market platform, hailed the decision as a major victory. The company’s CEO, Tarek Mansour, described it as a watershed moment, stating, “Election markets are now legal in the United States for the first time in 100 years.”

This ruling potentially marks a significant shift in the landscape of election betting in the United States, which has traditionally taken a stricter stance on such activities compared to some other countries.

The CFTC, which oversees Kalshi’s exchange, had previously forbidden the company from listing contracts on congressional control, arguing that such contracts would amount to unlawful gaming and would be “contrary to the public interest.”

The regulatory body cited concerns about the potential impact on election integrity and the challenges of policing election-related trading.

However, following the court’s decision, the CFTC filed an emergency motion requesting a 14-day stay on the implementation of the ruling. The agency stated that without knowing the judge’s full reasoning, which is yet to be published, it cannot determine whether to appeal the decision.

This move has drawn criticism from Kalshi, which argues that any delay would cause “irreparable harm” to its business.

In a court filing on September 9, Kalshi pushed back against the CFTC’s motion, describing it as “meritless.” The company emphasized the time-sensitive nature of election betting, with the U.S. presidential election less than 60 days away.

Kalshi argued that further delays “may make it impossible for Kalshi to meaningfully compete in this space,” noting that it has already been locked out of this year’s election betting boom while unregulated platforms have gained market share.

The case highlights the ongoing debate about the role of prediction markets in elections. Supporters argue that such markets provide valuable information for forecasting and offer ways to hedge risk. Critics, including the lobbying group Better Markets, express concerns about the potential negative impacts on democracy and market integrity.

Kalshi’s legal victory comes at a time when the CFTC has been considering broader restrictions on election and sports betting using derivatives.

In May, the agency proposed an explicit ban on such activities. The CFTC has historically given exchanges significant leeway in deciding what derivatives to list, but it retains the authority to stop contracts related to certain topics or those deemed contrary to the public interest.

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