A federal judge has given a green light to event contract exchange Kalshi Inc. to let Americans bet as much as $100 million on the outcome of the 2024 congressional elections.
The ruling deals a heavy blow to the Commodity Futures Trading Commission and its quest to quash the growing popularity of trading elections-linked derivatives. The CFTC signaled it plans to appeal Judge Jia Cobb’s decision to let Kalshi move ahead with its plans.
Spokespeople for the CFTC and Kalshi didn’t immediately respond to requests for comment.
Kalshi had been preparing to launch the elections-themed derivatives earlier this week, extending its current offering of “event contracts” on monetary policy, lunar landings and music awards. But the company was held up after the judge granted a temporary pause Monday sought by the CFTC, which said that it would be nearly impossible to unwind the contracts once they went live.
“On balance, the factors weigh strongly against staying my order,” Cobb said during a hearing Thursday, in denying a longer stay so that the CFTC could appeal her ruling.
Cobb concluded in her opinion, which was only released Thursday, that the CFTC had exceeded its authority when it tried to block Kalshi from letting individuals bet on elections. The agency argued that election gambling is unlawful in certain states, trading would harm election integrity and the agency doesn’t police elections.
Kalshi had earlier called the move “an unlawful agency power grab that corrupts and dramatically expands” the CFTC’s statutory mandate.
The judge sided with Kalshi. “Kalshi’s contracts do not involve unlawful activity or gaming. They involve elections, which are neither,” Cobb wrote.
The CFTC has the authority to prohibit exchanges from listing derivatives contracts involving “terrorism, assassination, war” and “gaming” if it believes they aren’t in the public interest. However, the ambiguity in the CFTC’s rules around what constitutes gaming was at the center of the case.
In May, the CFTC sought to remove some of the ambiguity by specifying in a rule proposal that “gaming” includes contracts on outcomes tied to elections, sports and awards contests.
Kalshi sees the ability to list elections-themed contracts, already popular on other unregistered exchanges such as Polymarket and PredictIt, as a game-changing move to increase volume and the number of users and compete with other companies.
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