The Commodity Futures Trading Commission (CFTC) is continuing its efforts to prevent an exchange firm from offering contracts on political events.
Kalshi has once again been blocked from offering political contracts in U.S. markets after initially making them available to consumers last week. The blockage occurred when the CFTC filed an appeal in the D.C. Circuit after submitting an emergency motion for a two-week stay on the issue. The CFTC is arguing that Kalshi’s contracts give the regulator proper authority to issue a ban due to the contracts being tied to gambling.
“Because Kalshi’s contracts involve staking something of value on the outcome of elections, they fall within the ordinary definition of ‘gaming,’” said the CFTC in its appeal.
Last week, the CFTC filed the emergency motion after U.S. District Court for the District of Columbia Judge Jia Cobb ruled that Kalshi is authorized to offer its political contracts after the regulator blocked the company in 2023 from providing its markets. As a result, Kalshi sued the CFTC arguing that the regulator didn’t have the authority to issue a ban.
Cobb then later ruled that the CFTC exceeded its authority over Kalshi’s political contracts.
“Kalshi’s contracts do not involve unlawful activity or gaming. They involve elections, which are neither,” said Cobb in an opinion detailing her reasoning for the ruling.
Despite her ruling, the CFTC has submitted an appeal to continue challenging the legality of Kalshi’s political contracts in the U.S.
Additional arguments against Kalshi
The CFTC is also arguing that Kalshi’s contracts can lead to market manipulation citing Polymarket’s recent battle with traders. Earlier this month, Polymarket experienced a failed attempt by a group of traders to manipulate its Presidential Winner market.
In response to the CFTC’s argument of potential market manipulation, Kalshi argued that if it is unable to offer its contracts then consumers will turn to unregulated markets nationwide that are already operating without state or federal regulatory oversight.
“A pharmacy does not get to dispense cocaine just because it is sold on the black market,” said the CFTC responding to Kalshi’s argument in its appeal.
An oral argument between Kalshi and the CFTC is scheduled for Sept. 19. The two parties, who will have one counsel per side, are given 15 minutes each to deliver their arguments.
Until then, Kalshi will keep its political contracts out of the hands of U.S. consumers.
