Federal Court Halts Election Contracts Amid Kalshi-CFTC Dispute
Date: 2024-09-10 Author: Robert Beloved Categories: EVENTS
A federal judge in Washington, D.C., named Gia Cobb, issued a three-day administrative order in response to a request from the U.S. Commodity Futures Trading Commission (CFTC). The order is intended to temporarily block a ruling that would have allowed Kalshi to trade contracts related to the outcome of elections. Kalshi and the CFTC are expected to present their arguments in court on Sept. 12.
The CFTC’s Ban on Kalshi Contracts and Its Reversal
The dispute began with a CFTC decision in 2023 that barred Kalshi from offering contracts that allowed users to bet on which parties would control the U.S. Congress. Kalshi challenged the ban, arguing that such contracts were within the scope of financial market regulation.
On September 6, Judge Cobb lifted the CFTC’s ban, clearing the way for Kalshi to enter into such contracts. However, the CFTC immediately filed an emergency motion to stay the order, citing a threat to the integrity of the election.
The CFTC has argued throughout the case that betting on the outcome of elections poses a threat to both financial markets and public confidence in the election system. According to the commission, such contracts can influence voter behavior and undermine faith in the fairness of elections.
In its emergency motion, the CFTC emphasized that such trades could cause harm in an environment of already fragile public confidence in the election system, as reported by The Wall Street Journal. Even allowing such contracts for a short period of time, the regulator believes, could cause significant market volatility and undermine the perception of the legitimacy of the election.
Escalating Conflict: Kalshi Warns of Potential Losses
Kalshi, for its part, insists that its election contracts are a legitimate and useful market speculation tool, similar to existing legal event-based contracts. The company claims that such contracts provide valuable forward-looking data and can serve as an economic hedging tool.
Kalshi co-founder Tarek Mansour expressed dissatisfaction with the CFTC’s emergency motion, saying that the delay in issuing the contracts would cause irreparable damage to the platform. Kalshi had been planning its future success based on the entry of the election contracts into the market.
Some political figures have also weighed in on the issue. Some election betting advocates have criticized the CFTC’s actions, calling on the regulator to allow the court to uphold its decision. Among them is Senator Tommy Tuberville of Alabama, who has asked the CFTC to stop holding up Kalshi's entry into the market, arguing that legalized election betting markets are already a reality.
For now, the future of election betting in U.S. financial markets remains uncertain, with those involved awaiting a court ruling that could determine the fate of the contracts before the upcoming election.
