U.S. Commodity Futures Trading Commission Chair Rostin Behnam said his agency will keep making the case that Kalshi's election contracts are unlawful and warned of negative fallouts. The agency also plans to keep an eye on prediction markets located offshore, Behnam said.
Judge Jia M. Cobb for the U.S. District Court for the District of Columbia ruled last week that the CFTC exceeded its authority when it pushed back against prediction market Kalshi's move to list contracts tied to U.S. elections. The CFTC quickly appealed the ruling and has warned of risks associated with election betting. An appellate court will decide on Thursday whether to stay the contracts, Behnam said at Georgetown University's Financial Markets Quality Conference on Tuesday.
"This is a situation that we think is against the law," Behnam said. "We will continue to make that case."
Event markets, such as Kalshi and Polymarket, allow users to bet on the outcome of future events, including on the upcoming U.S. elections or even when certain Taylor Swift albums may be released. The CFTC said last year that Kalshi could not offer contracts related to "congressional control contracts." Kalshi then sued the agency in November 2023. The agency also voted in May to propose rules banning bets on political events as those markets quickly expand ahead of November.
Putting the CFTC in the role of overseeing election contracts could have negative impacts, Behnam said on Tuesday.
"You can imagine a scenario, or a hypothetical scenario, where there is news put out about a candidate, local, state or federal," Behnam said. "That news is not necessarily true. It then impacts the price of a contract that we regulate."
If someone then alleges price manipulation because of the phony news that was released, that would then pull the CFTC in to investigate fraud or manipulation.
"I just don't think that Congress or the general public wants a financial federal regulator policing elections. That, in my mind, is really ⊠a bridge too far," Behnam added.
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Instead, if people want to see election contracts develop, it should be done at the state level within their "gambling regime," Behnam said. Notably, gambling on political events is illegal in some states.
"I understand folks saying this is great for data and these are great sources of information," Beham said. "If you're an economist or if you're sort of a political nut, I get that, but there's a larger question here and the onion has to be peeled back a few more layers to understand what our responsibility is at the CFTC as a market regulator and what potential detriment and risk this creates for political and election integrity."
Larger picture
Unlike Kalshi, which is registered and based in the U.S., Polymarket and others do not operate in the U.S. Polymarket has become a very popular betting market and recently brought on well-regarded statistician and election commentator Nate Silver as an advisor.
Behnam was asked on Tuesday about what the CFTC can do to regulate Polymarket. The CFTC settled charges against Polymarket in 2022 for failing to be properly registered with the agency. As a result, Polymarket agreed to leave the U.S.
Behnam said the agency was "observing any activity that's occurring offshore that is providing exposure to U.S. customers."
"Our track record from an enforcement standpoint, stands for itself and that if anyone, Polymarket or otherwise, conducts themselves in a way that breaks the law, we will use our civil enforcement authority to make sure that conduct stops," Behnam added.
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