Kalshi’s election prediction markets could soon be in business, after a federal judge ruled Thursday to reject a last-minute bid from the Commodity Futures Trading Commission (CFTC) for a two-week stay of the court’s earlier decision to allow the contracts.
The telephonic hearing took place shortly after U.S. District Court Jia M. Cobb, the judge overseeing Kalshi’s case against the CFTC, issued her full opinion explaining her rationale for granting the prediction market’s motion for summary judgment last Friday.
It remains unclear how soon Kalshi will list the contracts, which would allow traders to bet on which party will control each house of Congress. After winning the case last week, the company boasted on its website that "election contracts are coming to Kalshi." But as of midday Thursday on the East Coast, it had not yet self-certified the election contract, a usual procedural step before introducing a new product on a derivatives exchange.
A CFTC lawyer said during the hearing that the regulator plans to appeal the case brought by the trading platform, and even though Judge Cobb denied the agency's motion for a stay, it could still ask the higher court to stop the firm from listing the contracts while the appeal is pending.
Kalshi filed suit against the CFTC last November, after the regulator attempted to block the prediction market from listing contracts betting on whether Democrats or Republicans would control each house of Congress after the 2024 election. Cobb ruled Thursday that the CFTC had “exceeded its statutory authority” in trying to ban election betting.
As soon as Cobb’s ruling hit the docket last Friday, lawyers for the CFTC filed an emergency motion essentially asking the judge to reconsider staying her order for at least two weeks while the regulator appealed her decision to a higher court. The CFTC’s lawyers argued that Kalshi’s election markets contracts are “susceptible to manipulation” and could shake Americans’ faith in election integrity.
“The election gambling contracts pose significant public interest risk,” the CFTC’s lead attorney said during Thursday's hearing. “The Commission noted serious concerns about potential adverse effects on election integrity, or the perception of election integrity, at a time where confidence in election integrity is incredibly low. These contracts would give market participants a $100 million incentive to influence either the market or the election, which could very certainly undermine confidence in election integrity. This is a very serious public interest threat.”
While Cobb said that she was not unsympathetic to the regulator’s concerns in general, there would need to be definitive evidence of “both certain and great” irreparable harm in order to convince her to issue a stay – not just the nebulous possibility of future harm.
Rather than giving a concrete example of the harm caused by Kalshi’s contracts, the CFTC’s lawyer argued that “the Commission is not required to suffer the flood before building a dam.”
Yaakov Roth of Jones Day, the lead attorney for Kalshi, argued that any delay in the company being able to list the elections contracts was causing economic harm to Kalshi – and furthermore, driving business to unregulated competitors, not least of all crypto-based Polymarket, which despite being barred from doing business in the U.S. has seen gangbusters volume.
“Whether the agency or the court or anyone else thinks that contracts are good or bad for public interest, they are already happening,” Roth said.
“At the end of the day, the court concluded that we're legally entitled to list these contracts," he said. "Staying that judgment would wipe out [Kalshi's] investment, while allowing the same trading activity to continue outside the confines of any CFTC regulation. That would amount to punishing the one party that is trying to play by the rules.”
UPDATE (Sept. 12, 2024, 16:25 UTC): Adds background, quotes from both sides' lawyers at hearing.