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Court says CFTC failed to show harm from KalshiEX's event

contracts

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Ruling allows trading of political event contracts before

U.S.

elections

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Critics warn contracts could undermine election integrity

By Laura Matthews

WASHINGTON, Oct 2 (Reuters) - A U.S. federal appeals

court on Wednesday upheld a lower court's order that permitted

New York derivatives trading platform KalshiEX LLC to list

contracts that allow Americans to bet on election outcomes.

The U.S. Court of Appeals for the D.C. Circuit said that the

Commodity Futures Trading Commission, KalshiEX's regulator, did

not show how the agency or the public interest would be harmed

by KalshiEX's "event" contracts, as it had argued. The CFTC

declined to comment.

The ruling means that Kalshi can offer trading in such

contracts, potentially paving the way for other firms to offer

such derivatives in the future. The U.S. elections will be held

on Nov. 5.

"Ensuring the integrity of elections and avoiding improper

interference and misinformation are undoubtedly paramount public

interests, and a substantiated risk of distorting the electoral

process would amount to irreparable harm," the ruling read.

"The problem is that the has given this court no

concrete basis to conclude that event contracts would likely be

a vehicle for such harms."

Kalshi sought permission from the CFTC in June 2023 to list

contracts that would let Americans bet on whether a particular

party will control the House of Representatives and Senate in a

given term.

But the CFTC prohibited Kalshi from listing and clearing its

cash-settled political event contracts due to concerns about

unlawful gaming and other activities that it said were not in

the public's interest. Kalshi sued, saying the CFTC exceeded its

authority.

A D.C. District Court judge sided with Kalshi in September,

ruling that its contracts do not involve unlawful activity or

gaming but instead involve elections, which are neither. That

cleared the way for Americans to trade political event contracts

ahead of next month's presidential election, which polls

indicate will be one of the closest in recent history.

But the CFTC immediately appealed, requesting an emergency

stay on the lower court's order.

The case tests the scope of the CFTC's regulatory authority.

CFTC Chairman Rostin Behnam has said that event contracts

would effectively turn the agency into an "election cop," and

that these contracts are not in the public's interest.

Critics also believe the contracts pose a threat to election

integrity and could undermine democracy if elections are reduced

to a gaming activity.

But proponents say the contracts could be a valuable new

financial tool that provides a signal and more truth about what

the future holds.

Stephen Hall, legal director and securities specialist at

Better Markets, a nonprofit organization that seeks to promote

the public interest in the financial markets, said the appeals

court's decision marks "a sad and ominous day for election

integrity" in the U.S.

"There is no way to undo the potential damage to the public

interest of allowing bets in the final weeks of an election

year," Hall said in a press statement.