WASHINGTON (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 (CFTC), 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 decision comes weeks before the U.S. presidential elections.

"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 [CFTC] 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 don't involve unlawful activity or gaming but rather elections, which are neither. That cleared the way for Americans to trade political event contracts ahead of the Nov. 5 presidential election, 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 they are reduced to a "gaming" activity.

But proponents say they could be a valuable new financial tool that provides a signal and more truth about what the future holds.