CFTC Has No Authority to Second-Guess Election Contracts, Judge Says

In her eagerly awaited decision, Judge Jia Cobb from the District of Columbia’s courtroom declared her ruling in favor of Kalshi a week prior. In her written judgement, she stated that Congress had stripped the Commodity Futures Trading Commission (CFTC) of its authority to perform public interest assessments on specific derivative contracts, unless these contracts fell under specific categories such as terrorism or gambling.

The opinion comes as the CFTC is considering a proposal to ban all exchanges on its watch from listing political prediction markets.

For several months, the Commodity Futures Trading Commission (CFTC) has maintained that political prediction markets should be categorized as forms of “gaming,” and even suggested a nationwide ban on them. However, in the recent Kalshi case, the judge didn’t see it that way.

The judge’s ruling stated that the Commodity Futures Trading Commission (CFTC) overstepped its legal bounds. As for Kalshi’s contracts, they don’t encompass illegal activities or gambling – instead, they deal with matters of elections, which clearly do not fall under the same category.

In her explanation for issuing her order, the judge referred to the Supreme Court’s Loper vs. Beto decision, which reversed the earlier Chevron doctrine principle.

A significant portion of the court’s decision outlines the judge’s understanding of Congress’s intention when amending the Commodity Exchange Act. This includes her explanation of how Congress and the Commodity Futures Trading Commission (CFTC) defined key terms such as “involves” and “gaming.

As a crypto investor, I’ve come to understand that the Commodity Futures Trading Commission (CFTC) defines ‘gaming’ as an activity that may encompass ‘gambling.’ This gambling term is associated with placing bets or wagers, a point the judge highlighted.

However, this reasoning allows the CFTC to scrutinize any future contract that involves betting on an outcome, a practice that the Commodity Exchange Act currently prohibits them from overseeing, according to the judge’s statement.

In simpler terms, Judge Cobb stated that Kalshi’s proposed contracts, dealing with predictions about which political party would control each house of Congress at specific times, are not considered illegal activities or gambling. This finding alone is enough to reverse the Commodity Futures Trading Commission’s (CFTC) decision to reject Kalshi’s contracts. The judge is not allowed to consider any aspects related to public interest in this case.

The judge noted that the question at hand pertains to elections, politics, Congress, and party control; however, none of these topics point towards any illegal or unlawful actions as acknowledged by the parties involved in this lawsuit. Furthermore, the judge emphasized that there’s no connection to any type of game, whether for stakes or not.

She emphasized that this decision was based on law, not policy preferences.

The judge explained that while they understand the Commodity Futures Trading Commission’s worries about allowing public trading based on election outcomes potentially conflicting with the public good, this specific case doesn’t require them to address this concern. This legal matter is not about approving or disapproving of Kalshi’s product; rather, it’s solely about interpreting what Congress has legislated, not what they might have allowed or advised. And in this instance, Congress did not grant the CFTC the authority to perform a public interest review as was done here.