Kalshi’s New Political Prediction Markets Halted as CFTC Appeals Loss

In a recent ruling by Judge Jia Cobb, it was determined that the Commodity Futures Trading Commission (CFTC) had overstepped its boundaries when prohibiting Kalshi from listing U.S. political prediction markets. Essentially, this decision concerns wagers on political outcomes such as which party might control the House of Representatives or win the presidency during a specific term. Kalshi, who brought the case against the CFTC, contended that the agency’s actions were arbitrary in restricting these types of markets.

Initially, the Commodity Futures Trading Commission (CFTC) asked Judge Cobb, who is handling the case, to maintain a halt on Kalshi’s contract listings until they received their complete decision, which was published on Thursday morning. However, Judge Cobb rejected the CFTC’s request, and Kalshi listed its first U.S. political prediction markets in the afternoon. In response, the CFTC filed an urgent appeal to pause these markets with the appeals court, while they decide whether to challenge the entire ruling, as indicated by court documents on Thursday.

On Kalshi’s freshly introduced contracts predicting the winners of the House and Senate, all trading activities were halted at 11:30 p.m. ET Thursday (03:30 UTC Friday). This pause was due to an ongoing legal procedure, as stated on Kalshi’s official website.

In their court filing, the Commodity Futures Trading Commission (CFTC) stated that KalshiEx LLC (‘LLC’) purposely began offering election gambling contracts on the very day a District Court issued a memorandum opinion, before the CFTC had time to file its motion for a stay pending appeal. The CFTC emphasized that there are significant legal issues and public interests at stake in this matter.

If the appeals court were to momentarily pause Kalshi’s contracts, it would likely suffer minimal harm, the CFTC contended. On the other hand, there could potentially be greater public harm if these contracts were to proceed further.

Kalshi’s attorneys pushed back, saying “no administrative stay is necessary or appropriate.”

In a recent statement, Kalshi indicated that it will quickly counter the CFTC’s renewed request for a stay in this court based on the merits. However, at present, no administrative stay is deemed necessary or suitable. The company maintains that Judge Cobb’s decision on the merits was accurate because the law allows the CFTC to halt event contracts only when they involve activities like gambling or illegal conduct – something elections are not. As Judge Cobb stated, elections fall outside these categories.

The appellate court instructed Kalshi to temporarily halt their ongoing contracts as they deliberate on the motion, and demanded that Kalshi submit a response by the end of this week. By the following day, the Commodity Futures Trading Commission (CFTC) can counter with its own response.

Currently, the Commodity Futures Trading Commission (CFTC) is working on establishing rules that would prohibit all political prediction markets across the United States. This move is primarily due to apprehensions regarding the enforcement of fraud within the underlying market, particularly related to election processes.

In her Thursday statement, Judge Cobb expressed understanding towards the argument, but noted that it didn’t apply directly to her evaluation of the case against Kalshi in particular.