Kalshi launches election markets as CFTC turns to appellate court

After a court battle with the Commodity Futures Trading Commission — which isn’t quite over yet — Kalshi launched prediction markets for the upcoming US election.

The launch comes after the CFTC was denied another emergency stay by Judge Jia Cobb, who oversaw the case.

In a hearing early Thursday, Judge Cobb sided with Kalshi again. She told the CFTC she wouldn’t grant a stay, citing arguments made by Kalshi’s attorneys. 

CFTC attorneys, during the hearing, argued the contracts could pose a “public interest risk.” With the election just a few months out, Kalshi attorneys made a case that waiting any further to launch the markets could cause the company potential economic harm.

Read more: How prediction markets are bracing for post-election user drop-offs

The CFTC was previously granted a stay last week as it asked the judge to reconsider her order. 

In an opinion on Thursday, Cobb wrote, “Court finds that Kalshi’s congressional control contracts do not involve activity that is unlawful under any federal or state law, nor do they involve gaming.”

“Kalshi’s event contracts ask buyers to take a yes/no position on whether a chamber of Congress will be controlled by a specific party in a given term. That question involves (relates to, entails, has as its essential feature or any other iteration of the word) elections, politics, Congress and party control; but nothing that any party to this litigation has identified as illegal or unlawful activity,” she noted.

Tarek Mansour, Kalshi’s founder, said that Thursday marked the “the first trade on regulated election markets in nearly a century.”

Kalshi’s currently the only legal prediction market in the US. Polymarket, which has quickly become a good gauge for overall sentiment, doesn’t operate in the US. 

Polymarket settled with the CFTC back in 2022, which saw the prediction market pay out $1.4 million for allegedly operating an unregistered platform for trading options contracts. As part of the settlement, Polymarket agreed to ban US users without admitting or denying wrongdoing. 

Read more: Unpacking a potential Polymarket ‘ban’

The popular prediction market also came up a few times in Thursday’s hearing, with Kalshi’s lawyers noting that Kalshi being blocked from allowing election markets would just push people to an “unregulated” market such as Polymarket. 

The CFTC wants the appeals court to grant an emergency stay for two weeks to prevent the markets from being active as lawyers draw up an appeal. At the Thursday hearing, attorneys for the CFTC warned about potential risks to election integrity. 

Updated September 12, 2024 at 5:24 pm ET: Tightened headline for clarity.

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