A legal battle over the future of a website’s election prediction market is set to continue on Sept. 19, when an appeals court hears the case of Kalshi v. CFTC, a decision that could reshape how Americans engage in political discourse.
The three-judge U.S. Court of Appeals for the District of Columbia Circuit will be considering whether individuals should be permitted to purchase contracts to participate in predictive markets that trade on the outcome of elections. If so, should these markets be regulated like other financial exchanges and commodity markets or as a form of gambling?
New York-based KalshiEx LLC argues that the elections market section of its website is a derivatives trading platform where participants buy and sell contracts based on projected outcomes of events, such as elections, and should be regulated no differently than grain futures that investors purchase as hedges against price fluctuations.
These markets provide a “public benefit” by gauging public sentiment in real-time, Kalshi maintains, a valuable guide for policymakers, politicians, and pundits in charting the public pulse.
The Commodity Futures Trading Commission (CFTC), which regulates the U.S. derivatives markets, argues that Kalshi’s platform blurs the line between commodity trading and gambling, and should not be viewed the same as futures contracts.
The commission maintains that Kalshi’s market puts it in a position to be a de facto elections regulator, which it is not designed to be. Such contracts provide no “public interest” and, in fact, pose a risk to electoral integrity and could potentially incentivize manipulation and fraud, the CFTC argues.
Those conflicting contentions are the core of what the appellate panel will deliberate on before it decides to lift or sustain its stay on U.S. District Judge Jia Cobb’s Sept. 6 ruling in favor of the platform. Judge Cobbs found that the defendant, CFTC, exceeded its statutory authority as a Wall Street regulator when it issued a September 2023 order stopping Kalshi from going online with its market because it is a “prohibited gambling activity.”
Judge Cobbs on Sept. 12 also denied CFTC’s motion for a stay while it mounts an appeal.
After the initial stay request was rejected, Kalshi wasted little time getting its market online. Attorneys for the CFTC were also busy, and within hours secured a stay from the appeals court, setting the stage for the 2 p.m. Sept. 19 hearing.
In the brief time before trading was paused “pending court process” late Sept. 12, more than 65,000 contracts had been sold on the questions, “Which party will control the House?” and “Which party will control the Senate?”
The appellate panel will essentially be engaged in a technical legal debate over the definition of “gaming” and “gambling,” and how they would apply, in this case, to any potential regulation.
In its Sept. 13 filing calling for the stay to be lifted, Kalshi rejected CFTC’s definition that trading on election prediction markets is “gaming.”
“An election is not a game. It is not staged for entertainment or for sport. And, unlike the outcome of a game, the outcome of an election carries vast extrinsic and economic consequences,” it maintains.
The CFTC said in its Sept. 14 filing that because “Kalshi’s contracts involve staking something of value on the outcome of elections, they fall within the ordinary definition of ‘gaming.’”
‘Horse Has Left the Barn’
Regardless of how the panel rules, “The horse has left the barn,” said data consultant Mick Bransfield, of Pittsburgh, Pennsylvania, who trades on Kalshi’s website and purchased a “Senate control” contract.
There are ample opportunities to place election wagers on offshore websites such as New Zealand-based PredictIt, which imposes strict spending limits; on websites such as Polymarket, a New York-based platform that cannot legally accept wagers from within the United States; or the American Civics Exchange, where businesses and high net worth individuals can purchase “binary derivative contracts” through proxies tied to policy and electoral outcomes as hedges against “unpredictable electoral, legislative, and regulatory events.”
“Elections predictive markets have been around since 1988 in the United States,” Bransfield told The Epoch Times, adding that the issue is “more nuanced than people realize.”
That nuance, said Carl Allen, author of The Polls Weren’t Wrong, is that Kalshi’s platform would be the first federally regulated U.S.-based predictive elections market open to all individuals without spending limits.
“To me, the question is not should it be regulated, the question is how? I think that is where we are,” Allen, who writes about predictive markets on substack, told The Epoch Times.
“It’s challenging to get your arms around this because there are so many organizations involved with it,” he said. “We’re reaching a really interesting point with sports betting going from totally disallowed, except for in Vegas and a few brick-and-mortar [stores], to being everywhere; crypto currency drastically growing; ETFs [Exchange-Traded Funds] getting big;” and Kashi attempting to open a predictive market on election outcomes.
Read More At: The Epoch Times
