The Commodity Futures Trading Commission (CFTC) has rejected Kalshi’s proposal to list election markets, calling the idea “contrary to public interest.”
In a decision announced last week, the CFTC decided Kalshi’s cash-settled political event contracts would cross the line into unlawful gaming. Consequently, it has banned political events from being listed or available for clearing or trade on Kalshi’s regulated event exchange.
The ruling landed precisely three months after the Commission began consideration.
In a statement adjoining the order, CFTC chair Rostin Behnam said approving Kalshi’s contracts would force the CFTC to act beyond its mandate as an “election cop.”
In Behnam’s words:
It makes sense for the CFTC to have authority to combat fraud, manipulation, and false reporting in underlying commodity markets. But it is impractical for the CFTC to combat them in the underlying market here—a political contest.
The implications of such authority are vast and could extend in a multitude of directions beyond the election itself, political fundraising and polling, to name just two.
Notably, an influential group of Senators, including Elizabeth Warren and Diane Feinstein, publicly opposed Kalshi’s proposed political markets in early August.
The CFTC has never allowed a for-profit venture to operate a political event contract, nor has the agency permitted any entity to operate a political event contract of such scale. Establishing a large-scale, for-profit political event betting market in the United States by approving Kalshi’s requested contracts would profoundly undermine the sanctity and democratic value of elections. Introducing financial incentives into the elections process fundamentally changes the motivations behind each vote, potentially replacing political convictions with financial calculations.
No Election Markets on Kalshi—For Now
The thread begins:
The CFTC has rejected Kalshi’s proposal to list election markets. We fundamentally disagree: the decision is arbitrary and capricious. We know that what Kalshi has embarked on is bold and we have faith in the market.
Mansour then argued that many modern financial products, like ETFs, insurance, and grain futures, once battled opposition.
Our mission is bold. Bold missions are hard. This is not the first time the Kalshi team gets a “NO,” and it’s probably not the last time. We have pushed through all the previous NOs and we will push through this one.
In the meantime, he added, Kashi is evaluating its options for the next steps to bring the government onside.
For the time being, he wrote, “There will be no election markets on Kalshi.” However, he quickly pointed out that those looking to trade election markets can do so via PredictIt.
Although, if the CFTC gets its way, that won’t last much longer.
PredictIt, CFTC Take Election Fight to District Court
Historically, the CFTC has allowed binary event contracts with stricter controls.
Previously, it allowed the University of Iowa’s Tippe College of Business to run an academic prediction market in partnership with other universities.
Two decades later, in 2014, the CFTC permitted PredictIt, a market run by Victoria University of Wellington researchers, to operate (with conditions).
However, in the years since, the CFTC shifted its point of view on PredictIt’s offerings, saying the non-profit failed to comply with those conditions. The subsequent withdrawal of its no-action letter against PredictIt prompted a prolonged election-betting battle.
Initially, a lower court sided with the CFTC, but a Fifth Circuit Court of Appeals judge overturned the decision in PredictIt’s favor.
The case has since returned to the District Court, with a preliminary injunction barring the CFTC from taking action until the case concludes.
CFTC Commissioners Dissent, Abstain from Vote
Although the CFTC ruled against Kalshi’s proposal, the decision was not unanimous.
Commissioner Summer K. Mersinger issued a statement of dissent over what they see as a procedural issue. However, Mersinger adds that the discord does not equal an endorsement of the contracts.
Another CFTC commissioner, Caroline Pham, who abstained from the initial Kalshi decision, abstained again, citing the Fifth Circuit’s decision in the PredictIt case.
Notably, public statements made by Pham last year have come under scrutiny after Kalshi pulled a previous political markets proposal just before a decision was due.
Industry watchdog Better Markets has since filed an ethical complaint over Pham’s behavior with the Commission.