Kalshi starts, stops election futures after court rulings

Americans looking to capitalize on congressional election outcomes through the Kalshi exchange faced a setback after a federal appeals court intervened, halting trading on these futures contracts on September 12.

A three-judge panel from the U.S. Court of Appeals for the District of Columbia Circuit granted a stay around 8:30 PM upon request from the Commodity Futures Trading Commission (CFTC). This government body, responsible for regulating derivative markets, claims that Kalshi’s political predictive contracts pose a national security risk.

This decision represents the latest development in the ongoing case of Kalshiex LLC vs. CFTC, which originated last November.

By Friday afternoon, Kalshi had ceased trading on contracts with a limit of $100 million (£76.2 million/€90.2 million). The court may issue a ruling as soon as Monday, September 16; it could either uphold the stay or choose to further review the case. Should the contracts remain entangled in legal proceedings, they may become invalid after the U.S. elections on November 5.

The suspending contracts pertain specifically to which political party might assume control of either the House or Senate. Despite this, Kalshi continues to offer other politically relevant contracts, including those related to the number of presidential debates and anticipated interest rate cuts from the Federal Reserve.

Court’s Stay Follows Initial Favor for Kalshi

The appeals court’s intervention came just hours after a district court had ruled in favor of Kalshi, permitting the exchange to offer the contracts. Previously, the CFTC had blocked these futures, citing their regulatory authority to prohibit derivatives associated with illegal activities or gambling.

Judge Jia Cobb of the U.S. District Court for the District of Columbia stated that the CFTC had “exceeded its statutory authority” in obstructing the exchange. Cobb noted, “While we recognize the CFTC’s concerns that allowing public trading on election outcomes could jeopardize public interest, this court does not have the jurisdiction to evaluate that argument. Our task is not to judge the merits of Kalshi’s product but to interpret what Congress has enacted regarding our authority.”

The extent of trades Kalshi conducted before suspending the contracts remains uncertain, as does the handling of these contracts if they’re ultimately deemed illegal. During the brief period of live trading, Kalshi co-founder Tarek Mansour expressed optimism to the Associated Press, stating, “We are just getting started.” He emphasized that “Now is the time for these markets to demonstrate their potential in filtering out noise and delivering insights about our future.”

As the landscape of political forecasting and economic speculation continues to evolve, the implications of this case will be pivotal in shaping how regulated markets engage with political events. Stakeholders in the gambling industry must stay abreast of these developments to navigate the regulatory landscape effectively.