‘An Explosion of Election Gambling’ Is Nigh, CFTC Warns Appeals Court

The U.S. Commodity Futures Trading Commission (CFTC) has filed a request with an appeals court to extend the suspension of Kalshi’s political prediction markets while the agency’s appeal is ongoing. The CFTC is concerned about a potential surge in election gambling, warning that the recent court decision, which favored Kalshi, has created an environment that could encourage widespread betting on elections.

In its filing, the CFTC highlighted a ruling from September 6 that determined it lacked grounds to prevent Kalshi from offering contracts related to which party will control Congress. Following that decision, Interactive Brokers announced plans to introduce contracts for the upcoming presidential election through a subsidiary regulated by the CFTC, signaling that other exchanges may follow suit.

The CFTC expressed its worries that without the extension of the pause on Kalshi’s contracts, an influx of election-related gambling could lead to market manipulation and jeopardize the integrity of the electoral process. The agency reiterated that such developments would not be in the public interest.

In a broader context, the CFTC has proposed banning election contracts across all exchanges under its jurisdiction, but legal experts suggest that the recent court ruling may undermine that proposal. The court’s decision invoked the Supreme Court’s Loper Bright ruling, which limits regulatory authority and shifts more interpretative power to the courts.

Kalshi initially sought to launch its election markets last year, but the CFTC blocked the effort. After filing a lawsuit and winning last week, Kalshi briefly listed its contracts before the D.C. Appeals Court temporarily suspended them pending the CFTC’s emergency stay request.

Kalshi contended that a stay would inflict “irreparable harm” to its operations, a claim the CFTC dismissed as “deeply misleading.” The agency argued that any financial setbacks Kalshi faces would be minor compared to the potential risks posed by allowing election gambling.

Kalshi’s position is complicated by the fact that it has observed competitors, such as the crypto-based platform Polymarket, thriving while it remains restricted from participating in the election betting market. Kalshi’s lead attorney criticized the situation, claiming that those who comply with the law are at a disadvantage compared to those who do not.

The CFTC countered this argument, suggesting that adherence to the law is crucial, using an analogy that emphasized regulatory compliance: “A pharmacy does not get to dispense cocaine just because it is sold on the black market.”