Elections Bets Go Live on Kalshi After CFTC’s Court Loss

(Bloomberg) -- Kalshi Inc. started taking wagers on the 2024 congressional elections less than an hour after a federal judge allowed the exchange to let Americans bet as much as $100 million on the outcome.

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Kalshi posted new event contracts at 12:15 p.m. Thursday after a hearing concluded with US District Court Judge Jia Cobb denying the Commodity Futures Trading Commission’s repeated requests to block the listings. The CFTC had sought a stay of Cobb’s ruling from Friday in Kalshi’s favor to allow the trading of elections-linked derivatives.

“Now is finally the time to allow these markets to show the world just how powerful they are at providing signal amidst the noise and giving us more truth about what the future holds,” Kalshi Chief Executive Officer Tarek Mansour said in an emailed statement.

Kalshi had been preparing to launch the elections-themed derivatives earlier this week, extending its current offering of event contracts on monetary policy, lunar landings and music awards. But the company was held up after the judge granted a temporary pause Monday sought by the CFTC, which said that it would be nearly impossible to unwind the contracts once they went live.

The CFTC has appealed to the US Court of Appeals for the DC Circuit. A spokesperson for the CFTC didn’t immediately respond to a request for comment.

The CFTC said in recent legal briefings that if the court allows the elections contracts to move forward, the agency would have little power to prevent other exchanges that are already registered with the swaps and futures regulator from doing the same. Opponents of the elections-based swaps say they make US elections more vulnerable to manipulation and trading on insider knowledge.

At least one other platform has indicated it will also jump into the fray. Interactive Brokers Group Inc. plans to launch an election betting market starting Monday, the company said. Fellow retail brokerages Robinhood Markets Inc. and Charles Schwab Corp. don’t have immediate plans for similar offerings, according to spokespeople for the companies.

The use of event contracts to wager on which political party would control the House and Senate next year is a “significant moment,” said Laurian Cristea, a partner at Barnes & Thornburg specializing in exchanges, clearinghouses and event contracts. “The CFTC’s proposed rulemaking on event contracts is now in question, CFTC-registered exchanges have a potential new suite of products to offer, and proponents of onshoring political markets have a bit more clarity.”

Cristea also said the move benefits US consumers because those “previously trading in unregistered or illicit markets abroad now have the opportunity to trade on a surveilled and federally-regulated market subject to clear rules.”

Cobb concluded in her opinion, which was only released Thursday morning just before the hearing, that the CFTC had exceeded its authority when it tried to block Kalshi from letting individuals bet on elections. The agency argued that election gambling is unlawful in certain states, trading would harm election integrity and the agency doesn’t police elections.

Kalshi had earlier called the move “an unlawful agency power grab that corrupts and dramatically expands” the CFTC’s statutory mandate.

The judge sided with Kalshi. “Kalshi’s contracts do not involve unlawful activity or gaming. They involve elections, which are neither,” Cobb wrote.

The CFTC has the authority to prohibit exchanges from listing derivatives contracts involving “terrorism, assassination, war” and “gaming” if it believes they aren’t in the public interest. However, the ambiguity in the CFTC’s rules around what constitutes gaming was at the center of the case.

In May, the CFTC sought to remove some of the ambiguity by specifying in a rule proposal that “gaming” includes contracts on outcomes tied to elections, sports and awards contests.

Kalshi sees the ability to list elections-themed contracts, already popular on other unregistered exchanges such as Polymarket and PredictIt, as a game-changing move to increase volume and the number of users and compete with other companies.

--With assistance from Paige Smith.

(Updates with other companies’ plans.)

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