US judge allows election betting, dealing blow to markets regulator

5:28 pm Thursday, September 12th, 2024

By Laura Matthews

NEW YORK (Reuters) – A federal judge on Thursday cleared the path for Americans to use derivatives to bet on events such as the outcome of U.S. elections, dealing another blow to the regulator overseeing the market.

Predictions marketplace KalshiEX LLC sought to list contracts that would let users bet on whether a particular party will control the House of Representatives and Senate in a given term.

But the U.S. Commodity Futures Trading Commission prohibited Kalshi from listing and clearing its cash-settled political event contracts due to concerns about unlawful gaming and other activities not in the public’s interest.

Kalshi later sued, saying the CFTC exceeded its authority.

In her opinion released Thursday just weeks ahead of the Nov. 5 presidential and congressional elections, District Court Judge Jia Cobb wrote that Kalshi’s contracts don’t involve unlawful activity or gaming, rather elections which are neither.

“This case is not about whether the Court likes Kalshi’s product or thinks trading it is a good idea,” Cobb stated. “The Court’s only task is to determine what Congress did, not what it could do or should do. And Congress did not authorize the CFTC to conduct the public interest review it conducted here.”

The CFTC did not immediately respond to a request for comment.

Kalshi CEO and co-founder Tarek Mansour told Reuters in a written statement, “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.”

Following the court’s decision, Cantrell Dumas, director of derivatives policy at Better Markets, a nonprofit promoting public interest in financial markets, said the ruling prioritizes corporate profit over public interest.

“Allowing Kalshi’s political event contracts is a dangerous move that opens the floodgates to unprecedented gambling on U.S. elections, eroding public trust in both markets and democracy,” said Dumas.

(Reporting by Laura Matthews; Editing by Cynthia Osterman)