The results of next year’s federal elections are anything but certain, but one thing is known for sure: Americans won’t legally be allowed to bet on the outcomes.
The Commodity Futures Trading Commission announced Friday that it has blocked an application by the exchange KalshiEX LLC to issue “event contracts” that would pay investors who bet on which party will control the House and Senate after the 2024 elections.
CFTC Chair Rostin Behnam said in a Friday statement that federal law requires his agency to evaluate such proposals to determine whether they violate any individual state laws and are in the public interest, and that Kalshi’s failed both tests.
“The approval of political event contracts of the type presented in the order would require the CFTC to exercise its oversight and enforcement authorities in the manner of an election cop,” Benham said.
He added that it would require his agency to monitor “elections, candidates, and countless participants in the political machinations that proliferate in the media and cyberspace in an effort to prevent manipulation and false reporting within the political system — something that the CFTC currently lacks the mandate to do.”
Kalshi didn’t immediately respond to a request for comment.
Kalshi is not the first company that has attempted to offer regulated event contracts to U.S. investors. New Zealand’s PredictIt had offered them under a 2014 “no action” letter that was granted to Victoria University of Wellington, New Zealand, so that researchers could study the effectiveness of prediction markets in event forecasting.
The CFTC revoked the no-action letter last year, threatening to shut down PredictIt’s U.S. operations, though a federal appeals court issued a preliminary injunction against the regulator, preventing the market’s closure while courts decide whether the CFTC’s revocation was lawful.
In January of last year, the agency settled charges with New York-based Polymarket for offering event contracts without registering with the CFTC, with the company paying a $1.4 million fine. The company no longer offers contracts to customers in the U.S. but continues to operate in other jurisdictions globally.
CFTC commissioner Summer Mersinger, a Republican, dissented from the ruling on Kalshi, arguing that the agency is overstepping the authority granted to it by Congress and that it should engage in a formal rulemaking process that would involve public input to determine to what extent political event contracts violate the law.
“My dissent should not be taken as an endorsement of the contracts before us,” Mersinger said in a statement. “But even if the Commission thinks these contracts are a bad idea, that does not give us the authority to re-write the statute to claim an authority that Congress did not give us.”
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