Kalshi sues Commodity Futures Trading Commission over rejection of election wagering proposal

November 2, 2023
By

The startup company claims the CFTC wrongfully denied its application.

Online-trading startup Kalshi has filed a lawsuit against the Commodity Futures Trading Commission (CFTC), according to a Wall Street Journal report.

Kalshi has claimed that the commission “wrongfully denied its application to launch a market for derivatives tied to results of congressional elections.”

The suit resulted from a recent decision made by CFTC to reject Kalshi’s proposal, which would have allowed some traders to place wagers for up to $100m on the outcome of elections. The proposal raised concerns regarding potential election interference.

The CFTC determined that US investors cannot directly bet on the outcome of the 2024 Congressional elections. The organization ruled that contracts “involving gaming and activity that is unlawful under state law and are contrary to the public interest.”

The CFTC’s decision followed a recent letter that five US Senators sent to CFTC Chairman Rostin Behnam, requesting the organization to reject Kalshi’s proposal to allow wagers on next year’s election.

The ruling included congressional control political event contracts self-certified by KalshiEX LLC.

Kalshi maintains that the contracts it holds “would enable investors to hedge against political risk.” The company stated in its lawsuit that “the CFTC’s decision to reject its plan was arbitrary, capricious and otherwise contrary to the law.”

However, prior to its ruling, the CFTC reviewed the complete record and said that the Kalshi contracts are pursuant to section 5c(c)(5)(C) of the Commodity Exchange Act (CEA) and CFTC Regulation 40.11, which mean that they are “prohibited and cannot be listed or made available for clearing or trading on or through Kalshi.”

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