The U.S. Commodity Futures Trading Commission (CFTC) is locked in a legal battle with prediction market platform Kalshi , which charges fiat currency , as it appeals a recent court ruling that allowed the platform to offer election prediction markets. Despite previous rulings against the CFTC, the agency still maintains that these markets present risks of manipulation that could undermine the integrity of elections.
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ToggleCFTC’s legal battle with prediction market Kalshi
The CFTC initially lost its case against Kalshi, with District Court Judge Jia Cobb ruling that the CFTC had exceeded its authority by banning election prediction contracts .
The judge noted that the CFTC was not authorized by Congress to conduct a public interest review for prohibition purposes. However, the CFTC immediately appealed to the U.S. Court of Appeals for the District of Columbia and forced Kalshi to suspend trading just eight hours after it first listed the election contract.
Latest motion: Suspension of election prediction markets
The CFTC recently filed a new motion asking that the ruling be stayed pending appeals. The agency believes the financial losses Kalshi could suffer from missing out on this election season are trivial compared to the potential harm of allowing election-related gambling to enter U.S. futures markets. The CFTC maintains that allowing these contracts to continue to exist could open up the possibility of market manipulation and compromise the integrity of the election process.
Debating the legal definition of "gambling"
Central to the CFTC's argument is the interpretation of gaming terminology and its relevance to election prediction markets. (Note: The word gaming can sometimes mean "gambling." In some cases, especially in the legal and regulatory arena, "gaming" and "gambling" are used interchangeably to refer to gambling activities.)
The CFTC believes that because Kalshi's contract involves making monetary bets on the election results, these activities are "gaming" in the traditional sense, and therefore the CFTC has the authority to regulate them. On the contrary, Kalshi argued that election prediction markets do not constitute “gaming” because elections are not designed for entertainment or competition and their results have important practical significance.
The Commodity Exchange Act (CEA) gives the U.S. Commodity Futures Trading Commission (CFTC) the authority to review (and potentially prohibit) certain event contracts, but these contracts are limited to activities involving: Activities that are illegal by law, "terrorism", "assassination", "war", "gaming", or other similar activities designated by statute.
Both parties share concerns over market manipulation, with Polymarket targeted
The CFTC and Kalshi agree on one point: unregulated prediction markets can be susceptible to manipulation. The CFTC cited past incidents, including a case involving Polymarket, in which traders allegedly manipulated markets related to the U.S. presidential election. The agency believes that such risks of manipulation are grounds for strengthening supervision.
Kalshi acknowledged the potential for market abuse, but argued that the lack of federal regulation would not eliminate these risks and would simply move trading to unregulated platforms such as Polymarket and PredictIt. Kalshi said banning regulated markets like theirs would limit election prediction trading to these unmonitored exchanges, ultimately harming rather than protecting the public interest.
CFTC responds to Kalshi’s argument: It’s about integrity
The CFTC strongly disputed Kalshi's claims, arguing that allowing a regulated market would not improve election integrity. The CFTC compared the situation to pharmacies selling illegal drugs because a black market exists, arguing that the existence of unregulated platforms does not justify legalizing election gambling in U.S. futures markets. The agency maintains that such gambling, whether regulated or not, poses a serious threat to election integrity.
(Taiwan has already started to arrest gambling market selection: Polymarket election gambling scandal, how did I get caught? )
