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Judge Says CFTC Can't Kill Election Event Contracts
The CFTC's plan to regulate prediction markets like Polymarket is running into trouble with the law.
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Judge Jia Cobb has released a final decision in Kalshi v. CFTC; her verdict issued last week could kill the regulator’s ambitions to ban all election prediction markets.
What’s the Scoop?
- Setting Precedent: Last Friday, Kalshi, a federally regulated prediction market, won a lawsuit against the Commodity Futures Trading Commission (CFTC) over plans to offer markets decided by which party controls the House and Senate following U.S. general elections. While the CFTC can still appeal the ruling, Kalshi received the green light to offer these contracts in the interim.
- Final Decision: In her decision, Judge Cobb notes that while the Commodity Exchange Act (CEA) grants the CFTC jurisdiction over event contracts related to unlawful activities or “gaming,” an election falls under neither of these categories. Although the CFTC attempted to define “gaming” as any activity that involves placing a wager on the outcome of a contest, Judge Cobb rejects this notion, as it would enable the CFTC to regulate any event contract, an outcome that is explicitly prohibited by the CEA.
Bankless Take:
Election event contracts reign supreme on prediction platforms like Polymarket due to the intense convictions held by speculators and inherently large audience sizes. While Judge Cobb’s ruling is narrow in scope, only directly pertaining to the Congressional markets at issue, it establishes precedent for future judicial rulings to follow and clears a pathway for U.S.-regulated prediction markets to offer event contracts on elections, athletic competitions, and other types of contests that the CFTC has been attempting to ban.
