Commodity Futures Trading Commission headquarters in Washington, D.C.
Tingshen | Bloomberg | getty images
Contract marketplace KalshiEx has listed more than 20 new options in recent days that allow exchange customers to bet on political outcomes, including the presidential election, the popular vote, the Electoral College margin for that election, and individual Senate races.
The new contract was added to Kalshi’s platform just days after a federal appeals court ruled in favor of the company on October 2. The ruling lifted a temporary restraining order that had blocked Kalshi from offering contracts that would give the party control of each chamber of Congress after the November election. .
A day later, Kalshi proposed a contract that would allow customers to bet on the winner of the presidential election and potentially prevent any losses they might incur.
As of Wednesday, more than $3 million had been wagered on political contracts on the Calci site, the lion’s share of which were contracts on whether Vice President Kamala Harris or former President Donald Trump would win the presidential election.
Other contracts available for betting on Wednesday include the results of individual Senate races, which states will be turning points in the presidential election, which presidential candidate will win individual swing states and the odds of winning White House races.
“It’s been really good. There’s been a ton of demand,” Kalshi CEO Tarek Mansour said of the response to the exchange’s new political contract option in an interview.
Mansour said adding these options “was always the plan” as he fights a ban on these types of contracts enacted by the Commodity Futures Trading Commission.
For Mansour, betting contracts on political outcomes represent not a means for investors to influence the election itself, but a way to hedge against the broader financial impact of one political outcome on another.
“Each of these markets poses different risks,” he said. For example, a president imposing tariffs can affect a customer’s financial situation.
He said Kalshi’s political outcomes contracts are a more direct way to hedge such risks than the “bundles” of deals offered by investment banks and are designed to provide clients with a hedge against the election of a particular presidential candidate.
“We have a healthy mix of both customers and speculators looking to hedge their financial risks,” he said.
“Everything Kalshi does is regulated by law,” Mansour said, noting that the exchange is required to keep records on its customers that are available to the federal government.
“We believe the law is on our side,” he said.
The CFTC disagrees.
The CFTC said in a filing Tuesday with the U.S. Court of Appeals for the District of Columbia that Kalshi “went all out in his election betting.”
More political races will soon be available to bet on through Kalshi contracts, the CFTC said, citing contract terms posted on the exchange’s website. Among them are 435 individual House races and many more state-level gubernatorial races.
“Some of these blatantly contradict claims made in recent court hearings that Kalshi’s contracts were not gambling because they were based on economically significant events,” the CFTC said in the filing.
“This cannot be said of contracts betting on which state will have the closest popular vote margin, or of contracts betting on the winner of the popular vote.”
The CFTC’s filing supported the regulator’s prior request that the appeals court expedite the agency’s appeal of a lower court ruling that allowed Kalshi to accept bets on the outcome of political races.
A CFTC spokesperson declined to comment to CNBC about the case. But the commission argues that Kalshi’s contract could raise questions about the integrity of the election.
A federal district court judge in Washington, D.C., ruled last month that the CFTC’s ban on Kalshi’s congressional contracts was invalid. This is because the regulator incorrectly determined that the contract involved gaming or gambling.
The appeals court initially blocked the judge’s ruling from taking effect, meaning Kalshi could not offer a political deal.
But in a ruling last week, a three-judge panel of the appeals court upheld the original ban, saying the CFTC had “failed to demonstrate that companies or the public would suffer irreparable harm if the contract were proposed while the CFTC continues to do so.” The action has been lifted. This is an appeal against a judge’s decision.
In her ruling, Appeals Court Judge Patricia Millett noted that the “questions on the merits” of the CFTC’s appeal were “extraordinary and difficult,” giving reasons for hoping the regulator could reimpose the political contracting ban.
Another major issue for Kalshi and the CFTC is the timing of the court case.
The CFTC requested an urgent briefing on Tuesday, saying, “There is extraordinary public interest in quickly resolving the truth of this incident.”
“The court’s ruling has implications for the regulatory environment for event contracts, the role federal agencies will play in policing the election market, and issues of election integrity and perceptions of election integrity in practice,” the regulator said in the filing. .
Kalshi CEO Mansour said there was “no evidence” that political contracts “compromise election integrity.”
Mansour said any effort to sway the market’s effective prediction of a particular outcome by having customers bet on a particular candidate would be extremely expensive.
Even if it works in the short term, other clients will object to the results if they realize the market is misestimating the likelihood of the election outcome, he said.
