Federal Judge Rules Americans Can Bet on U.S. Elections with Financial Market Instruments

Federal Judge Clears the Path for Election Betting in Landmark Decision

In a groundbreaking ruling, a federal judge has granted Americans the ability to use financial market instruments to bet on the outcome of U.S. elections, stating that the regulatory agency that previously blocked election betting had overstepped its authority. The case was between predictions marketplace KalshiEX LLC and the Commodity Futures Trading Commission (CFTC), with District Court Judge Jia Cobb issuing a memorandum and opinion on September 12th, allowing the use of derivatives contracts for election betting.

The judge’s decision dealt a blow to the CFTC, which had prohibited Kalshi from listing and clearing its cash-settled political event contracts over concerns of unlawful gaming and activities not in the public’s interest. While the judge acknowledged the CFTC’s worries about the public trading on election outcomes, she found that the agency had exceeded its statutory authority in shutting down Kalshi’s election betting marketplace.

Cobb emphasized that Kalshi’s contracts did not involve unlawful activity or gaming, as they were solely based on elections. She clarified that the court’s role was to determine what Congress had authorized, not what it could or should do. Congress had not given the CFTC the power to conduct a public interest review in this case. The judge’s memorandum was issued several days after her preliminary ruling against the CFTC’s decision, and she denied the agency’s request to delay the case.

Following the hearing, Kalshi’s betting website went live, allowing Americans to legally place bets on elections within a regulated marketplace. Kalshi CEO Tarek Mansour expressed his excitement and gratitude for the decision on social media, announcing the operational election betting marketplace and celebrating the revival of regulated election markets after almost a century.

The CFTC did not provide a comment on the ruling when requested. However, Cantrell Dumas, the director of derivatives policy at Better Markets, a nonprofit that advocates for public interest in financial markets, raised concerns about the potential consequences of allowing political event contracts. Dumas compared it to the frenzy surrounding GameStop and other meme stocks, suggesting that political betting could lead to manipulation, disinformation campaigns, and speculative trading on election outcomes. He expressed worries that the focus would shift from electing the best candidate and reflecting the will of the voters to maximizing profits from winning or losing a bet.

While the judge’s decision opens the door for Americans to participate in election betting, it also raises important questions about the potential risks and implications. As the marketplace evolves and more people engage in these types of trades, it will be crucial to monitor the impact on the electoral process and ensure safeguards are in place to prevent any negative effects. The ruling sets a precedent for the future of election betting and highlights the need for ongoing discussions and regulations to strike the right balance between individual freedom and protecting the integrity of democratic processes.