The CFTC worries about market manipulation as numerous exchanges are set to release election prediction contracts after a federal court sided with Kalshi and lifted the regulator’s order.
The Commodities Futures Trading Commission (CFTC) has warned the DC Court of Appeals of election prediction contract mania if it does not strike Kalshi’s want to deploy them down. It further warned the court of the potential for manipulation these contracts can open.
The regulator asked the court to extend its stay order on Kalshi offering such contracts for as long as its appeal is pending. As the court sided with the prediction market earlier this month in a suit it brought against the CFTC, the latter stated many others want to issue these contracts. To keep Kalshi from offering the contracts, which went live for a bit, the CFTC asked for an administrative stay, which the court granted. However, the court will lift it soon, which caused the regulator to ask the court not to do so.
“The district court’s order has been construed by Kalshi and others as open season for election gambling,” it said in a court filing from Saturday. The court’s decision to rule in Kalshi’s favor has sparked Wall Street giant Interactive Brokers to announce that it would offer election-related prediction contracts through a CFTC-regulated subsidiary.
“An explosion in election gambling on U.S. futures exchanges will harm the public interest,” the regulator added. If the court lifts the stay, other exchanges will begin offering the contracts, the CFTC worries. It stressed manipulation as a massive worry if prediction contracts make their way to the market in droves. “Documented cases of market manipulation have already been realized in the very markets Kalshi points to.”
CFTC Fires Back at Kalshi’s Claims of Losses
The prediction market’s lead attorney, Yaakov Roth, said in a hearing on Thursday, “We are the ones who were trying to comply with the law, and the beneficiaries of the delay are the actors who don’t want to comply with the law.” He maintained that Kalshi is losing out on profits while trying to comply with the law, and others like Polymarket that have been offering these contracts are raking in hefty fees from their offerings. The CFTC replied in its Saturday filing, “A pharmacy does not get to dispense cocaine just because it is sold on the black market.”
