Published on: October 16, 2024, 01:39h.
Last updated on: October 16, 2024, 02:02h.
A federal appeals court in Washington DC has prioritized a complaint by the Commodity Futures Trading Commission (CFTC) seeking to stop Kalshi, a financial exchange and prediction platform, from offering bets on US politics.
The expedited appeal process will not affect Kalshi’s ability to accept bets on the presidential election scheduled for November 5. As per the new schedule set by the court, CFTC must submit its legal brief by Wednesday, October 16, with Kalshi responding by November 15, 10 days after the election.
CFTC alleges that Kalshi’s prediction markets jeopardize the election’s integrity and expose it to manipulation.
Kalshi’s Political Market Expansion
Kalshi has recently broadened its political markets to include predictions on the presidential popular vote, Electoral College contests, and individual Senate races.
After an injunction was lifted by the appeals court on October 2, Kalshi resumed trading on political markets. Since then, users have wagered over $12 million on the presidential race alone.
Kalshi falls under CFTC regulation as it offers events contracts, a type of derivative allowing users to speculate on specific event outcomes by betting on “yes” or “no” possibilities before expiration.
Previously, CFTC instructed Kalshi to cease offering political markets due to the illegality of election betting in the US. Kalshi retaliated by suing the regulator, contending that the ban exceeded the agency’s authority.
A lower-court judge ruled in favor of Kalshi on September 7, enabling the platform to resume election contracts on September 12. However, CFTC obtained an injunction from the appeals court shortly after, freezing the contracts pending further arguments.
Challenges with Polls
Kalshi defends its contracts as beneficial to the public as they offer accurate data for election forecasting. Prediction markets often outperform traditional polls in predicting political events, drawing from a diverse pool less likely to lie due to personal interests.
In contrast, poll respondents may provide inaccurate information, influenced by factors like embarrassment or desire to please the interviewer.
Trump’s Dominance in Markets
Despite trailing narrowly in polls, Donald Trump leads prediction markets like Polymarket. However, CFTC’s primary concern is the susceptibility of these markets to manipulation by influential entities strategically placing large bets on candidates.
This manipulation could sway public perception about a candidate’s chances, potentially boosting fundraising, morale, and voter turnout.
Kalshi is offering institutional investors the chance to wager up to $100 million on either candidate for victory in November.