Introduction
The U.S. Commodity Futures Trading Commission (CFTC) has commenced a formal review and public comment period to evaluate Kalshi’s proposed prediction market contracts. These contracts would enable users to bet on the political party that will control Congress following an election. The CFTC’s decision to begin the review process involved canceling a scheduled public meeting to discuss the matter.
CFTC Commences 90-Day Review
On Friday, the CFTC announced the initiation of a 90-day review of KalshiEX LLC’s self-certified contracts. These contracts allow individuals to place bets on the major political party that will gain control over Congress after the next election. The CFTC will need to make a final decision within the 90-day timeframe or seek an extension.
30-Day Public Comment Period
Simultaneously with the review, the CFTC introduced a 30-day public comment period to gather feedback. The commission has put forth 24 questions to solicit opinions from the public regarding the proposed contracts. Some of the key inquiries include assessing whether the contracts resemble gambling according to CFTC regulations, determining the legality of the proposed betting, and comparing these contracts with previous attempts.
Cancellation of Public Meeting
The CFTC had initially scheduled a public meeting on June 26 to decide whether the review should proceed. However, in a subsequent press release on Friday, the meeting was canceled.
Past Developments and Dissenting Opinions
In the past, Kalshi had suggested that the CFTC would approve its political event contracts prior to the 2022 midterm elections. However, Bloomberg reported that the CFTC staff recommended rejecting the contracts. In response, Kalshi withdrew its proposal, made adjustments to address regulatory concerns, and resubmitted it.
Commissioners Disagree on the Review
CFTC Commissioners Summer Mersinger and Caroline Pham expressed dissenting opinions regarding the decision to initiate a new review period. Mersinger argued that Kalshi had made sincere efforts to address the regulator’s concerns and believed that launching another comment period would cause unnecessary delays. She contended that Kalshi’s self-certified contracts did not meet the definition of “gaming” within the CFTC’s purview.
Pham’s dissent referred to a court ruling involving another prediction market called PredictIt. The CFTC had ordered the shutdown of PredictIt, but an appeals court ruled in favor of PredictIt’s continued operation until a court resolution was reached on the underlying lawsuit. Pham cautioned that attempting to suspend Kalshi’s political event contracts might violate the appeals court order.
Conclusion
The CFTC has initiated a comprehensive review process and public comment period to evaluate Kalshi’s prediction market contracts. The decision to cancel the scheduled public meeting has set the stage for a thorough examination of the proposed contracts, inviting public input. While dissenting opinions exist among the CFTC commissioners, the review will proceed to determine the fate of Kalshi’s congressional control prediction markets.
