After Approval at DC District Court, Appeals Court Halts Trading Event Contracts Based on Election Outcomes

By: Cliff C. Histed, Cheryl L. Isaac, and Wiley F. Cole

On 12 September 2024, the US District Court for the District of Columbia ruled in KalshiEx LLC v. CFTC that designated contract markets may list event contracts whose payouts are tied to the outcome of elections. The court’s order, which granted summary judgment to KalshiEx LLC (Kalshi), held that the Commodity Futures Trading Commission’s (CFTC) interpreted its own regulations too broadly and that registered derivatives exchanges such as Kalshi may offer election outcome event contracts for trading.

Immediately following the District Court’s ruling, the CFTC appealed and moved to stay the lower court’s order. The Court of Appeals granted the motion to stay, effectively halting trading of elections outcome event contracts. For a brief period, elections outcome event contracts were traded on Kalshi’s registered derivatives exchange.

Event contracts, or “binary options,” allow market participants to take a market view on the outcome of an event. If the conditions of the event are met, the “yes” contract holders (those who bought the long position) are profitable, and the “no” contract holders (those who bought the short position) lose the amount used to collateralize the contract, and the reverse holds true if the conditions of the event are not met. The underlying event of the event contracts at issue in KalshiEx related to which political party—Democrat or Republican—has control of each house of Congress as of 1 February 2025. 

Kalshi relied on CFTC regulations to self-certify that its election outcome event contracts conformed with CFTC regulations and the derivative exchange’s own listing standards. The CFTC opposed listing such contracts, arguing they involved “gaming” and were “contrary to the public interest” and therefore Kalshi was prohibited from listing them on its derivatives exchange under the Commodity Exchange Act and related CFTC regulations. The court held that “gaming” requires a game, and that, while these contracts involve “elections, politics, Congress, and party control” they do not “bear any relation to any game.”