Case 2:25-cv-00978-APG-BNW Document 105 Filed 10/14/25 Page 3 of 27
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WL 4164694, at *1 (D.D.C. Sept. 12, 2024) (quotation omitted). Derivatives “provide a way to transfer market risk or credit risk between two counterparties.” Id. (quotation omitted). Event contracts are a form of derivative in which the “payoff is based on a specified event, occurrence, or value.” Id. at *2 (quotation omitted). “These contracts usually pose a yes-or-no question. The buyer of the event contract, for example, may take a ‘yes’ position on whether the underlying event will happen,” and the “seller implicitly takes the opposite, or ‘no,’ position.” Id. The contract prices fluctuate because they are based on the current probability that the relevant event will occur. Id. An entity like Crypto must apply to and receive designation from the CFTC to become a DCM. 7 U.S.C. §§ 2(e), 7(a); 17 C.F.R. §§ 38.1, 38.3(a). Until the year 2000, a DCM had to get the CFTC’s preapproval to list contracts by convincing the CFTC that its contracts satisfied an economic purpose test and were not contrary to the public interest. KalshiEX LLC , 2024 WL 4164694, at *2 (quotation omitted). But Congress amended the CEA in 2000 to allow DCMs to self-certify that their contracts comply with the law and regulations with no prior CFTC review. Id. 2 ; see also 7 U.S.C. § 7a-2(c)(1); 17 C.F.R. § 40.2. In 2010, Congress amended the CEA again by enacting a special rule for event-based contracts in “excluded commodities.” 7 U.S.C. § 7a-2(c)(5)(C); see also 7 U.S.C. § 1a(19)(iv) (defining excluded commodity, as relevant here, to mean “an occurrence, extent of an 2 Under the CEA, a DCM can self-certify to the CFTC that the listed contract complies with the CEA and the CFTC’s regulations. 17 C.F.R. § 40.2. The CFTC can thereafter request additional “evidence, information or data that demonstrates that the contract meets, initially or on a continuing basis, the requirements of the Act or the Commission’s regulations or policies thereunder.” 17 C.F.R. § 40.2(b). The CFTC can stay a listing of a contract under certain circumstances, including if the CFTC initiates proceedings for filing a false certification. 17 C.F.R. § 40.2(c). Alternatively, a DCM can request the CFTC pre-approve a contract before listing it. 17 C.F.R. § 40.3.
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