Case 2:25-cv-00575-APG-BNW Document 45 Filed 04/09/25 Page 7 of 17
1 2 3 4 5 6 7 8 9
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. As Kalshi clarified at the hearing, Kalshi is not a party to the contracts and does not set the contract price. Rather, Kalshi is the exchange on which such contracts are entered into between the counterparties. A clearinghouse holds the contracting parties’ funds until the specified event occurs, at which point the clearinghouse settles the contract according to the event’s outcome. Under the CEA, the CFTC has exclusive jurisdiction to regulate commodities and futures on designated exchanges. 7 U.S.C. § 2(a)(1)(A). An entity like Kalshi must apply to and receive designation from the CFTC to become a designated contract maker (DCM). 7 U.S.C. §§ 2(e), 7(a); 17 C.F.R. §§ 38.1, 38.3(a). Event contracts fall within the CFTC’s sphere of regulation on designated exchanges as “excluded commodities.” 7 U.S.C. § 7a-2(c)(5)(C)(i). 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. But Congress amended the CEA in 2000 to allow DCMs to self-certify that their contracts complied with the law and regulations with no prior CFTC review. Id. In 2010, Congress amended the CEA again by enacting a special rule for event-based contracts. Id. ; see also 7 U.S.C. § 7a-2(c)(1); 17 C.F.R. § 40.2. Under this special rule, DCMs still self-certify and can immediately begin offering event contracts, or they can request preapproval from the CFTC. KalshiEX LLC , 2024 WL 4164694, at *3; see also 17 C.F.R. §§ 40.2, 40.3. But under the special rule, the CFTC can review and prohibit certain event
10 11 12 13 14 15 16 17 18 19 20 21 22 23
7
Made with FlippingBook - Online catalogs