Case 2:25-cv-01541-JCM-DJA Document 7 Filed 08/19/25 Page 11 of 31
FACTUAL BACKGROUND
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A. Event Contract Regulation by the CEA and CFTC. An event contract is a type of derivative that allows customers to trade on their
predictions about the occurrence of future events. See KalshiEx LLC v. Commodity Futures Trading Comm’n , No. CV 23-3257, 2024 WL 4164694, at *1-2 (D.D.C. Sept. 12, 2024). Event contracts are typically structured as binary options posing a particular yes-or-no question. A buyer takes the “yes” side and a seller takes the “no” side, and upon the expiration of the contract—typically, when the outcome of the future event in question becomes known—the value of the contract goes to the party who was right. Until that time, buyers and sellers can trade the contract, and the price of the contract fluctuates based on the market’s assessment of the probability that the event will occur. Id. at *2. Traders may use event contracts to mitigate risk ( e.g. , an orange grower may buy a contract predicting an early frost to offset the risk of loss of income from frost damage) or simply to seek a financial return. Id . Unlike a sportsbook, where bettors place bets against the house and the house sets the odds in its favor, when traders enter into event contracts, the contracts are bilateral with another trader on the other side, and the market sets the contract price. The CEA sets forth a comprehensive federal framework for regulating commodity futures and swaps trading. See KalshiEx , 2025 WL 1073495, at *3. In 1974, Congress established the CFTC, the federal agency that oversees and regulates commodity futures and swaps trading. Id. Congress intended to centralize regulatory authority with the CFTC to avoid the “total chaos” that could ensue if states attempted to regulate the futures markets, thereby subjecting futures trading to different regulations. Hearings Before the Committee on Agriculture and Forestry, United States Senate, on S. 2485, S. 2587, S. 2837 and H.R. 13113, 93d Cong., 2d Sess. 685 (1974) (“Senate Hearings”) (statement of Sen. Clark); see also Am. Agric. Movement, Inc. v. Bd. of Trade of City of Chicago , 977 F.2d 1147, 1156 (7th Cir. 1992) (setting forth legislative history of the CFTC Act of 1974), abrogated on other grounds by Time Warner Cable v. Doyle , 66 F.3d 867, 875 (7th Cir. 1995). Indeed, Congress considered adding but ultimately removed from the
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