Kalshi contends that the CFTC’s prohibitions in § 40.11(a)(1) entail a two-step process, whereby: (1) the event contract must involve one of the enumerated, prohibited activities under § 40.11(a)(1); and (2) the CFTC must conduct a separate 90-day public interest review under § 40.11(c) and conclude such an event contract is contrary to the public interest. See ECF No. 29 at 11–12. Not so. Contrary to what Kalshi suggests, § 40.11(a)(1) is a categorical prohibition on certain event contracts; there is no two-step process because the CFTC has already made the determination that such event contracts are contrary to the public interest. This determination negates the need for a 90-day review of such event contracts. Rather, § 40.11(c) is meant to allow the CFTC discretion to review event contracts that “ may involve” one of the prohibited categories under § 40.11(a)(1); it in no way requires a 90-day review for event contracts that do involve such prohibited categories, like Kalshi’s sports event contracts. In promulgating § 40.11(a)(1), the CFTC acted consistently with Congress’s intent that the Special Rule prevent event contracts used “to enable gambling”—particularly including sports betting. In fact, in a colloquy on the Senate floor, one of the principal architects of the Special Rule explained: [It] is our intent . . . [that the Special Rule] prevent derivatives contracts that are contrary to the public interest because they exist predominantly to enable gambling through supposed “event contracts.” It would be quite easy to construct an “event contract” around sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament. These types of contracts would not serve any real commercial purpose. Rather, they would be used solely for gambling. Statement of Sen. Lincoln, 156 Cong. Rec. S5906–7 (2010). Kalshi’s sports event contracts involve both gaming and activity that is unlawful under state and federal law. As such, they expressly violate 17 C.F.R. § 40.11(a)(1) and therefore fall outside the scope of the CFTC’s exclusive jurisdiction.
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