Case: 3:25-cv-00698 Document #: 1 Filed: 08/20/25 Page 16 of 47
and the [contract’s] compliance with applicable provisions of the [CEA], including core principles, and the [CFTC] regulations thereunder.” 17 C.F.R. § 40.2(a)(3)(v). 56. 17 C.F.R. § 40.11(c) established a 90-day review process: if an exchange, like Kalshi, self-certifies a new event contract that may violate Regulation 40.11(a), the Commission can stay the listing for up to 90 days while it evaluates the contract and then issue an order approving or disapproving it. Id . 57. Thus, by 2011, the regulatory structure was in place to address the rise of event contracts, which previously fell into a gray area between regulated futures and mere wagers. 58. Until recently, the CFTC’s consistent stance has been to prohibit contracts that it views as “gaming” or betting-type events, while permitting other event-based contracts. 59. At bottom, the purchase or sale of a “true” futures contract on an exchange is motivated by two economic purposes — (1) the opportunity to make a profit or (2) to minimize the risk of loss from a change in the market price or the happening of an event. 60. Thus, “true” futures contracts, and the purposes for which they are traded, “serve[] legitimate hedging and price discovery functions, thereby facilitating production of the underlying commodity.” Bd. of Trade v. SEC , 677 F.2d 1137, 1151 (7th Cir. 1982). “Indeed, one basic justification for a futures market is that futures trading in a central location performs a ‘price discovery’ function for the underlying commodity, thereby furnishing producers and users a reference point for their pricing on the cash market.” Id . at 1173 n.15. 61. This is, ultimately, what differentiates “true” commodities futures contracts from gambling on a sporting event. While gambling via an event contract on next year’s rainfall measures allows a wheat farmer to hedge against the risk of a
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