A.
Statutory Background 1.
The Commodity Exchange Act The Commodity Futures Trading Commission (“CFTC”) is an independent federal agency that regulates the derivatives market under the Commodity Exchange Act (“CEA”), 7 U.S.C. §§ 1 et seq. See KalshiEX LLC v. CFTC (“ Kalshi D.C. Cir. ”), 119 F.4th 58, 61 (D.C. Cir. 2024) (citing 7 U.S.C. § 2(a)). “A derivative is a financial instrument or contract with a price that is directly dependent on the value of one or more underlying assets.” Kalshi D.N.J. , 2025 WL 1218313, at *1 (citing KalshiEX LLC v. CFTC (“ Kalshi D.D.C. ”), Case No. 23–03257, 2024 WL 4164694, at *1 (D.D.C. Sept. 12, 2024), stay denied , Kalshi D.C. Cir. , 119 F.4th). This case concerns a subset of derivatives contracts known as event contracts . “An event contract is a derivative contract for which the payoff is based on a specified event, occurrence, or value—for example, the level of snowfall from a certain storm or the dollar amount of hurricane damage.” Kalshi D.C. Cir. , 119 F.4th at 61 (internal quotation marks and citation omitted). Thus, if a buyer of an event contract takes the “yes” position—that a particular event will occur—upon the contract’s designated expiration, the seller would pay the buyer if and only if the event on which the buyer took the “yes” position occurred. The contract can be traded until its expiration, and the market sets the price, which fluctuates with the event’s perceived likelihood. See KalshiEX D.N.J. , 2025 WL 1218313, at *1 (citation omitted); Kalshi D.D.C. , 2024 WL 4164694, at *1–2. Under the CEA, only exchanges regulated by the CFTC—known as designated contract markets (“DCMs”)—can offer event contracts. Kalshi D.C. Cir. , 119 F.4th at 61 (citing 7 U.S.C. §§ 2(e), 7a-2(c)(5)(C)(i)). To become a DCM, and before offering event contracts, an entity must apply to the CFTC and be approved. Kalshi D. Md. , 793 F. Supp. 3d at 672 (citing 7 U.S.C. §§ 2(e), 7a). Once approved, however, DCMs cannot list any contract they like; the contracts must comply with the CEA and its implementing regulations. A DCM may request that the CFTC grant prior
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Case 3:26-cv-00034 Document 48 Filed 02/19/26 Page 5 of 25 PageID #: 873
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