Kalshiex LLC v. Commodity Futures Trading Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 19, 2024 Decided October 2, 2024
No. 24-5205
KALSHIEX LLC,
APPELLEE
v.
C OMMODITY F UTURES T RADING C OMMISSION,
APPELLANT
On Emergency Motion for Stay Pending Appeal and
Immediate Interim Relief
(No. 1:23-cv-03257)
Robert A. Schwartz, General Counsel, U.S. Commodity
Futures Trading Commission, argued the cause for appellant.
With him on the emergency motion for stay pending appeal and
immediate interim relief and the reply was Anne W. Stukes,
Deputy General Counsel.
Yaakov M. Roth argued the cause for appellee. With him
on the opposition to the emergency motion for stay pending
appeal and immediate interim relief were Joshua B. Sterling,
John Henry Thompson, and Amanda K. Rice.
Before: M ILLETT, P ILLARD , and P AN , Circuit Judges.

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Opinion for the Court filed by Circuit Judge M ILLETT.
M ILLETT, Circuit Judge: KalshiEx LLC, a commodities
exchange regulated by the Commodity Futures Trading
Commission, seeks to offer “Congressional Control Contracts”
that would allow persons within the United States to place
money on the outcome of the November 2024 congressional
elections. The Commission prohibited Kalshi from listing the
Congressional Control Contracts on its regulated exchange on
the ground that they amount to gaming or election gambling,
which many States outlaw. Kalshi challenged that
determination in federal court under the Administrative
Procedure Act, 5 U.S.C. § 706(2)(A), (C). The district court
found that the Commission erred in categorizing the
Congressional Control Contracts as involving either gaming or
gambling and vacated its decision. The Commission now seeks
a stay of the district court’s judgment while it pursues an
appeal. Because the Commission has failed at this time to
demonstrate that it or the public will be irreparably injured
absent a stay, we deny its motion without prejudice to renewal
should more concrete evidence of irreparable harm develop
during the pendency of this appeal.
I
A
The Commodity Futures Trading Commission
(“Commission” or “CFTC”) is an independent federal agency
charged under the Commodity Exchange Act with regulating
derivative markets. 7 U.S.C. § 2(a).1 This case concerns a
1 A derivative is a “financial instrument” or contract, such as a
future, option, or swap, the price of which is “directly dependent

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subset of derivative 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. CFTC, Contracts & Products:
Event Contracts, https://perma.cc/4FPT-L2SN. Businesses
and individuals can use event contracts to hedge against
economic risk. KalshiEX LLC v. Commodity Futures Trading
Comm’n, No. 23-cv-3257 (JMC), 2024 WL 4164694, at *2
(D.D.C. Sept. 12, 2024). For example, a beachfront property
owner might purchase an event contract predicting that a
hurricane will reach landfall in her area to offset the risk of
losing rental income from the storm. Id.
Under the Commodity Exchange Act, only federally
regulated exchanges, known as “Designated Contract Markets”
(“Designated Markets”), can offer event contracts. 7 U.S.C.
§§ 2(e), 7a-2(c)(5)(C)(i); see also 7 U.S.C. § 1a(19)(iv).
Designated Markets can self-certify to the Commission that the
contracts comply with the Commodity Exchange Act and the
Commission’s regulations and start trading the contracts the
following business day. 7 U.S.C. § 7a-2(c)(1), 17 C.F.R.
§ 40.2.
However, the Commodity Exchange Act includes a
“Special Rule” under which the Commission can review and
prohibit specific types of event contracts if it determines those
contracts are “contrary to the public interest.” 7 U.S.C. § 7a-
2(c)(5)(C)(i). The Special Rule provides:
upon (i.e. derived from) the value of one or more underlying
securities, equity indices, debt instruments, commodities, other
derivative instruments, or any agreed upon pricing index or
arrangement[.]” CFTC, Futures Glossary: A Guide to the Language
of the Futures Industry, https://perma.cc/4V5S-8P5H.

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In connection with the listing of agreements, contracts,
transactions, or swaps in excluded commodities that are
based upon the occurrence, extent of an occurrence, or
contingency * * * by a designated contract market * * *,
the Commission may determine that such agreements,
contracts, or transactions are contrary to the public interest
if the agreements, contracts, or transactions involve—
(I) activity that is unlawful under any Federal or State
law;
(II) terrorism;
(III) assassination;
(IV) war;
(V) gaming; or
(VI) other similar activity determined by the
Commission, by rule or regulation, to be contrary to
the public interest.
Id.
By regulation, the Commission has 90 days to determine
whether to prohibit a Designated Market’s proposed event
contract under the Special Rule. 17 C.F.R. § 40.11(c). During
this review, the Designated Market cannot list or trade the
contract. 17 C.F.R. § 40.11(c)(1).
B
On June 12, 2023, Kalshi submitted to the Commission a
self-certification for event contracts it termed “Congressional
Control Contracts.” Kalshi Opp. at 6; see J.A. 26. These
contracts allow buyers to put down money based on a
prediction as to which political party will control the U.S.
House of Representatives or Senate on a future specified date.

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They are “yes/no” contracts that pose the question: “Will
<chamber of Congress> be controlled by <party> for <term>?”
J.A. 26.
Kalshi is not the first company to invite individuals and
entities to lay down money based on electoral prognostications.
In 1993 and again in 2014, the Commission issued “No Action”
letters to two non-profit exchanges run by academic
institutions—the Iowa Electronic Markets operated by the
University of Iowa and PredictIt operated by the Victoria
University of Wellington—that offer contracts tied, among
other things, to election outcomes in the United States. Letter
from Vincent McGonagle, Dir., Div. of Market Oversight, U.S.
Commodity Futures Trading Comm’n, to Neil Quigley, Deputy
Vice-Chancellor, Rsch., Victoria Univ. of Wellington (Oct. 29,
2014), https://perma.cc/YD43-UPX4. These exchanges limit
the number of users in each election market to 2,000 (Iowa
Electronic Markets) and 5,000 (PredictIt) and cap individual
investments at $500 (Iowa Electronic Markets) and $850
(PredictIt). Id.; J.A. 164, 505. A third exchange, Polymarket,
which became operational in 2020, also offers political
contracts, but it never registered as a Designated Market with
the Commission. J.A. 506. In a settlement the Commission
announced in January 2022, Polymarket agreed to pay a civil
penalty of $1.4 million and to restrict its contracts to non-U.S.
investors. J.A. 506. Whether Polymarket has complied with
the latter limitation is in question. Kalshi Opp. at 3;
Commission Reply at 12–13.
On the record before us, Kalshi’s Congressional Control
Contracts would be materially different in multiple ways. To
start, Kalshi’s contracts would be the first election-event
contracts offered on a licensed commodities exchange, subject
to the regulatory supervision of the Commission. In addition,
while Kalshi says it would allow only United States persons to

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invest, the Commission worries that the contracts could be used
by foreign persons or governments directly or indirectly to
manipulate the election-contract market. Commission Mot. at
21; Kalshi Opp. at 21. Lastly, while PredictIt and Iowa
Electronic Markets limit both the number of investors and the
amount they can spend, Kalshi places no cap on the number of
investors and would allow individuals and entities to invest, in
some cases, up to $100 million per contract. J.A. 33–35.
On June 23, 2023, the Commission commenced a 90-day
review of the Congressional Control Contracts and requested
that Kalshi suspend trading on the contracts during that period.
J.A. 145. That same day, the Commission opened a 30-day
public comment period on the proposed contracts. J.A. 146–
149. On September 22, 2023, the Commission issued a final
order prohibiting Kalshi from listing the contracts. J.A. 23.
The Commission grounded its decision on four findings.
First, it determined that, by using the word “involve” in the
Special Rule, Congress intended to capture both contracts
whose underlying event is one of the enumerated categories
(i.e., terrorism, assassination, or war) and contracts with a
“different connection” to the enumerated activities “because,
for example, they ‘relate closely’ to, ‘entail,’ or ‘have as an
essential feature or consequence’ one of the enumerated
activities.” J.A. 7. Second, the Commission determined the
Congressional Control Contracts involved “gaming,” within
the meaning of the Special Rule, because that term “includes
betting or wagering on elections[.]” J.A. 8. Third, the
Commission found the contracts were unlawful under state law
because many States prohibit betting or wagering on elections.
J.A. 11–12. Finally, the Commission determined the contracts
were not in the public interest for two reasons. One, they were
unlikely to be used for commercial-risk “hedging” or “price
basing”—the “public interest[s] that transactions subject to the

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C[ommodity] E[xchange] A[ct] are intended to serve.” J.A. 14.
Two, the contracts could threaten election integrity by, for
example, creating monetary incentives for voters to support
particular candidates or incentivizing the spread of
misinformation. J.A. 20.
C
In November 2023, Kalshi filed suit in federal court
challenging the Commission’s final order as arbitrary and
capricious, contrary to law, and in excess of the Commission’s
authority under the Administrative Procedure Act, 5 U.S.C.
§ 706(2)(A), (C). See KalshiEx, 2024 WL 4164694, at *6.
Kalshi objected to the Commission’s reading of the words
“involve,” “gaming,” and “activity that is unlawful under any
* * * State law” in the Special Rule and alleged that the
Commission’s public interest determination was unreasonable.
Kalshi Complaint ¶¶ 88–91.
The district court subsequently granted Kalshi’s motion
for summary judgment. KalshiEx, 2024 WL 4164694, at *13.
The court reasoned that, within the meaning of the Special
Rule, “gaming” must refer to the “act of playing a game” or
“playing games for stakes.” Id. at *8, 10. Because elections
are not games, the court concluded that the category does not
apply to election contracts. Id. at *8–10. The district court also
ruled that the term “involve” refers to the “event being offered
and traded” under a contract, not the contract itself. Id. at *13.
Thus, because the underlying events in the Congressional
Control Contracts—“elections, politics, Congress, and party
control”—are not themselves unlawful under state law, the
contracts did not “involve” “illegal or unlawful activity.” Id.
The district court entered a brief administrative stay, and
then denied the Commission’s motion for a stay pending appeal

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on September 12, 2024. The Commission promptly appealed
to this court. That same day, Kalshi listed its Congressional
Control Contracts, and they traded for approximately eight
hours, Kalshi Opp. at 8, until this court granted an
administrative stay to consider the Commission’s motion for a
stay pending appeal.
II
A stay pending appeal is an “extraordinary” remedy.
Citizens for Resp. & Ethics in Washington v. Federal Election
Comm’n, 904 F.3d 1014, 1017 (D.C. Cir. 2018) (per curiam).
To obtain such exceptional relief, the stay applicant must (1)
make a “strong showing that [it] is likely to succeed on the
merits”; (2) demonstrate that it will be “irreparably injured”
before the appeal concludes; (3) show that issuing a stay will
not “substantially injure the other parties interested in the
proceeding”; and (4) establish that “the public interest” favors
a stay. Nken v. Holder, 556 U.S. 418, 434 (2009) (quoting
Hilton v. Braunskill, 481 U.S. 770, 776 (1987)).
III
While the question on the merits is close and difficult, the
Commission cannot obtain a stay at this time because it has not
demonstrated that it or the public will be irreparably harmed
while its appeal is heard. That failure is fatal to the
Commission’s stay request because a showing of irreparable
harm is a necessary prerequisite for a stay. See Wisconsin Gas
Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir. 1985) (“We believe
that analysis of the second factor disposes of the[] [stay]
motions and, therefore, address only whether the petitioners
have demonstrated that in the absence of a stay, they will suffer
irreparable harm.”); cf. Chaplaincy of Full Gospel Churches v.
England, 454 F.3d 290, 297 (D.C. Cir. 2006) (“A movant’s

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failure to show any irreparable harm is [] grounds for refusing
to issue a preliminary injunction, even if the other three factors
entering the calculus merit such relief.”).
The Commission broadly claims that irreparable harm will
occur because Congressional Control Contracts “could
potentially be used in ways that would have an adverse effect
on the integrity of elections, or the perception of integrity of
elections[.]” J.A. 20; see also Commission Mot. at 19. The
Commission marshals five more specific harms it anticipates,
but none amounts to irreparable injury at this time. Several are
not cognizable harms. The other concerns, if realized, certainly
could hurt the public interest. But the Commission has failed
to demonstrate that those harms are likely to occur. That falls
short of the mark because “[i]rreparable harm must be ‘both
certain and great[,]’ and ‘actual and not theoretical.’” Citizens
for Resp. & Ethics in Washington, 904 F.3d at 1019 (quoting
Wisconsin Gas Co., 758 F.2d at 674).
First, according to the Commission, Congressional
Control Contracts would “create monetary incentives to vote
(including as an organized collective) for particular
candidates,” Commission Mot. at 19, “even when such votes
may be contrary to a voter’s * * * preferences[,]” J.A. 20.
Paying someone to vote is, of course, illegal. See, e.g., 18
U.S.C. § 597. But the Commission’s concern is different—it
worries that voters might develop a financial motivation to
vote. Yet voters already commonly consider their own
financial interests when voting, whether based on business
interests or family economics. The Commission has made no
showing that allowing voters to hedge against an electoral
outcome that they believe would be contrary to their financial
interests would have any untoward impact on voting decisions.
Nor has the Commission explained why it lacks such evidence,
even though unregistered markets like Iowa Electronic

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Markets, PredictIt, and Polymarket have allowed individuals to
place money on election outcomes for decades.
Second, the Commission claims that markets for
Congressional Control Contracts could “incentivize the spread
of misinformation by individuals or groups seeking to
influence perceptions of a political party or a party candidate’s
success.” J.A. 20. In particular, the Commission points to the
phenomenon of “fake poll[s].” Commission Reply at 10. The
Commission then offers a single example: In July 2017, the
firm Delphi Analytica created an apparently fake poll that
showed the musician Kid Rock leading Senator Debbie
Stabenow 30 percent to 26 percent in the November 2018 U.S.
Senate election in Michigan. Id.; see also Tyler Yeargain, Fake
Polls, Real Consequences: The Rise of Fake Polls and the
Case for Criminal Liability, 85 M O. L. R EV. 129, 133 (2020).
The day the poll issued, Senator Stabenow’s “stock” price on
PredictIt dropped from 78 cents to 63 cents, and ended at 70
cents. Yeargain, supra, at 133–134. This, the Commission
claims, shows that “market manipulation” is “not mere
speculation[.]” Commission Reply at 10.
But that example does not hold up to scrutiny. For starters,
“falsified polling is nothing new.” Yeargain, supra, at 140. In
2009 and 2010, companies released what experts considered to
be fraudulent polls, but neither the article nor the Commission
suggests those companies did so to manipulate election-betting
markets. Id. Furthermore, “the long-term effect of the
Michigan poll was virtually undetectable” because Kid Rock
opted not to run and Senator Stabenow won reelection. Id. at
134. Perhaps the Commission will amass more evidence
substantiating its fears about election outcomes, but, on the
evidence provided to this court, those fears—as yet—“fail to
rise beyond the speculative level.” Citizens for Resp. & Ethics
in Washington, 904 F.3d at 1019; see also Committee in

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Solidarity With People of El Salvador v. Sessions, 929 F.2d
742, 745–46 (D.C. Cir. 1991) (“Injunctions * * * will not issue
to prevent injuries neither extant nor presently threatened, but
only merely feared.”) (formatting modified).
In that regard, if the Commission felt the risks of election
contracts were as concrete and pressing as it argues here, it has
long had—and still has—the power to forbid them on the
exchanges it regulates. Specifically, the Special Rule
empowers the Commission to find through a formal rule or
notice-and-comment rulemaking that certain types of event
contracts—such as election contracts—are “contrary to the
public interest” and to forbid them. 7 U.S.C. § 7a-
2(c)(5)(C)(i)(VI).2 Yet in the seven years since the fake Kid
Rock poll was used, the Commission has not invoked the very
tool Congress gave it to head off such harms.
Third, and relatedly, the Commission claims that the
absence of reliable benchmarks for election-contract markets
“may increase the risk of manipulative [market] activity.” J.A.
21. According to the Commission, the “vast majority of
commodities underlying Commission-regulated derivatives
contracts” have reliable informational sources—for example,
“government issued crop forecasts, weather forecasts, federal
government economic data * * * [and] market-based interest
rate curves[.]” J.A. 21. By contrast, the Commission argues,
“unregulated” and “opaque” information sources like polls and
voter surveys will supply the relevant information sources for
Congressional Control Contracts. J.A. 21. The lack of reliable
forecasts, the Commission claims, may make election-contract
markets more susceptible to bad actors’ manipulation with fake
2 “[T]he Commission may determine * * * by rule or regulation”
that activities “similar” to the other listed categories are “contrary to
the public interest.” 7 U.S.C. § 7a-2(c)(5)(C)(i)(VI).

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polls or misinformation, while simultaneously decreasing the
Commission’s ability to detect such manipulation. J.A. 21.
The Commission does not spell out this conclusion, but its
theory seems to be that, while profit may be the primary goal
of these election-contract purchasers, a byproduct will be
misinformation about the upcoming elections. The
Commission might be right. But Kalshi insists just the
opposite. According to Kalshi, election-contract markets
provide “real-time and accurate data that traditional polls often
cannot replicate.” Kalshi Opp. at 4; see also J.A. 233
(“[I]nformational models that require contributors to have ‘skin
in the game’ when opining or contributing to public discussion
[are] a great way to disincentivize the propagation of
misinformation.”). Whatever the case, “simply showing some
‘possibility of irreparable injury’”—that it “may” occur, J.A.
21—is not enough. Nken, 556 U.S at 434 (citation omitted).
More to the point, the Commission has not explained why
traditional tools for regulating market manipulation will not
work in the election-contract context. For example, the
Commission can serve subpoenas, call witnesses, and hold
hearings to investigate whether someone is manipulating an
event contract. 7 U.S.C. § 9. And manipulating or attempting
to manipulate the price of a commodity is a felony under
federal law. 7 U.S.C. § 13(a). In addition, the Commission
does not point to any pattern of unregulated market
manipulation in the existing markets for election contracts.
Plus Kalshi has introduced evidence that other political
topics—such as the prospect of particular legislation passing or
the federal government shutting down—have been the subject
of event contracts on licensed exchanges. J.A. 245. Those
events also lack established benchmarks for predictions, and
yet the Commission has not shown they have proven more
susceptible to market abuse.

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Fourth, on the Commission’s telling, individuals might
trade in Congressional Control Contracts or engage in activity
that influences the election-contract market to “create the
impression of likely electoral success or failure” for certain
candidates. J.A. 22. The Commission hypothesizes several
such examples. One, paid employees of political campaigns or
polling organizations, though prohibited from trading in
Congressional Control Contracts, may engage in outside
“activity” intended to “artificially move” those markets. J.A.
22. Two, foreign investors may bypass Kalshi’s restrictions on
foreign investment and use Congressional Control Contracts to
influence elections. Commission Mot. at 21. Three,
individuals or entities not excluded from trading—such as
congressional campaign volunteers, consultants, or donors—
might buy and sell contracts to change the perception of
candidates’ likelihood of success. J.A. 22. In addition, the
Commission points to comment letters it received during its
review of Kalshi’s contract, including letters submitted by a
number of U.S. Senators, that oppose the trading of election-
contracts on regulated exchanges. See J.A. 681–683.
Ensuring the integrity of elections and avoiding improper
interference and misinformation are undoubtedly paramount
public interests, and a substantiated risk of distorting the
electoral process would amount to irreparable harm. The
problem is that the Commission has given this court no
concrete basis to conclude that event contracts would likely be
a vehicle for such harms. The Commission cites to only one
example where a trader on an unregulated (and now-
suspended) exchange placed large bids on Mitt Romney to win
the 2012 presidential election. Commission Reply at 10. It is
“conceivable” the trader did so to “manipulate beliefs about the
odds of victory in an attempt to influence fundraising,
campaign morale, voter preferences, and turnout.” David M.

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Rothschild et al., Trading Strategies and Market
Microstructure: Evidence from a Prediction Market, T HE
J OURNAL OF P REDICTION M ARKETS , Nov. 22, 2015, at 22. But
the trader fell short because the attempted manipulation was
easily detected by market investors. Id. at 23. And the
Commission’s speculation about that trader’s “conceivable”
motivations is, at bottom, an “unsubstantiated and speculative”
theory. Wisconsin Gas Co., 758 F.2d at 674. Notably, the
Commission offers no other evidence that such market
machinations have happened over the last 36 years in which
unregulated markets have offered election contracts.
Finally, the Commission claims that, as the “regulator of
the markets in [Congressional Control] [C]ontracts, [it] would
be required to investigate suspected manipulation in those
markets”—a job it is ill-suited to perform and that
“misalign[s]” with its “historic mission and mandate[.]” J.A.
22–23. Though the Commission would be authorized to
investigate suspected manipulation, it could also draw on the
expertise of other federal agencies or refer suspected violations
to those agencies. See, e.g., Federal Election Commission,
Enforcing Federal Campaign Finance Law (“[O]ther
government agencies [may] refer possible violations to the
FEC.”), https://perma.cc/K8NJ-TNPF. In any event, the
Commission’s generalized worries about investigative
challenges, without more, do not amount to irreparable harm.
* * * * *
In short, the concerns voiced by the Commission are
understandable given the uncertain effects that Congressional
Control Contracts will have on our elections, which are the
very linchpin of our democracy. But whether the statutory text
allows the Commission to bar such event contracts is debatable,
and the Commission has not substantiated that risks to election

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integrity are likely to materialize if Kalshi is allowed to operate
its exchange during the pendency of this appeal. At this point,
in other words, the Commission has failed to make the essential
showing of irreparable harm.
But such a showing is not out of reach. For example,
political campaigns or their proxies encouraging supporters to
purchase Congressional Control Contracts could constitute
evidence that the contracts harm election integrity or that
manipulation is underway. Foreign investors bypassing
Kalshi’s restrictions on foreign traders, just as Kalshi claims
U.S. investors are doing on Polymarket, could substantiate the
Commission’s concerns about harmful interference. See
Kalshi Opp. at 20. Or evidence emerging that election-contract
markets confuse American voters about the strength or viability
of certain candidates might also satisfy the Commission’s
burden. Other evidence of harms could also emerge. Because
the Commission may (or may not) identify cognizable harms
going forward, this ruling is without prejudice to the
Commission’s renewal of its stay request during the pendency
of this appeal.
IV
The Commission has failed to demonstrate that it or the
public will suffer irreparable injury absent a stay pending
appeal, and therefore its motion for a stay is denied without
prejudice to renewal should substantiating evidence arise. The
administrative stay is hereby dissolved.
So ordered.

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