USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 1 of 76
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`ORAL ARGUMENT NOT YET SCHEDULED
`No. 24-5205
`
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`
`
`KALSHIEX LLC,
`Plaintiff-Appellee,
`
`
`
`v.
`
`
`
`COMMODITY FUTURES TRADING COMMISSION,
`Defendant-Appellant,
`
`
`On Appeal from the U.S. District Court for the District of Columbia
`No. 23-cv-03257-JMC
`
`
`BRIEF OF APPELLEE KALSHIEX LLC
`
`
`
`
`Joshua B. Sterling
`MILBANK LLP
`1850 K St. N.W.
`Washington, DC 20006
`(202) 835-7500
`
`Samuel V. Lioi
`JONES DAY
`901 Lakeside Avenue
`Cleveland, Ohio 44114-1190
`(216) 586-3939
`
`
`
`Yaakov M. Roth
`John Henry Thompson
`JONES DAY
`51 Louisiana Avenue N.W.
`Washington, DC 20001
`(202) 879-3939
`yroth@jonesday.com
`
`Amanda K. Rice
`JONES DAY
`150 W. Jefferson Avenue,
`Suite 2100
`Detroit, MI 48226
`(313) 733-3939
`
`Counsel for Plaintiff-Appellee KalshiEx LLC
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`
`
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`

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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 2 of 76
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`CERTIFICATE AS TO PARTIES, RULINGS,
`AND RELATED CASES
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`Pursuant to Circuit Rule 28(a)(1), counsel for appellee KalshiEx
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`LLC certifies as follows:
`
`A. Parties and Amici
`
`All parties, intervenors, and amici appearing before the District
`
`Court and in this Court are listed in Defendant-Appellant’s opening brief.
`
`B. Rulings Under Review
`
`References to the rulings at issue appear in Defendant-Appellant’s
`
`opening brief.
`
`C. Related Cases
`
`Related cases are listed in Defendant-Appellant’s opening brief.
`
`This case has not previously been before this Court, except for a motions
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`panel’s resolution of the Defendant-Appellant’s motion for a stay pending
`
`appeal in this case, No. 24-5205.
`
`
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`
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`November 15, 2024
`
`/s/ Yaakov M. Roth
`Yaakov M. Roth
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`-i-
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 3 of 76
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`CORPORATE DISCLOSURE STATEMENT
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`Pursuant to Circuit Rule 26.1 of the Federal Rules of Appellate
`
`Procedure and Circuit Rule 26.1, KalshiEx LLC makes the following
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`disclosures:
`
`KalshiEx LLC is a limited liability corporation organized under the
`
`laws of Delaware with its principal place of business in New York.
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`KalshiEx LLC’s parent organization (and the only company that owns
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`ten percent or more of its stock) is Kalshi Inc.
`
`November 15, 2024
`
`/s/ Yaakov M. Roth
`Yaakov M. Roth
`
`
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`
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`ii
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 4 of 76
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`TABLE OF CONTENTS
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`Page
`
`CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED
`CASES ....................................................................................................... i
`
`CORPORATE DISCLOSURE STATEMENT .......................................... ii
`
`TABLE OF AUTHORITIES ..................................................................... v
`
`GLOSSARY ........................................................................................... xiii
`
`INTRODUCTION ..................................................................................... 1
`
`STATUTES AND REGULATIONS ......................................................... 5
`
`STATEMENT OF THE ISSUES .............................................................. 5
`
`STATEMENT OF THE CASE ................................................................. 5
`
`A. Event Contracts Are Tools for Hedging Economic
`Risks and Aggregating Information. ............................ 5
`
`B. Congress Allows Regulated Exchanges To List
`Event Contracts, Subject to a Narrow List of
`Exceptions. .................................................................... 7
`
`C. Kalshi Proposes Congressional Control Contracts. ... 10
`
`D. The CFTC Prohibits the Contracts. ............................ 13
`
`E. The District Court Vacates the CFTC’s Order, and
`This Court Denies a Stay Pending Appeal. ................ 14
`
`SUMMARY OF THE ARGUMENT ....................................................... 16
`
`STANDARD OF REVIEW...................................................................... 18
`
`ARGUMENT .......................................................................................... 19
`
`I.
`
`THE DISTRICT COURT CORRECTLY HELD THAT THESE
`CONTRACTS DO NOT INVOLVE UNLAWFUL ACTIVITY. ............. 19
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`A. An Event Contract Involves Unlawful Activity if
`Its Underlying Event Relates to Unlawful Activity.
` ..................................................................................... 20
`
`B. The CFTC’s Contrary Reading Fails. ......................... 24
`
`1.
`
`2.
`
`3.
`
`The CFTC’s trading-focused interpretation
`would force the same word to perform
`different functions. ............................................. 25
`
`The CFTC’s trading-focused interpretation
`would cover either nothing or everything. .......... 30
`
`The word “transactions” does not solve
`anything. ............................................................ 38
`
`II. THE DISTRICT COURT CORRECTLY HELD THAT KALSHI’S
`CONTRACTS DO NOT INVOLVE GAMING. ................................. 41
`
`A.
`
`Statutory Text, History, and Purpose All Confirm
`That “Gaming” Requires an Underlying Game. ......... 42
`
`B. The CFTC’s Contrary Reading Fails. ......................... 46
`
`1. Defining “gaming” to mean all “gambling”
`would swallow the rule. ..................................... 47
`
`2.
`
`3.
`
`Limiting “gaming” to gambling on “contests”
`is an arbitrary and ineffective gerrymander. ..... 52
`
`The Commission properly disclaims any
`attempt to define “gaming” based on hedging
`use. ...................................................................... 56
`
`CONCLUSION ....................................................................................... 59
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`TABLE OF AUTHORITIES
`
`Page(s)
`
`CASES
`
`Ali v. BOP,
`552 U.S. 214 (2008) ............................................................................. 35
`
`Am. Agric. Movement, Inc. v. Bd. of Trade,
`977 F.2d 1147 (7th Cir. 1992) ....................................................... 31, 37
`
`Bankamerica Corp. v. United States,
`462 U.S. 122 (1983) ............................................................................. 26
`
`Bd. of Trade v. Christie Grain & Stock Co.,
`198 U.S. 236 (1905) ............................................................................. 50
`
`Boim v. Quranic Literacy Inst.,
`291 F.3d 1000 (7th Cir. 2002) ............................................................. 21
`
`Brown v. Gardner,
`513 U.S. 115 (1994) ............................................................................. 25
`
`Brown v. NHTSA,
`673 F.2d 544 (D.C. Cir. 1982) ............................................................. 25
`
`*Clark v. Martinez,
`543 U.S. 371 (2005) ................................................................. 25, 26, 28
`
`Clarke v. CFTC,
`74 F.4th 627 (5th Cir. 2023) ........................................................... 7, 13
`
`Consumer Elecs. Ass’n v. FCC,
`347 F.3d 291 (D.C. Cir. 2003) ............................................................. 44
`
`Davis v. Mich. Dep’t of Treasury,
`489 U.S. 803 (1989) ............................................................................. 30
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`Dole v. United Steelworkers of Am.,
`494 U.S. 26 (1990) ............................................................................... 54
`
`Greenlaw v. United States,
`554 U.S. 237 (2008) ............................................................................. 51
`
`Gustafson v. Alloyd Co.,
`513 U.S. 561 (1995) ............................................................................. 28
`
`HollyFrontier Cheyenne Ref., LLC v. Renewable Fuels Ass’n,
`594 U.S. 382 (2021) ............................................................................. 18
`
`Ind. Mich. Power Co. v. Dep’t of Energy,
`88 F.3d 1272 (D.C. Cir. 1996) ............................................................. 42
`
`James Madison Ltd. ex rel. Hecht v. Ludwig,
`82 F.3d 1085 (D.C. Cir. 1996) ............................................................. 30
`
`Jones v. Hendrix,
`599 U.S. 465 (2023) ....................................................................... 30, 51
`
`*KalshiEX LLC v. CFTC,
`119 F.4th 58 (D.C. Cir. 2024).............................................. 5, 6, 7, 9, 15
`
`Kawashima v. Holder,
`565 U.S. 478 (2012) ............................................................................. 27
`
`Leist v. Simplot,
`638 F.2d 283 (2d Cir. 1980) ................................................................ 31
`
`*Loper Bright Enters. v. Raimondo,
`144 S. Ct. 2244 (2024) ................................................................... 18, 52
`
`Mohamad v. Palestinian Auth.,
`566 U.S. 449 (2012) ............................................................................. 25
`
`
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`Mohasco Corp. v. Silver,
`447 U.S. 807 (1980) ............................................................................. 24
`
`Moreau v. Klevenhagen,
`508 U.S. 22 (1993) ............................................................................... 52
`
`Murphy v. NCAA,
`584 U.S. 453 (2018) ............................................................................. 42
`
`Nat’l Ass’n of Mfrs. v. Dep’t of Def.,
`583 U.S. 109 (2018) ............................................................................. 19
`
`NexPoint Diversified Real Est. Tr. v. Acis Cap. Mgmt., L.P.,
`80 F.4th 413 (2d Cir. 2023) ................................................................. 20
`
`Powerex Corp. v. Reliant Energy Servs., Inc.,
`551 U.S. 224 (2007) ............................................................................. 23
`
`*Ratzlaf v. United States,
`510 U.S. 135 (1994) ....................................................................... 24, 25
`
`Reno v. Bossier Par. Sch. Bd.,
`528 U.S. 320 (2000) ............................................................................. 24
`
`Riegel v. Medtronic, Inc.,
`552 U.S. 312 (2008) ............................................................................. 17
`
`Roberts v. United States,
`741 F.3d 152 (D.C. Cir. 2014) ............................................................. 17
`
`SEC v. Chenery Corp.,
`318 U.S. 80 (1943) ............................................................................... 53
`
`Skidmore v. Swift & Co.,
`323 U.S. 134 (1944) ....................................................................... 17, 18
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`Sullivan v. Stroop,
`496 U.S. 478 (1990) ............................................................................. 25
`
`*United States ex rel. Polansky v. Exec. Health Res., Inc.,
`599 U.S. 419 (2023) ....................................................................... 33, 49
`
`United States v. King,
`325 F.3d 110 (2d Cir. 2003) ................................................................ 27
`
`United States v. Santos,
`553 U.S. 507 (2008) ............................................................................. 28
`
`United States v. Slatten,
`865 F.3d 767 (D.C. Cir. 2017) ....................................................... 20, 30
`
`Whitman v. Am. Trucking Ass’ns,
`531 U.S. 457 (2001) ............................................................................. 49
`
`Yates v. United States,
`574 U.S. 528 (2015) ............................................................................. 54
`
`Ysleta Del Sur Pueblo v. Texas,
`596 U.S. 685 (2022) ............................................................................. 31
`
`STATUTES
`
`7 U.S.C.
`
`§ 1a ...................................................................................... 7, 38, 39, 41
`
`§ 2 .................................................................................................... 8, 38
`
`§ 6 ........................................................................................................ 38
`
`§ 6c....................................................................................................... 22
`
`§ 7 ...................................................................................................... 7, 8
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`-viii-
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`§ 7a-1 ................................................................................................... 38
`
`*§ 7a-2 ............ 1, 3, 4, 7, 9, 10, 12, 13, 16, 17, 19, 20, 21, 22, 24, 34, 39
`
`§ 15b .................................................................................................... 22
`
`§ 23 ...................................................................................................... 22
`
`§ 25 ...................................................................................................... 38
`
`25 U.S.C. § 2703 ...................................................................................... 43
`
`31 U.S.C. § 5362 ................................................................................ 43, 52
`
`Pub. L. No. 93-463, 88 Stat. 1389 (1974) .................................................. 8
`
`Pub. L. No. 106-554, 114 Stat. 2763 (2000) .............................................. 8
`
`Ala. Code § 13A-12-20 ............................................................................. 53
`
`Alaska Stat. Ann. § 11.66.280 ................................................................. 53
`
`Ariz. Rev. Stat. Ann. § 16-1015 ............................................................... 54
`
`Colo. Rev. Stat. Ann.
`
`
`
`
`
`§ 18-10-102 .......................................................................................... 43
`
`§ 44-30-103 .......................................................................................... 43
`
`Del. Code tit. 11, § 1403 .......................................................................... 53
`
`Fla. Stat. § 849.14 ................................................................................... 53
`
`Ga. Code Ann. § 16-12-21 ........................................................................ 54
`
`Haw. Rev. Stat. § 712-1220 ..................................................................... 53
`
`720 Ill. Comp. Stat. 5/28-1 ...................................................................... 54
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`Ky. Rev. Stat. § 528.010 .......................................................................... 53
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`La. Stat.
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`
`
`
`
`§ 14:90 ................................................................................................. 53
`
`§ 27:205 ............................................................................................... 43
`
`Mass. Gen. Laws ch. 23K, § 2 ................................................................. 43
`
`Me. Rev. Stat. tit. 17-A, § 952 ................................................................. 53
`
`Mich. Comp. Laws § 168.931................................................................... 54
`
`Miss. Code Ann.
`
`
`
`
`
`§ 75-76-5 .............................................................................................. 43
`
`§ 97-33-1 .............................................................................................. 43
`
`Mo. Rev. Stat. § 572.010 .......................................................................... 53
`
`Mont. Code Ann. § 23-5-112 .................................................................... 32
`
`N.J. Stat.
`
`
`
`
`
`§ 2C:37-1 ............................................................................................. 32
`
`§ 19:34-24 ............................................................................................ 51
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`N.M. Stat. Ann.
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`
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`
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`§ 30-19-2 .............................................................................................. 43
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`§ 60-2E-3 ............................................................................................. 43
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`N.Y. Penal Law § 225.00 ................................................................... 43, 53
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`N.Y. Rac. Pari-Mut. Wag. & Breed. Law § 1301 .................................... 43
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`Neb. Rev. Stat. § 28-1101 ........................................................................ 54
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`Or. Rev. Stat. § 260.635 .......................................................................... 54
`
`Tex. Penal Code Ann. § 47.02 ................................................................. 54
`
`Utah Code § 76-10-1101 .......................................................................... 53
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`Wash. Rev. Code § 9.46.0237 .................................................................. 53
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`OTHER AUTHORITIES
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`17 C.F.R.
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`§ 38.4 ..................................................................................................... 8
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`§ 38.100 ................................................................................................. 8
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`§ 40.2 ..................................................................................................... 8
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`§ 40.3 ..................................................................................................... 8
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`§ 40.4 ..................................................................................................... 8
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`§ 40.5 ..................................................................................................... 8
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`§ 40.6 ..................................................................................................... 8
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`§ 40.11 ................................................................................................. 10
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`25 C.F.R. § 502.4 ..................................................................................... 43
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`156 Cong. Rec. S5906-07 (daily ed. July 15, 2010) ......... 22, 44, 45, 56, 57
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`40 Fed. Reg. 25,849 (June 19, 1975) ....................................................... 57
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`89 Fed. Reg. 48,968 (June 10, 2024) ................................................. 10, 51
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`Gamble, Concise Oxford English Dictionary .................................... 47, 48
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`Gamble, Merriam-Webster’s Collegiate Dictionary ........................... 47, 48
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`Game, Concise Oxford English Dictionary (11th ed., rev.
`2008) .................................................................................................... 41
`
`Game, Merriam-Webster’s Collegiate Dictionary (11th ed.
`2020) .................................................................................................... 44
`
`Game, New Oxford American Dictionary (3d ed. 2010) .......................... 42
`
`Gaming, American Heritage Dictionary (4th ed. 2009) .......................... 42
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`Gaming, Bouvier Law Dictionary (2011 ed.) .......................................... 42
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`Gaming, Cambridge Dictionary of American English (2d ed.
`2008) .................................................................................................... 42
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`Gaming contract, Chambers Dictionary (13th ed. 2014) ........................ 42
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`Gaming, Merriam-Webster.com.............................................................. 42
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`Involve, American Heritage Dictionary 921 (4th ed. 2009) .................... 20
`
`Involve, Merriam-Webster.com ............................................................... 20
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`Katherine Blunt, Wall Street Giants to Make $50 Billion Bet
`on AI and Power Projects, WALL ST. J. (Oct. 30, 2024) ...................... 49
`
`Michael J. de la Merced, Political Betting Markets See
`Vindication in Trump Victory, N.Y. TIMES (Nov. 6, 2024) ................. 15
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`Michael Mackenzie, Bond Market's Bet on a Half-Point Fed
`Cut This Month Is Over, BLOOMBERG (Sept. 11, 2024) ...................... 49
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`Philip Bond, et al., The Real Effects of Capital Markets, 4
`ANN. REV. FIN. ECON. 339 (2012) ........................................................ 56
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`S. 5100, 118th Cong. (Sept. 18, 2024) ..................................................... 59
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`GLOSSARY
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`APA – Administrative Procedure Act, 5 U.S.C. § 551, et seq.
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`App. – Joint Appendix
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`CEA – Commodity Exchange Act, 7 U.S.C. § 1, et seq.
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`CFTC or Commission – U.S. Commodity Futures Trading Commission
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`DCM – Designated Contract Market
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`Kalshi – Appellee KalshiEx LLC
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 15 of 76
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`INTRODUCTION
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`The issue in this case is whether the Commodity Futures Trading
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`Commission (CFTC) exceeded its statutory authority when it tried to ban
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`election prediction markets. The District Court correctly held that it did.
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`The CFTC’s reading of the Commodity Exchange Act (CEA) violated basic
`
`canons of construction, and lacked a limiting principle. The District
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`Court therefore vacated the agency order, permitting prediction markets
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`to go live for the 2024 election cycle—a result this Court declined to stay
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`pending appeal. This Court should now affirm on the merits.
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`Stepping back, Appellee KalshiEx LLC (Kalshi) operates a federally
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`regulated exchange for trading event contracts. Event contracts entitle
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`traders to payment based on whether future events occur. Like other
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`derivatives, these instruments are tools to hedge risks; they also harness
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`the “wisdom of crowds” to generate valuable predictive data. Under the
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`CEA, event contracts may lawfully be traded on regulated exchanges.
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`The Commission may prohibit an event contract only if it (1) “involve[s]”
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`unlawful activity, terrorism, assassination, war, gaming, or a “similar
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`activity” specified by regulation, and (2) is determined by the CFTC to be
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`“contrary to the public interest.” 7 U.S.C. § 7a-2(c)(5)(C)(i).
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`1
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`In June 2023, Kalshi sought to list event contracts contingent on
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`whether a particular party will control the House of Representatives or
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`the Senate on a particular date. Those Congressional Control Contracts
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`do not “involve” unlawful activity, terrorism, assassination, war, gaming,
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`or any similar activity that the Commission has specified by regulation.
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`Nor are they contrary to the public interest. Quite the opposite: Election
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`prediction markets are a unique mechanism for hedging economic risks
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`associated with politics, and have also become a ubiquitous market-based
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`check on unreliable polling and misinformation.
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`Nevertheless, the CFTC asserted that Kalshi’s contracts “involve”
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`unlawful activity and gaming—and then determined that the contracts
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`undermined the public interest, and banned them. Kalshi challenged the
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`Commission’s Order under the Administrative Procedure Act (APA),
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`arguing that the CFTC had exceeded its statutory authority in reviewing
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`the contracts and engaged in arbitrary and capricious decision-making in
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`prohibiting them. After thorough briefing from the parties and amici, as
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`well as an in-depth oral argument, the District Court (Cobb, J.) agreed
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`with Kalshi that the CFTC lacked the statutory authority to subject the
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`Congressional Control Contracts to public-interest scrutiny.
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`2
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 17 of 76
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`The District Court got this right, and this Court should affirm. The
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`Commission’s Order contorted the CEA’s text, ignored its structure, and
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`untenably allowed two narrow exceptions to swallow the Act’s general
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`rule. On appeal, the Commission fails to grapple with the fundamental
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`deficiencies of its interpretation, and instead tries to distract from them
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`with confused arguments that do not move the needle.
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`First, Kalshi’s Congressional Control Contracts do not “involve …
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`activity that is unlawful under any Federal or State law,” 7 U.S.C. § 7a-
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`2(c)(5)(C)(i)(I), because congressional elections have no relationship to
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`unlawful activity. The Commission does not argue otherwise. Instead,
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`it contends that it may review any contract whose trading would violate
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`state law, and observes that some States ban betting on election results.
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`But the Commission’s reading flouts basic principles of interpretation by
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`requiring the same word (“involve”) to perform different tasks depending
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`on the enumerated activity at issue. It also reads the “unlawful activity”
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`exception so broadly that it swallows the general rule (and the other
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`exceptions), because some States ban staking money on any contingency.
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`As the District Court recognized, that “just cannot be right.” App.109.
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`The Commission offers this Court no way out of that muddle.
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`3
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 18 of 76
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`Second, Kalshi’s contracts do not involve “gaming.” 7 U.S.C. § 7a-
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`2(c)(5)(C)(i)(V). Dictionaries and statutes alike confirm that “gaming”
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`typically means playing games or playing games for stakes. Legislative
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`history confirms that is what Congress had in mind. And as the District
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`Court explained, that commonsense reading is the only one that fits here.
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`Equating “gaming” with “gambling” more broadly, as the CFTC tries to
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`do, would subject every event contract to agency review, since anyone who
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`trades an event contract is “staking something of value upon the outcome
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`of a … contingent event.” App.134. The Commission protests that its
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`Order did not go that far, but its logic plainly does. Its only effort to draw
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`a line—by concocting a Goldilocks definition of “gaming” that reaches
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`bets on “contests” (including elections) but no other contingent events—
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`is arbitrary, outcome-driven gerrymandering with no basis in the statute.
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`The District Court saw through it, and this Court should too.
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`In short, the Commission’s decision to prohibit Kalshi’s contracts
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`exceeded its statutory authority. Congress is free to add “elections” to
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`the CEA’s list of enumerated activities, and thereby authorize the CFTC
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`to prohibit election prediction markets. But Congress has not done so.
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`This Court should therefore affirm the District Court’s judgment.
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 19 of 76
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`STATUTES AND REGULATIONS
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`All applicable statutes and regulations are contained in the CFTC’s
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`opening brief.
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`STATEMENT OF THE ISSUES
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`1. Do event contracts contingent on election results “involve …
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`activity that is unlawful under any Federal or State law” within the
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`meaning of the CEA?
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`2. Do event contracts contingent on election results “involve …
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`gaming” within the meaning of the CEA?
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`STATEMENT OF THE CASE
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`A. Event Contracts Are Tools for Hedging Economic Risks
`and Aggregating Information.
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`Derivatives are tools to mitigate risk. See App.163, 227. This case
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`concerns “event contracts,” a form of derivative whose payoff is based on
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`the occurrence or extent of a specified event. App.95; see KalshiEX LLC
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`v. CFTC, 119 F.4th 58, 59 (D.C. Cir. 2024). These financial instruments
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`specify a future event with different potential outcomes, a payment
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`structure for those outcomes, and a date when the contract expires.
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`App.153-54, 932. They typically center on a yes-or-no question—e.g.,
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`whether 30-year mortgage rates will exceed 8% at the end of the year,
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 20 of 76
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`whether average temperatures in California will hit an all-time high this
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`summer, or whether a corporation’s CEO will be replaced by a particular
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`date. Businesses and individuals use event contracts to hedge the risk of
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`a specified event. See App.94-95. For example, “a beachfront property
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`owner might purchase an event contract predicting that a hurricane will
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`reach landfall in her area to offset the risk of losing rental income from
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`the storm.” KalshiEX, 119 F.4th at 61. The price of event contracts can
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`also help clarify the likelihood that an event will occur, because their
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`dynamic prices reflect the market’s aggregation of trader beliefs, and
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`traders have a financial incentive to make the most accurate predictions
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`based on the information they know. App.95.
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`Political events carry vast economic consequences, and thus present
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`risks that can be hedged through these financial instruments, just like
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`events related to finance, weather, or anything else. App.810-13; see also
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`App.486 (former Chairman of President Obama’s Council of Economic
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`Advisors discussing the benefits of political event contracts). In addition,
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`political event markets provide real-time data that traditional polls often
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`cannot replicate, by providing financial incentives for traders to remain
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`objective and sift through misinformation. App.420-21, 490.
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 21 of 76
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`Political event markets are widespread. PredictIt, for example, “is
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`a futures market for politics” that allows trading on electoral outcomes.
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`Clarke v. CFTC, 74 F.4th 627, 633 (5th Cir. 2023). CFTC staff have
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`permitted it to operate under a no-action letter issued in 2014. Id. at 633-
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`44. The University of Iowa’s IEM platform is another election prediction
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`market, one the CFTC has likewise permitted for decades. App.199, 455,
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`828. Similar markets exist (and have long existed) in other countries
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`around the world. See, e.g., App.387. And unregulated, offshore markets
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`such as Polymarket—which lack the safeguards of regulated exchanges
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`like Kalshi’s—provide analogous services. See App.525, 563; KalshiEX,
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`119 F.4th at 62.
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`B. Congress Allows Regulated Exchanges To List Event
`Contracts, Subject to a Narrow List of Exceptions.
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`Under the CEA, “[e]vent contracts” are regulated as “agreements,
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`contracts, transactions, or swaps in excluded commodities.” 7 U.S.C.
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`§ 7a-2(c)(5)(C)(i). While products like “wheat, cotton, rice, corn, [and]
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`oats” may be more familiar, the CEA defines “excluded commodities” to
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`include events—in the statutory parlance, any “occurrence, extent of an
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`occurrence, or contingency” that is “beyond the control of the parties” and
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`“associated with” economic consequences. Id. § 1a(9), (19).
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 22 of 76
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`To offer event contracts or other derivatives for public trading, an
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`entity must receive CFTC designation as a regulated exchange (known
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`as a “designated contract market” or DCM). Id. §§ 2(e), 7(a); 17 C.F.R.
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`§ 38.100. Registered exchanges are subject to comprehensive oversight
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`and must comply with numerous regulatory requirements, including 23
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`“core principles.” 7 U.S.C. § 7(d); 17 C.F.R. pt. 38. Among other things,
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`those principles require exchanges to prevent manipulation and price
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`distortion through surveillance and enforcement, to implement “[s]ystem
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`safeguards” to minimize risks, and to refrain from listing contracts that
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`are readily susceptible to manipulation. See 7 U.S.C. § 7(d)(3), (4), (20).
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`Exchanges must follow CFTC procedures for approval, listing, and
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`implementation of event contracts. See 17 C.F.R. §§ 38.4, 40.2-6.
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`Although the CFTC has robust authority to regulate exchanges, it
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`has no authority under current law to prevent exchanges from listing
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`most event contracts. Originally, the law was otherwise: An exchange
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`had to persuade the Commission that any new product served “the public
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`interest.” See Pub. L. No. 93-463, § 207, 88 Stat. 1389, 1400 (1974). But
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`Congress repealed that pre-approval requirement in 2000. See Pub. L.
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`No. 106-554, §§ 110(2), 113, 114 Stat. 2763, 2763A-384, 399 (2000).
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`USCA Case #24-5205 Document #2085055 Filed: 11/15/2024 Page 23 of 76
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`In 2010, Congress amended the CEA again to a