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`ORAL ARGUMENT NOT YET SCHEDULED
`
`C.A. 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 United States District Court
`for the District of Columbia
`D. Ct. No. 1:23-cv-03257-JMC
`The Honorable Jia M. Cobb, District Judge
`
`
`BRIEF OF PROFESSOR JOSEPH A. GRUNDFEST
`AS AMICUS CURIAE IN SUPPORT OF
`PLAINTIFF-APPELLEE AND AFFIRMANCE
`
`
`Adam G. Unikowsky
` Counsel of Record
`Jonathan J. Marshall
`JENNER & BLOCK LLP
`1099 New York Avenue, NW,
` Suite 900
`Washington, DC 20001
`(202) 639-6000
`aunikowsky@jenner.com
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`USCA Case #24-5205 Document #2086445 Filed: 11/22/2024 Page 2 of 41
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`STATEMENT PURSUANT TO CIRCUIT RULE 29
`Pursuant to Circuit Rule 29(b), undersigned counsel represents
`that all parties have consented to amicus curiae Professor Joseph A.
`Grundfest’s participation in this case.
`Pursuant to Circuit Rule 29(d), undersigned counsel certifies that
`this separate brief is necessary because amicus is a law professor with an
`academic interest in the matter that diverges from the pecuniary inter-
`ests of market participants. Amicus files this brief to offer this Court his
`own unique perspective.
`
`
`Date: November 22, 2024
`
`
`
`
`
` /s/ Adam G. Unikowsky
`Adam G. Unikowsky
`Counsel of Record for Amicus
`Curiae Professor Joseph A.
`Grundfest
`
`
`
`
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`i
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`TABLE OF CONTENTS
`STATEMENT PURSUANT TO CIRCUIT RULE 29 ................................. i
`TABLE OF AUTHORITIES ...................................................................... iv
`INTEREST OF AMICUS CURIAE ........................................................... 1
`SUMMARY OF THE ARGUMENT ........................................................... 3
`ARGUMENT ............................................................................................... 5
`I.
`The CFTC’s Interpretation of “Gaming” Is Inconsistent
`with the Statute ................................................................................ 5
`A. The CFTC’s Logic Violates the Presumption of
`Consistent Usage ..................................................................... 5
`B. Elections Are Not “Games,” and Trading Political
`Event Contracts Is Not “Gaming” ........................................... 7
`C. The CFTC Engaged in Policy Analysis, Not Statutory
`Construction ........................................................................... 13
`II. The CFTC’s Public Interest Analysis is Arbitrary and
`Capricious ........................................................................................ 15
`A. The Proposed Contracts Serve Legitimate Hedging
`Purposes ................................................................................. 15
`B. The Proposed Contracts Generate Legitimate Non-
`Hedging Public Benefits ........................................................ 18
`C. The Order Fails to Adequately Explain Its Concerns
`Regarding Manipulation ........................................................ 22
`III. During the 2024 Presidential Election, KalshiEX’s
`Regulated Prediction Market Worked ........................................... 23
`CONCLUSION ......................................................................................... 29
`
`ii
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`CERTIFICATE OF COMPLIANCE ........................................................ 30
`CERTIFICATE OF SERVICE ................................................................. 31
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`iii
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`TABLE OF AUTHORITIES
`
`CASES
`Atlantic Cleaners & Dyers, Inc. v. United States,
`286 U.S. 427 (1932) ........................................................................... 6
`Getty v. Federal Savings & Loan Insurance Corp.,
`805 F.2d 1050 (D.C. Cir. 1986) ....................................................... 21
`KalshiEX LLC v. CFTC, 119 F.4th 58 (D.C. Cir. 2024) ............... 23-25
`Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244
`(2024) ............................................................................................... 14
`
`Motor Vehicle Manufacturers Ass’n of the United States v.
`State Farm Mutual Automobile Insurance Co.,
`463 U.S. 29 (1983) ........................................................................... 19
`
`STATUTES
`7 U.S.C. § 7d(1) .................................................................................... 26
`7 U.S.C. § 7d(2) .................................................................................... 26
`7 U.S.C. § 7d(3) .............................................................................. 26, 28
`7 U.S.C. § 7d(4) ............................................................................... 26-27
`7 U.S.C. § 7d(5) .................................................................................... 26
`7 U.S.C. § 7d(5)(A) ............................................................................... 27
`7 U.S.C. § 7d(6) .................................................................................... 26
`7 U.S.C. § 7d(7) .................................................................................... 26
`7 U.S.C. § 7d(8) .................................................................................... 26
`7 U.S.C. § 7d(9) .................................................................................... 26
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`7 U.S.C. § 7d(10) .................................................................................. 26
`7 U.S.C. § 7d(11) .................................................................................. 26
`7 U.S.C. § 7d(12) .................................................................................. 26
`7 U.S.C. § 7d(13) .................................................................................. 26
`7 U.S.C. § 7d(14) .................................................................................. 26
`7 U.S.C. § 7d(15) .................................................................................. 26
`7 U.S.C. § 7d(16) .................................................................................. 26
`7 U.S.C. § 7d(17) .................................................................................. 26
`7 U.S.C. § 7d(18) .................................................................................. 26
`7 U.S.C. § 7d(19) .................................................................................. 26
`7 U.S.C. § 7d(20) .................................................................................. 26
`7 U.S.C. § 7d(21) .................................................................................. 26
`7 U.S.C. § 7d(22) .................................................................................. 26
`7 U.S.C. § 7d(23) .................................................................................. 26
`7 U.S.C. § 7a-2(c)(5)(C)(i) ....................................................................... 5
`7 U.S.C. § 7a-2(c)(5)(C)(i)(II) ................................................................. 6
`7 U.S.C. § 7a-2(c)(5)(C)(i)(III) ................................................................ 6
`7 U.S.C. § 7a-2(c)(5)(C)(i)(IV) ................................................................ 6
`7 U.S.C. § 7a-2(c)(5)(C)(i)(V) .................................................................. 6
`
`RULES AND REGULATIONS
`Fed. R. App. P. 29(a)(4)(E) ..................................................................... 1
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`17 C.F.R. pt. 38 ............................................................................... 26-27
`§ 38.250(a) ........................................................................................ 27
`§ 38.250(b) ........................................................................................ 27
`
`OTHER AUTHORITIES
`Addoum, Jawad M. & Alok Kumar, Political Sentiment and
`Predictable Returns, 29 Rev. Fin. Stud. 3471 (2016) .................... 17
`American Heritage Dictionary of the English Language
`(4th ed. 2000) ................................................................................... 10
`Baumol, William J. & William G. Bowen, Performing Arts:
`The Economic Dilemma (1966) ...................................................... 11
`Bond, Philip, Alex Edmans & Itay Goldstein, The Real
`Effects of Capital Markets, 4 Ann. Rev. Fin. Econ. 339
`(2012) ........................................................................................... 8, 19
`Buchanan, James M. & Gordon Tullock, The Calculus of
`Consent: Logical Foundations of Constitutional
`Democracy (1962) ............................................................................ 11
`Claessens, Stijn, Erik Feijen & Luc Laeven, Political
`Connections and Preferential Access to Finance: The Role
`of Campaign Contributors, 88 J. Fin. Econ. 554 (2008) ................ 17
`Grundfest, Joseph A., Disimplying Private Rights of Action
`Under the Federal Securities Laws: The Commission’s
`Authority, 107 Harv. L. Rev. 961 (1994) ......................................... 2
`Grundfest, Joseph A., The Limited Future of Unlimited
`Liability: A Capital Markets Perspective, 102 Yale L.J. 387
`(1992) ................................................................................................. 2
`Grundfest, Joseph A., The Limits of Delaware Corporate
`Law: Internal Affairs, Federal Forum Provisions, and
`Sciabacucchi, 75 Bus. Law. 1319 (2020) .......................................... 3
`
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`USCA Case #24-5205 Document #2086445 Filed: 11/22/2024 Page 8 of 41
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`Grundfest, Joseph A. & Peter H. Huang, The Unexpected
`Value of Litigation: A Real Options Perspective, 58
`Stan. L. Rev. 1267 (2006) ................................................................. 2
`Grundfest, Joseph A. & A.C. Pritchard, Statutes with
`Multiple Personality Disorders: The Value of Ambiguity in
`Statutory Design and Interpretation, 54 Stan. L. Rev. 627
`(2002) ................................................................................................. 2
`Hanke, Michael, Sebastian Stöckl & Alex Weissensteiner,
`Political Event Portfolios, 118 J. Bank Fin. 1 (2020) .................... 17
`Hanke, Michael, Sebastian Stöckl & Alex Weissensteiner,
`Recovering Election Winner Probabilities from Stock
`Prices, 45 Fin. Rsch. Letters 102 (2022) ............................. 16-17, 20
`Hayek, Friedrich, The Use of Knowledge in Society,
`35 Am. Econ. Rev. 519 (1945) ......................................................... 11
`Hill, Paula, Adriana Korczak & Piotr Korczak, Political
`Uncertainty Exposure of Individual Companies: The Case
`of the Brexit Referendum, 100 J. Banking & Fin. 58 (2019) ......... 17
`Jayachandran, Seema, The Jeffords Effect,
`49 J.L. & Econ. 397 (2006) ............................................................. 17
`Knight, Brian, Are Policy Platforms Capitalized into Equity
`Prices?: Evidence from the Bush/Gore 2000 Presidential
`Election, 90 J. Pub. Econ. 751 (2006) ............................................ 17
`Levine, Matt, Opinion, Prediction Markets Are a Thing Now,
`Bloomberg (Nov. 7, 2024), https://www.bloomberg.com
`/opinion/articles/2024-11-07/prediction-markets-are-a-
`thing-now .................................................................................. 24, 26
`Lobo, Bento J., Jump Risk in the U.S. Stock Market:
`Evidence Using Political Information,
`8 Rev. Fin. Econ. 149 (1999) ........................................................... 17
`
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`Matter of the Certification by KalshiEX LLC of Derivatives
`Contracts with Respect to Political Control of the United
`States Senate and United States House of
`Representatives (CFTC Sept. 22, 2023) ......................... 9-11, 14-15,
`19-20, 23
`
`Osipovich, Alexander, How the Trump Whale Correctly
`Called the Election, Wall St. J. (Nov. 6, 2024, 4:18 PM
`ET), https://www.wsj.com/finance/how-the-trump-whale-
`correctly-called-the-election-cb7eef1d ............................................ 25
`Parametric Directors and Officers Insurance and
`Reinsurance Contracts, and Related Financial
`Instruments, U.S. Patent No. 8,452,620 B1
`(issued May 28, 2013) ........................................................................ 1
`Scalia, Antonin & Bryan A. Garner, Reading Law (2012) .................. 6
`Schwartz, Leo, Exclusive: Election Betting Site Polymarket
`Gives Trump a 67% Chance of Winning but Is Rife with
`Fake ‘Wash’ Trading, Researchers Say, Fortune Crypto
`(Oct. 30, 2024, 10:20 AM EDT), https://fortune.com/crypto
`/2024/10/30/polymarket-trump-election- crypto-wash-
`trading-researchers ........................................................................ 28
`Sethi, Rajiv, A Failed Attempt at Market Manipulation,
`Imperfect Information (Sept. 7, 2024),
`https://rajivsethi.substack.com/p/a-failed-attempt-at-
`prediction-market ............................................................................ 28
`Snowberg, Erik, Justin Wolfers & Eric Zitzewitz, Partisan
`Impacts on the Economy: Evidence from Prediction
`Markets and Close Elections, 122 Q.J. Econ. 807 (2007) ............... 17
`Sorkin, Andrew Ross et al., The French Connection to Online
`Bets on Trump, N.Y. Times: DealBook (Oct. 24, 2024),
`https://www.nytimes.com/2024/10/24/business/dealbook
`/polymarket-trump-trader.html .................................................... 26
`
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`Wagner, Alexander F., Richard J. Zeckhauser & Alexandre
`Ziegler, Company Stock Price Reactions to the 2016
`Election Shock: Trump, Taxes, and Trade,
`130 J. Fin. Econ. 428 (2018) ........................................................... 17
`
`
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`USCA Case #24-5205 Document #2086445 Filed: 11/22/2024 Page 11 of 41
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`INTEREST OF AMICUS CURIAE1
`Amicus curiae Professor Joseph A. Grundfest is the W.A. Franke
`Professor of Law and Business, Emeritus, and Senior Faculty, Rock Cen-
`ter for Corporate Governance, at Stanford Law School. Professor Grund-
`fest is a nationally prominent expert on capital markets, corporate gov-
`ernance, and securities litigation. Before joining the Stanford Law
`School faculty in 1990, Professor Grundfest was a commissioner of the
`Securities and Exchange Commission and served on the staff of the Pres-
`ident’s Council of Economic Advisors as counsel and senior economist for
`legal and regulatory matters.
`Professor Grundfest has expertise specific to the operation of deriv-
`atives markets and statutory construction, the primary subject matters
`of this dispute. He holds U.S. Patent No. 8,452,620 B1, “Parametric Di-
`rectors and Officers Insurance and Reinsurance Contracts, and Related
`Financial Instruments” (issued May 28, 2013), which describes the con-
`struction of novel derivatives products and markets related to the out-
`come of litigation events. While serving as an SEC commissioner he was
`actively involved in legislative and regulatory matters related to the evo-
`lution of stock-market-based futures and other derivative products. His
`
`1 Pursuant to Federal Rule of Appellate Procedure 29(a)(4)(E), amicus
`states that no party’s counsel authored this brief in whole or in part; that
`no party or party’s counsel contributed money that was intended to fund
`preparing or submitting the brief; and that no person other than amicus
`or his counsel contributed money that was intended to fund preparing or
`submitting this brief.
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`scholarship explores various aspects of derivatives analytics, including a
`Yale Law Review article explaining how derivative instruments could be
`used to avoid pass-through stockholder liability,2 and a Stanford Law Re-
`view article describing how litigation can be modeled as a derivative—
`more precisely, a real option.3 He has also taught about the design and
`operation of derivative markets, particularly in connection with the fi-
`nancial crisis of 2008-2009.
`As for statutory interpretation, one of Professor Grundfest’s Har-
`vard Law Review articles describes a novel form of regulatory constraint
`and demonstrates the interpretation’s consistency with statutory text
`and legislative intent.4 Another Stanford Law Review article describes
`the strategic use of textual ambiguities as a mechanism that supports
`legislative compromise and describes the judicial response to the ensuing
`interpretive challenges.5 A recent Business Lawyer article addresses the
`interaction of federal and state law, and the “narrow interpretation”
`
`
`2 Joseph A. Grundfest, The Limited Future of Unlimited Liability: A Cap-
`ital Markets Perspective, 102 Yale L.J. 387 (1992).
`3 Joseph A. Grundfest & Peter H. Huang, The Unexpected Value of Liti-
`gation: A Real Options Perspective, 58 Stan. L. Rev. 1267 (2006).
`4 Joseph A. Grundfest, Disimplying Private Rights of Action Under the
`Federal Securities Laws: The Commission’s Authority, 107 Harv. L. Rev.
`961 (1994).
`5 Joseph A. Grundfest & A.C. Pritchard, Statutes with Multiple Person-
`ality Disorders: The Value of Ambiguity in Statutory Design and Inter-
`pretation, 54 Stan. L. Rev. 627 (2002).
`
`2
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`doctrine that is applied to certain forms of securities-fraud litigation.6
`Amicus, with other professors, submitted a comment letter to the
`Commodity Futures Trading Commission (CFTC) in the underlying ad-
`ministrative proceeding urging the CFTC to permit Plaintiff-Appellee
`KalshiEX LLC to list the proposed event contracts. Amicus respectfully
`disagrees with the CFTC’s order and has an interest in explaining to this
`Court why that order should be overturned.
`SUMMARY OF THE ARGUMENT
`The district court correctly concluded that political event contracts
`do not “involve” “gaming.” “Gaming” refers to playing games, like rou-
`lette or slots, or betting on the outcome of games, such as the Super Bowl.
`But elections are not “games” as that term is used in the Commodity Ex-
`change Act. As the district court explained, the CFTC failed to apply the
`appropriate canons of statutory construction when it reasoned that, be-
`cause an election is a type of “contest,” participating in political event
`prediction markets must be “gaming.” That logic leads to irrational and
`unsustainable interpretations of the Act. The CFTC’s policy views on
`prediction markets, whatever their merit, do not authorize the CFTC to
`take statutory interpretation into its own hands. The CFTC’s
`
`
`6 Joseph A. Grundfest, The Limits of Delaware Corporate Law: Internal
`Affairs, Federal Forum Provisions, and Sciabacucchi, 75 Bus. Law. 1319
`(2020).
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`3
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`interpretation of “gaming” is so irreconcilable with the statute’s plain text
`and purpose that it cannot stand.
`If this Court disagrees with the district court as to the meaning of
`the statute, it should still reject the CFTC’s public-interest analysis as
`fatally flawed. The proposed contracts serve an empirically supportable
`hedging function, and the CFTC’s analysis of the utility of hedging was
`far too narrow. The CFTC also failed to recognize the non-economic ben-
`efits of prediction markets. Finally, the CFTC concluded that KalshiEX’s
`prediction markets might lead to election manipulation, but it failed to
`explain why it reached that conclusion in the face of abundant contrary
`evidence. The CFTC’s reasoning is especially troubling because it can
`extend to many prediction markets that are not related to elections—thus
`causing a major and unwarranted expansion of the CFTC’s regulatory
`authority in a manner that would, contrary to the statute’s plain text,
`cause multitudes of event contracts to be forbidden by the agency.
`Finally, the success of KalshiEX’s prediction markets in the recent
`presidential election confirm both the wisdom of this Court’s order deny-
`ing the CFTC’s stay motion and the illogic of the CFTC’s public-interest
`analysis. In short, U.S. voters are inevitably attracted to the information
`available through these markets, and it is in everyone’s best interest that
`this information be accurate and free from manipulation. The best way
`to achieve this is for these markets to be regulated under U.S. law.
`
`4
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`I.
`
`ARGUMENT
`The CFTC’s Interpretation of “Gaming” Is Inconsistent with
`the Statute.
`The CFTC concluded that political event contracts “involve” “gam-
`ing” within the meaning of the Commodity Exchange Act, thus authoriz-
`ing the CFTC to ban them. Indeed, the CFTC’s decision to reject the
`proposed contracts hinges critically on the determination that they “in-
`volve” a “game[]”: if an election is not a game, or does not “involve” a
`game, the CFTC has no statutory basis upon which to reject the contract.
`The definition of “gaming” and of the term “involve” is thus outcome dis-
`positive. But here, the CFTC’s decision misreads the statute and gives
`the CFTC arbitrary and unrestrained authority far exceeding the Act’s
`intended scope. The district court correctly rejected the CFTC’s interpre-
`tation, and that ruling should be affirmed.
`A. The CFTC’s Logic Violates the Presumption of Con-
`sistent Usage.
`Under the Commodity Exchange Act, the CFTC “may determine”
`that event contracts “are contrary to the public interest” if the event con-
`tracts “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.” 7 U.S.C. § 7a-2(c)(5)(C)(i).
`The CFTC concluded that it had authority to ban KalshiEX’s pro-
`posed political event contracts because they “involve … gaming.” As the
`
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`district court correctly explained, the CFTC’s statutory analysis is wrong.
`An event contract “involves” an activity only if the underlying event con-
`stitutes that activity. For example, an event contract “involves” terror-
`ism, assassination, or war if the event underlying the event contract is
`terrorism, assassination, or war.
`The CFTC, however, did not assess whether the event underlying
`KalshiEX’s contracts constituted “gaming.” Instead, the CFTC assessed
`whether the act of trading KalshiEX’s contracts would be “gaming.” That
`reasoning is wrong.
`As Justice Scalia has explained, “[a] word or phrase is presumed to
`bear the same meaning throughout a text,” and this presumption “makes
`sense when applied … pragmatically.”7 As the Supreme Court has put
`it, “there is a natural presumption that identical words used in different
`parts of the same act are intended to have the same meaning.” Atl. Clean-
`ers & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932).
`The CFTC’s statutory analysis, however, violates this canon. The
`CFTC’s analysis requires that the word “involve” mean one thing with
`respect to 7 U.S.C. § 7a-2(c)(5)(C)(i)(II), (III), and (IV) (contracts that “in-
`volve” terrorism, assassination, or war), and something entirely different
`with respect to Section 7a-2(c)(5)(C)(i)(V) (contracts that “involve” gam-
`ing). In Subparagraphs (II), (II), and (IV), a contract “involves” terrorism,
`
`
`7 Antonin Scalia & Bryan A. Garner, Reading Law 170-71 (2012).
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`6
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`assassination, or war if the underlying event is or relates to terrorism,
`assassination, or war. But in subsection (V), under the CFTC’s reading,
`a contract “involves” gaming if the act of buying or selling the contract is
`itself gaming. The CFTC’s interpretation of the word “involve” as bearing
`two totally different meanings within the same sentence is untenable un-
`der the presumption of consistent usage, and it defies common logic. As
`the district court correctly explained, this error is an independent and
`sufficient cause to rule for KalshiEX.
`B. Elections Are Not “Games,” and Trading Political
`Event Contracts Is Not “Gaming.”
`Even if the CFTC were correct that it has the authority to regulate
`“gaming,” it would still lack authority to ban KalshiEX’s prediction mar-
`kets because participating in those markets is not “gaming.” As the dis-
`trict court explained, and contrary to the CFTC’s view, having a financial
`stake in the outcome of a future event and playing a “game” are not the
`same thing. More to the point, congressional elections are not games,
`and contracts indexed to the outcomes of those elections are also not
`games and do not “involve” games.
`“Gaming” means playing a game. It is what people do at a casino
`or during their weekly poker night. When people play roulette or the
`slots, they are “gaming.” Likewise, people who bet on games—like people
`who go to a casino and put down money on the Super Bowl—might be
`said to engage in “gaming.”
`
`7
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`But an election is not a “game,” and putting down money on the
`outcome of an election is not “gaming.” Of course, every person who pur-
`chases a political event contract has a financial stake in the outcome of a
`future event. And often, the person does so for purposes unrelated to
`hedging. But that is true for all financial markets, whether derivative or
`not. A retail investor who purchases Apple stock, or options on Apple
`stock, or an S&P 500 mini contract, is not hedging any risk, but that does
`not mean that the investor is gaming or involved in a game. If that were
`true, a huge swath of financial contracts that have been blessed for dec-
`ades by the CFTC would have to be prohibited. The Commission’s logic
`on this point is dramatically overbroad and proves far, far too much. This
`is an additional, independent reason the Commission’s interpretation
`must fail.
`Further, non-hedging traders add exceptional value to secondary
`markets, including derivative markets. It is commonly understood that
`“[a] financial market is a place where many speculators with different
`pieces of information meet to trade, attempting to profit from their infor-
`mation.”8 “Prices aggregate these diverse pieces of information and ulti-
`mately reflect an accurate assessment of firm value,”9 or, in this case, of
`the probability of an event coming to fruition. The participation of these
`
`
`8 Philip Bond, Alex Edmans & Itay Goldstein, The Real Effects of Capital
`Markets, 4 Ann. Rev. Fin. Econ. 339, 340 (2012).
`9 Id.
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`non-hedging investors can thus improve market performance, not detract
`from it.
`The CFTC also offered no persuasive explanation of how “gaming”
`could be transmuted to “all event contracts where the underlying event
`involves people contesting something.” The CFTC’s reasoning is as fol-
`lows: (1) some dictionaries equate “gaming” with “gambling,” and (2)
`“[u]nder most state laws, ‘gambling’ involves a person staking something
`of value upon the outcome of a game, contest, or contingent event.” Mat-
`ter of the Certification by KalshiEX LLC of Derivatives Contracts with
`Respect to Political Control of the United States Senate and United
`States House of Representatives 8 & n.22 (CFTC Sept. 22, 2023) (Order).
`The CFTC also pointed to a federal statute defining “bet or wager” as “the
`staking or risking by any person of something of value upon the outcome
`of a contest of others, a sporting event, or a game subject to chance.” Id.
`at 9.
`
`As the district court accurately set forth, this reasoning fails at mul-
`tiple levels. The fact that some dictionaries use “gambling” and “gaming”
`in the same breath does not imply that broad statutory definitions of
`“gambling” always mean the same thing as “gaming.” Dictionaries
`
`9
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`commonly include multiple definitions of each term, an observation suf-
`ficient to prove that the terms are not synonymous.10
`Likewise, a federal statute defining “bet or wager” sheds little light
`on what the word “gaming” means. Indeed, it would be absurd if “gam-
`ing” stretched as broadly as the statutes cited by the CFTC. To the extent
`the CFTC believes that “staking something of value upon the … contin-
`gent event” is enough to make an activity “gaming,” see Order at 8, all
`derivatives markets would constitute gaming and therefore be illegal,
`and the CFTC would put itself out of business. Anyone who buys wheat
`futures is “staking something of value”—their money—on a “contingent
`event”—an increase or decrease in the cost of wheat in the future. By the
`CFTC’s logic, they are involved in a “corn game” that cannot be permitted
`on an approved contract market. The contradiction is obvious.
`Recognizing the absurdity of this position, the CFTC suggested that
`its decision might be limited to prediction markets for elections because
`an election is a type of “contest.” See Order at 9 (“To bet or wager on
`elections is to stake something of value upon the outcome of contests or
`others, namely, contests between electoral candidates.”). According to
`the CFTC, limiting “gaming” to “contests” would draw the appropriate
`
`
`10 See, e.g., American Heritage Dictionary of the English Language 721-
`22 (4th ed. 2000) (providing eight definitions for “gambl[ing]” and two for
`“gaming”).
`
`10
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`line because “futures contracts traditionally have not been premised on
`the outcome of a contest of others.” Id. at 10 n.25.
`This reasoning again fails and is also dramatically overbroad. Even
`if an election campaign might in some sense be said to be a “contest,” that
`does not mean that purchasing political event contracts is “gaming.”
`Whether something is “gaming” turns on whether it involves playing a
`game, not on whether the event underlying the event contract is a “con-
`test.” Moreover, a substantial literature characterizes the outcome of
`market processes as equivalent to the results of elections in which mar-
`ket participants vote with currency on a weighted voting basis, rather
`than through a one-person-one-vote mechanism. Put another way, every
`market can be reframed as a weighted voting process, or as a contest be-
`tween buyers (who want lower prices) and sellers (who want higher
`prices) as to where to set the equilibrium price.11 Thus, if every market
`is also a game—and the CFTC offers no principled basis upon which to
`conclude otherwise—then no derivative on any market could be approved
`under the CFTC’s logic because every derivative would “involve gaming.”
`
`11 See William J. Baumol & William G. Bowen, Performing Arts: The Eco-
`nomic Dilemma (1966) (explaining that markets are akin to electoral pro-
`cesses in which firms compete for consumer “votes” by offering better
`products and prices); Friedrich Hayek, The Use of Knowledge in Society,
`35 Am. Econ. Rev. 519 (1945) (analogizing prices to the outcome of voting
`processes in which consumers express preferences for goods and services
`instead of candidates); see also James M. Buchanan & Gordon Tullock,
`The Calculus of Consent: Logical Foundations of Constitutional Democ-
`racy (1962).
`
`11
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`Again, this interpretation of the statute makes no sense because it would