CFTC rejects derivatives contracts 'gambling' on US congressional control

The CFTC said Kalshi's cash-settled political event contracts would involve unlawful gaming, and it has therefore banned them from being listed or available for clearing or trading.

In a statement accompanying the order, CFTC Chair Rostin Behnam said Kalshi's contracts would have required the CFTC to use its oversight and enforcement power as if it were "an election cop" and in other ways that are not part of its mandate.

"It makes sense for the CFTC to have authority to combat fraud, manipulation, and false reporting in underlying commodity markets," Behnam said. "But it is impractical for the CFTC to combat them in the underlying market here—a political contest.

"The implications of such authority are vast," he said, "and could extend in a multitude of directions beyond the election itself, political fundraising and polling, to name just two."

The CFTC began reviewing the contracts on June 22.

Kalshi CEO and co-founder Tarek Mansour rebuffed the CFTC's reasoning, arguing that many financial products that are now integral to the functioning of the financial system such as ETFs and the Federal Reserve were historically first met with skepticism and opposition.

"It's a known fact that radical innovation often requires time to be understood and accepted. We know that what Kalshi is embarking on is bold and transformative," said Mansour.

"We have faith in the market and fundamentally disagree with today's decision. However we remain optimistic and believe that with time, our vision will be recognized and embraced." 

(Reporting by Laura Matthews; Editing by Leslie Adler)