CFTC Initiates Review of Option on "Congressional Control"

The CFTC initiated a review of a designated contract market ("DCM") offering as to which political party will control each chamber of the U.S. Congress.

The review of the "Congressional Control Contracts" is for the purpose of determining whether the proposed contracts are comprised of, or reference, prohibited activities pursuant to CFTC Rule 40.11(a) ("Review of event contracts based upon certain excluded commodities") and CEA Section 5c(c)(5)(C) ("Common provisions applicable to registered entities"). The cited provisions refer to contracts that relate to terrorism, assassination, war, gaming or illegal activity.

The CFTC requested that the offering platform, KalshiEX LLC, delay listing the Congressional Control Contracts for 90 days pending the outcome of the review. The CFTC also published a set of questions for public comment and said it intends to accept responses until July 24, 2023.

CFTC Commissioner Summer K. Mersinger dissented from the CFTC's decision to delay the offering of the contracts saying that contracts represent Kalshi's "good-faith efforts to address concerns voiced about a prior iteration of the contracts." Ms. Mersinger stated that "[h]aving undertaken a 90-day review of the Original Contracts and considered the voluminous comment letters we received as part of that review, the conclusion is clear: Kalshi’s contracts are not gaming." She said that the CFTC does not require additional review or public comment to make that determination and that it is "fundamentally unfair" to "further delay a decision related to [Kalshi's] contracts and, more concerning, avoid undertaking a rulemaking process that is both necessary and overdue with respect to these questions."

Ms. Mersinger concluded that the decision to subject Kalshi's contracts to further review sends the message that DCMs should not "expend resources developing innovative event contracts because the Commission may randomly subject them to a public interest analysis." She added that the CFTC's "dithering over Congressional control contracts . . . contravenes Congress’ direction that the Commission promote responsible innovation."

CFTC Commissioner Caroline D. Pham also opposed the review, stating the review period could be contrary to an Order of the United States Court of Appeals for the Fifth Circuit in Clarke v. CFTC, No. 22-51124 (May 1, 2023), which preliminarily barred the CFTC from "enjoining the Commission from otherwise 'prohibiting or deterring the trading' of contracts listed on [another CFTC-registered DCM]."