By Laura Matthews and Chris Prentice

NEW YORK (Reuters) - The U.S. Commodity Futures Trading Commission on Monday moved to drop its appeal of a court decision that allowed New York derivatives trading platform KalshiEX LLC to list contracts Americans can use to bet on election outcomes.

The CFTC asked to allow it to voluntarily dismiss the case, agreeing that each party to the lawsuit will bear its own costs and fees, according to a filing in the U.S. Court of Appeals for the D.C. Circuit on Monday.

A representative for CFTC said the agency filed the motion for voluntary dismissal following a vote of the Commission. A source with knowledge of the matter said the CFTC voted 3-0 in favor of dropping the appeal, with one of the agency’s four commissioners abstaining from voting.

WHY IT MATTERS

The CFTC is walking away from the appeal at a time of flux in regulations over such prediction markets, which critics say are introducing risk into financial markets.

KEY QUOTE

"Today is historic. We have always believed that doing things the right way, no matter how hard, no matter how painful, pays off. This result is proof of that," said Tarek Mansour, CEO and co-founder at Kalshi, in a statement to Reuters. "Kalshi’s approach has officially and definitively secured the future of prediction markets in America."

CONTEXT

Kalshi sought permission from the CFTC in June 2023 to list contracts that would let Americans bet on whether a particular party will control the House of Representatives and Senate in a given term.

The CFTC prohibited Kalshi from listing and clearing its cash-settled political event contracts concerned about unlawful gaming and other activities that it said were not in the public’s interest. Kalshi then sued, saying the CFTC exceeded its authority.

A judge in the D.C. District Court sided with Kalshi in September. The CFTC immediately appealed, requesting an emergency stay on the lower court’s order.

The DC circuit ruled in October that Kalshi could list its event contracts, stating that the CFTC did not show how the agency or the public interest would be harmed by them as it claimed.

The DC circuit later heard related arguments in January, shortly before Trump took office, but had not yet ruled.