CFTC underlines bid for exclusive authority over prediction markets

The US futures and swaps watchdog on Friday sought a declaratory judgment that federal law grants the agency “exclusive authority” to regulate event contracts. In its complaint against the state, the regulator requested for a permanent injunction preventing New York from enforcing preempted state laws against its registrants.

New York Attorney General Letitia James last week sought to enforce state laws against CFTC-registered entities through cease-and-desist letters and civil enforcement suits.

CFTC chair Michael Selig said: “CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets.”

“New York is the latest state to ignore federal law and decades of precedent by seeking to enforce state gambling laws against CFTC-registered exchanges. As I’ve said before, the CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets.”

Meanwhile, the US futures watchdog on Friday also filed an amicus brief in the Massachusetts Supreme Judicial Court confirming its exclusive jurisdiction over the US commodity derivatives markets, including prediction markets. The brief was filed in Commonwealth of Massachusetts v KalshiEx LLC, No. SJC-13906.

“The legal document by the CFTC outlines the history and structure of the Commodity Exchange Act and describes how the comprehensive scheme designed by Congress preempts state laws as applied to CFTC-regulated markets.”

“Congress has entrusted the CFTC with the sole authority to regulate commodity derivatives markets, including prediction markets. To any state that seeks to nullify federal law and seize authority over these markets, I say again: we will see you in court,” Selig stressed.

In parallel, James on Friday joined a bipartisan coalition of 37 other attorneys general in filing an amicus brief supporting Massachusetts’ lawsuit against the prediction market platform Kalshi for illegally offering sports betting in violation of the state’s gambling laws.

“Prediction markets cannot ignore states’ gambling laws that are designed to protect consumers,” she said.

“Kalshi’s event contracts for sports are just illegal gambling by another name, and they should play by the same rules as every other licensed gambling platform. I am proud to join a diverse coalition of attorneys general in defending our states’ authority to set clear rules around sports betting to keep people safe.”

The CFTC previously filed lawsuits against Arizona, Connecticut, Illinois, and New York, securing a temporary restraining order against state regulation of CFTC-regulated prediction markets.

In a major reprieve to the US regulator, the Arizona district court in April ordered Arizona state authorities not to pursue criminal charges against regulated designated contract markets with respect to event contracts on a temporary basis.