CFTC Asserts Exclusive Jurisdiction: Shifting the Legal Landscape

Kalshi has obtained a temporary suspension of a criminal case in Arizona, a development that aligns with a broader effort by the Commodity Futures Trading Commission (CFTC) to assert exclusive federal jurisdiction over prediction markets in the United States.

The legal movement follows a significant ruling on April 6, 2026, by a split panel of the Third Circuit, which affirmed that federal derivatives regulation preempts state gambling laws. In that case, the court upheld a preliminary injunction blocking the state of New Jersey from enforcing its sports gambling laws against KalshiEX LLC, a CFTC-registered prediction market platform.

US Circuit Judge David Porter stated in the majority opinion that the Commodity Exchange Act (CEA) preempts state laws that directly interfere with swaps traded on a designated contract market. The court found that because Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed designated contract market, the CFTC maintains exclusive jurisdiction over them.

CFTC Shift Toward Proactive Enforcement

The assertion of exclusive jurisdiction marks a strategic shift under the leadership of CFTC Chairman Michael Selig. The agency has moved from a position of relative inaction to one of active advocacy for its regulatory authority over event contracts, which are commonly known as prediction markets.

On February 17, 2026, the CFTC filed an amicus curiae brief in the Ninth Circuit to support North American Derivatives Exchange, Inc. (Nadex/Crypto.com) in its appeal against Nevada gaming regulators. The brief argued that event contracts are swaps subject to the CFTC’s exclusive jurisdiction under the CEA, and that state attempts to prohibit these contracts as gambling are preempted.

The filing was noted as a rare move for the agency, which has submitted only eight amicus briefs since 2000. In an op-ed published by The Wall Street Journal, Chairman Selig stated:

the CFTC “will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”

Michael Selig

Legal Interpretation of Event Contracts

Central to the CFTC’s legal argument is an expansive reading of the statutory definition of a swap. In its February 17, 2026, filing, the agency focused on the phrase potential financial, economic, or commercial consequences to justify its jurisdiction over sports-based event contracts.

The CFTC has maintained that it does not apply a materiality threshold to these consequences when determining if a contract falls under its regulatory umbrella. This interpretation allows the agency to classify prediction markets as commodity derivatives rather than gambling activities, thereby removing them from the purview of state-level gaming commissions.

Regulatory Framework and Future Oversight

To complement its legal challenges against state enforcement, the CFTC has announced the creation of a new Innovation Task Force. This body is tasked with developing a clear regulatory framework specifically for prediction markets to provide more certainty for operators and participants.

The agency continues to argue that its exclusive jurisdiction over all commodity derivatives markets, including prediction markets, has been established and affirmed by both Congress and the courts over several years.