The Commodity Futures Trading Commission (CFTC) is escalating a legal battle with several U.S. States over its authority to regulate prediction markets, platforms that allow users to trade on the outcomes of future events. CFTC Chairman Michael Selig has vowed to defend the agency’s jurisdiction, signaling a willingness to litigate the issue in court.
The conflict centers on whether these platforms, such as Kalshi and Polymarket, constitute illegal gambling operations or legitimate financial instruments. Several states have initiated legal challenges, arguing that the platforms violate state gambling laws. Selig, however, maintains that the CFTC has long-held authority over these markets and the power to determine whether event contracts fall under the definition of gambling.
On , the CFTC filed an amicus brief in federal court, a move designed to assert its regulatory control over prediction markets and preempt state-level interventions. Selig articulated this stance more forcefully in a Wall Street Journal op-ed published on , stating, “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.”
The timing of the CFTC’s action comes as prediction markets face mounting legal pressure. Nearly 50 active legal cases are currently targeting these platforms, according to Selig. The core of the dispute lies in the nature of the contracts offered. Platforms like Kalshi and Polymarket allow users to trade on the outcomes of events ranging from pop culture and sports to political elections and economic indicators. Critics contend these offerings are essentially wagers, while proponents argue they function as legitimate “swaps” under CFTC rules, serving legitimate economic functions.
Selig, nominated by former President Donald Trump, has been a vocal advocate for establishing clear regulatory guidelines for prediction markets. In late January , he indicated his intention to draft new rules governing these markets and to actively participate in federal and circuit court cases involving jurisdictional questions. He emphasized the CFTC’s expertise in overseeing commodity derivatives and its responsibility to defend its exclusive authority.
The CFTC’s position is that event contracts are not simply gambling ventures but rather sophisticated financial instruments that provide valuable market signals. Selig argues that trading on these contracts benefits both the market and the broader economy. He described these exchanges as “self-regulatory organizations” subject to CFTC oversight and supervision, countering claims that they operate as a “Wild West.”
The legal battle is currently focused on a dispute in the Ninth U.S. Circuit Court of Appeals, where the CFTC has filed its amicus brief in support of Crypto.com in its disagreement with the Nevada Gaming Control Board. This case is expected to be a key test of the CFTC’s authority.
Selig’s message to those challenging the CFTC’s authority was blunt: “We will see you in court,” he stated in a video posted on X on . He framed the CFTC’s intervention as crucial to ensuring the integrity, resilience, and vibrancy of these markets within the American financial landscape.
The outcome of this legal showdown will have significant implications for the future of prediction markets in the United States. A victory for the CFTC would solidify its regulatory control and potentially pave the way for greater innovation and growth in the sector. Conversely, a ruling in favor of the states could lead to a patchwork of regulations, hindering the development of these markets and potentially driving them offshore.
The Coalition for Prediction Markets (CPM) has voiced its support for Selig’s stance, applauding his commitment to defending the CFTC’s jurisdiction. The CPM believes the CFTC possesses the necessary expertise and responsibility to oversee these markets effectively.
This dispute highlights a broader tension between federal and state regulatory authority in the rapidly evolving landscape of financial technology. As new markets and instruments emerge, the question of who has the power to regulate them becomes increasingly complex and contentious. The CFTC’s aggressive defense of its authority in the case of prediction markets signals a willingness to assert its role as a key regulator in this space.
Disclosure: CNBC and Kalshi have a commercial relationship that includes a CNBC minority investment.
