CFTC claims exclusive federal authority over prediction markets in new brief, clashing with states

Congress gave the U.S. Commodity Futures Trading Commission “exclusive jurisdiction” over futures, which includes event contracts, the agency said in a court brief filed on Tuesday evening, following assertions from its chair, Michael Selig, that states are overstepping in trying to oversee prediction markets.

The derivatives regulator submitted the amicus — or “friend of the court” — brief to the U.S. Court of Appeals for the Ninth Circuit in a case involving Crypto.com and the state of Nevada. Crypto.com’s prediction-market arm sued Nevada in June, seeking to block the state from preventing it from offering sports-event contracts.

The judge later ruled that sports-event contracts were not within the CFTC’s jurisdiction and so could be regulated by Nevada’s gaming laws. Crypto.com appealed that decision.

During the fallout of the 2008 financial crisis, Congress gave the CFTC “exclusive jurisdiction,” as part of the Dodd-Frank Act, the CFTC said in the brief.

“… Congress did not limit covered swaps to binary outcomes; instead, it expressly encompassed contracts measured by the extent of the occurrence of an event,” the agency said in the brief. “This broad language encompasses contracts based on the margin of victory or any other quantifiable result of a sports event.”

The filing marks the latest move by the agency to assert its federal jurisdiction over fast-growing prediction markets, including Kalshi and Polymarket. Those have exploded in growth over the past year, particularly following the 2024 election.

But the question of how to regulate such markets — which historically faced strict limits from the CFTC — has become a flashpoint between state regulators and the federal agency.

Selig called states’ moves to engage in lawsuits a “power grab,” in a statement on Tuesday.  

“Event contracts allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events,” Selig said. “These products are commodity derivatives and squarely within the CFTC’s regulatory remit.”

“As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do,” he added. 

CFTC changes

Under former CFTC Chair Rostin Behnam, the agency had been working on rulemaking to ban bets on political events. In 2024, the commission voted to propose rules restricting event contracts tied to gaming, war, terrorism, and assassination on the grounds that they could be “contrary to the public interest.”

That rulemaking was scrapped earlier this month.

Prediction market operators argue that all so-called event contracts are federally regulated, arguing that Congress granted the CFTC exclusive jurisdiction over these derivatives under the Commodity Exchange Act. Meanwhile, states have started to bring litigation and say the platforms are violating local gaming and gambling laws, particularly related to sports-related bets.

On Monday, Selig said the CFTC will “no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets,” in a Wall Street Journal op-ed. He said event contracts are “swaps” and are under the CFTC’s jurisdiction.

“America is home to the most liquid and vibrant financial markets in the world because our regulators take seriously their obligation to police fraud and institute appropriate investor safeguards,” Selig said. “Any erosion of the CFTC’s ability to regulate transactions in commodity derivatives is a direct threat to the markets and investors Congress intended the agency to oversee.”

In an interview on Tuesday morning with Fox News, Selig called the issue “clear cut,” adding that event contracts are different than walking into a casino.

“They’re actual derivative contracts,” Selig said. “They go through a clearinghouse, they’re settled through offset, you can get in and out of your position, and they have certain investor protections that are really important.”

Capitol Hill scrutiny

Lawmakers have raised concerns about prediction markets over the past few months.

In January, Democrat Rep. Ritchie Torres introduced a bill to set firm limits on how elected officials and other top officials engage with prediction markets after bets were made that former Venezuelan President Nicolás Maduro would be captured, sparking concerns of inside information.

In a letter on Friday. Sens. Catherine Cortez Masto of Nevada and Adam Schiff of California led 21 Democratic senators in pressing Selig not to get involved in pending court cases involving prediction markets and said future CFTC rules should “adhere to the statute and prior regulations.”

“The real-world consequences are already evident,” the lawmakers said. “Prediction market platforms are offering contracts that mirror sportsbook wagers and, in some cases, contracts tied to war and armed conflict. These products evade state and tribal consumer protections, generate no public revenue, and undermine sovereign regulatory regimes.”

However, Republican Sen. Bill Hagerty said he was glad to see Selig take on regulating prediction markets.

“Clear and consistent rules of the road will give markets and federal regulators the certainty they need to unleash the next wave of innovation in America,” Hagerty said on Tuesday in a post on X.

At the state level, one governor has pushed back. Republican Utah Gov. Spencer Cox argued that prediction markets are gambling.

“They are destroying the lives of families and countless Americans, especially young men,” Cox said Tuesday in a post. “They have no place in Utah.”

“Let me be clear, I will use every resource within my disposal as governor of the sovereign state of Utah, and under the Constitution of the United States to beat you in court,” Cox added.

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