CFTC Sues Three States Over Prediction Market Authority
- The CFTC says federal law gives it sole authority over lawful event contracts nationwide.
- Arizona, Connecticut, and Illinois face suits over state action on federal exchanges.
- The agency seeks injunctions as states press gaming claims against platforms locally.
The Commodity Futures Trading Commission has sued Arizona, Connecticut, and Illinois over state action against CFTC-registered designated contract markets. The agency says federal law gives it exclusive authority over lawful event contracts. It wants courts to block states from enforcing conflicting rules against federally supervised exchanges.
CFTC Says Federal Law Controls Event Contracts
The regulator argues that Congress built a national framework for derivatives markets under the Commodity Exchange Act. In turn, that framework gave the CFTC exclusive jurisdiction over event contracts offered on registered exchanges. The agency says state efforts now threaten that structure.
CFTC Chairman Michael S. Selig said the agency will defend its authority and protect market participants from what he called overzealous state regulators. He said Congress rejected a fragmented state system because it led to weaker consumer protection. He also said that the approach increased the risk of fraud and manipulation.
At the same time, the CFTC said it recently issued an Advanced Notice of Proposed Rulemaking on prediction markets. The notice seeks to identify confusion around how the Commodity Exchange Act and CFTC rules apply. The agency expects to move ahead with rulemaking that reinforces compliance obligations.
States Push Back as Gambling Concerns Grow
The dispute comes as states move against platforms tied to sports-related and other event-based contracts. According to the text, states have begun litigation and argue that some platforms violate local gaming and gambling laws. That push has brought state rules into direct conflict with federal oversight claims.
The CFTC now asks courts to find that the states violated the Supremacy Clause of the U.S. Constitution. That clause says federal law takes priority when state and federal law conflict. The agency also seeks permanent injunctions to stop current and future officials from enforcing the challenged provisions against CFTC DCMs.
In Illinois, Governor J.B. Pritzker’s office said the state would keep fighting to protect consumers. A spokesperson told The Block that the administration sees the case as an effort to sidestep state authority. The spokesperson also said firms were exposing Illinois residents to gaming products without basic consumer protections or oversight.
Related: SEC and CFTC Redraw U.S. Crypto Market Rules for Growth
Long History, Broader Stakes
Event contracts have existed for decades, and the CFTC said it first recognized them in 1992. That year, it allowed the Iowa Electronic Markets, where traders bought and sold contracts tied to events such as elections and corporate earnings. Later, after the 2008 financial crisis, Congress gave the agency broader authority over such contracts.
The text says Congress extended that authority to any contract based on a commodity, a term the statute defines broadly. The law also aims to accommodate innovation in financial markets. As a result, the CFTC says new and emerging uses can develop inside federally regulated markets.
Which authority will define the rules for prediction markets in the United States? The answer could shape how platforms operate across state lines and how courts view future conflicts between federal derivatives law and state gambling rules. Raoul’s office and the Illinois Gaming Board did not immediately respond to a request for comment.
