The Commodity Futures Trading Commission has initiated legal action against Arizona, Connecticut, and Illinois, asserting its exclusive authority over prediction markets. The lawsuits, filed in federal courts with support from the Department of Justice, target the governors and attorneys general of the three states.
The CFTC claims these states have attempted to restrict the operations of designated contract markets that facilitate trading in lawful event contracts. According to the commission, Congress established a national framework for commodity derivatives to prevent a fragmented patchwork of state rules.
“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” said CFTC Chairman Michael S. Selig.“This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation.”
State Actions Against Prediction Markets
Arizona, Connecticut, and Illinois have all taken steps to limit the activities of platforms including Kalshi, Polymarket, and Crypto.com. Measures have ranged from cease-and-desist letters to criminal charges, with Arizona recently becoming the first state to file criminal charges against Kalshi. These actions, the CFTC argues, create market uncertainty and risk destabilizing the regulated trading environment.
Selig highlighted on X that the lawsuits respond to the states’ efforts “to undermine the CFTC’s exclusive jurisdiction over prediction markets that offer trading in CFTC-regulated event contracts.” The commission emphasized that its authority over event contracts stems from the Commodity Exchange Act, which was reinforced after Congress granted the CFTC comprehensive power following the 2008 financial crisis.
History of CFTC Regulation
Event contracts were first officially recognized in 1992 with the Iowa Electronic Markets at the University of Iowa, allowing contracts tied to outcomes like presidential elections and corporate earnings. The CEA was designed to accommodate innovations in financial markets, ensuring emerging products could operate under federal oversight.
In recent years, the CFTC has taken steps to clarify regulatory boundaries, issuing an Advanced Notice of Proposed Rulemaking to identify areas of uncertainty regarding prediction markets. While the commission previously supported enforcement actions against unregistered exchanges, the current lawsuits mark a major escalation by directly challenging state attempts to regulate federally overseen contracts.
Broader Implications
The CFTC’s move underscores its determination to maintain a uniform regulatory environment for event contracts across the country. Legal experts note that these lawsuits may set precedent for the balance of state and federal authority in emerging financial markets, particularly in platforms offering novel derivatives products.
“This is a significant development in the governance of prediction markets,” said industry analysts, noting that the outcome could influence how other states approach enforcement and how registrants conduct business nationwide. By asserting its exclusive jurisdiction, the CFTC is aiming toprevent inconsistent state rules from interfering with federally regulated markets.
The litigation comes amid a broader shift in federal regulatory oversight, contrasting with the CFTC’s earlier enforcement stance, which focused on shutting down certain exchange marketplaces.
Source:
“CFTC Sues Trio of States to Reaffirm its Exclusive Jurisdiction Over Prediction Markets“, cftc.gov, April 2, 2026
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