CFTC Files Actions Against Three States Over Regulation of Prediction Markets

On April 2, 2026, the Commodity Futures Trading Commission filed actions against Arizona, Connecticut, and Illinois challenging state efforts to restrict the operation of CFTC-registered designated contract markets offering event contracts.

The actions seek declaratory and injunctive relief. The CFTC’s position is that the Commodity Exchange Act grants the agency exclusive jurisdiction over such markets and preempts state law to the extent states attempt to prohibit or regulate trading in those contracts.

For some time, the trajectory here has been clear. Prediction markets were always going to force a direct confrontation between federal derivatives regulation and state gambling regimes. That tension has been building quietly through enforcement actions, regulatory statements, and market growth. The CFTC’s decision to file suit against three states marks the moment that tension becomes explicit. Federal jurisdiction under the Commodity Exchange Act carries weight only to the extent it is asserted and defended. These actions reflect a deliberate choice by the agency to do exactly that.

There is also a broader competitive and structural dynamic at play. Prediction markets sit adjacent to, and in many cases directly compete with, state-regulated gaming frameworks. That reality has informed the posture of state regulators and the broader gaming ecosystem, both of which have strong incentives to resist expansion of these markets. Against that backdrop, the CFTC’s actions function as more than a jurisdictional clarification. They provide a measure of stability for market participants who have been operating under increasing state pressure, and they move the central legal question toward resolution in a federal forum where it belongs.

Why these specific states?

My read is that Arizona, Connecticut, and Illinois were the first targets because they offered the CFTC the best combination of urgency, clean posture, and strategic value: all three had already taken formal, concrete action against prediction-market operators, creating an immediate and justiciable preemption fight; Arizona, in particular, escalated further by bringing criminal charges against Kalshi, which made the federal-state collision impossible to ignore. At the same time, the CFTC had already been defending its jurisdiction in the Nevada litigation through an amicus brief in the Ninth Circuit rather than by launching a separate affirmative case there, while California, despite openly rejecting the preemption theory, has so far stayed on the sidelines amid its own politically sensitive tribal-gaming dynamics.

In other words, these three states look less like a random first wave and more like the strongest opening vehicles for the CFTC to force a federal answer on exclusive jurisdiction without waiting for a messier or more politically complicated record elsewhere.

Background

Event contracts have existed within the CFTC’s regulatory framework for decades. The agency formally recognized these instruments in the early 1990s in connection with academic markets, including the Iowa Electronic Markets. Congress later reinforced the CFTC’s authority through amendments to the Commodity Exchange Act following the 2008 financial crisis, extending federal oversight to a broad range of derivatives tied to commodities, defined expansively.

More recently, commercial platforms have expanded the availability of event contracts beyond academic settings. These products now include contracts tied to political outcomes, economic indicators, and other real-world events.

At the same time, several states have taken the position that certain event contracts, particularly those tied to sports or elections, fall within state gambling regimes. Based on that view, state regulators have issued cease-and-desist orders and pursued enforcement actions against operators offering such contracts within their jurisdictions.

The CFTC’s Position

The complaints assert that designated contract markets operating under CFTC registration are subject to a comprehensive federal regulatory regime. The CFTC argues that allowing states to impose separate or conflicting requirements would undermine the statutory framework established by Congress.

The agency relies on the Commodity Exchange Act’s grant of exclusive jurisdiction over accounts, agreements, and transactions involving contracts of sale of a commodity for future delivery and related instruments. In the CFTC’s view, event contracts offered on registered exchanges fall squarely within that authority.

Chairman Michael S. Selig stated that a fragmented approach would introduce inconsistent obligations for market participants and increase the risk of fraud and manipulation.

State Position

The states’ actions reflect a different characterization of the same products. Where contracts are structured around discrete outcomes and resemble wagering, state regulators have treated them as subject to state gaming laws. That approach preserves traditional state authority over gambling and related activities.

The litigation therefore presents a classification question with jurisdictional consequences. The outcome will determine whether these products are governed exclusively as derivatives under federal law or subject, at least in part, to state regulation.

Related Regulatory Developments

The CFTC has also issued an Advanced Notice of Proposed Rulemaking addressing prediction markets. The agency is seeking comment on the application of existing regulations to event contracts and on whether additional guidance or rulemaking is warranted.

The timing of the litigation, alongside the rulemaking process, suggests an effort to both confirm jurisdiction and clarify the regulatory treatment of these products.

Implications

If the CFTC prevails, state efforts to restrict trading on federally registered exchanges are likely to be limited, and event contracts will continue to develop within a unified federal framework.

If the states’ position gains traction, market participants may face a more fragmented regulatory landscape, with the availability of certain contracts varying by jurisdiction.

The cases are likely to be closely watched given the growth of prediction markets and the broader question of how existing financial regulatory frameworks apply to emerging products that sit at the intersection of derivatives and gaming.