CFTC Asserts Federal Control Over Prediction Markets

• The CFTC filed a court brief claiming exclusive federal authority over prediction markets.
• The agency argues that event contracts are commodity derivatives under its jurisdiction.
• Several US states are challenging the federal stance, calling prediction markets unlicensed gambling.

The Commodity Futures Trading Commission (CFTC) said only the federal government has the authority to regulate prediction markets in the United States.

The agency filed an amicus brief in the US Court of Appeals for the Ninth Circuit to defend its control over event contract markets, often called prediction markets.

The filing comes in the case involving the North American Derivatives Exchange and the State of Nevada. The CFTC argued that commodity derivatives markets, including event contracts, fall under its exclusive jurisdiction.

According to the agency, state attempts to regulate these markets ignore existing law and legal precedent. CFTC Chairman Michael S. Selig said the regulator will defend its authority against lawsuits and state restrictions.

He stated that prediction markets help businesses manage risk, allow investors to adjust portfolio exposure, and provide information about future events.

The brief outlines decades of legal history supporting federal oversight. Courts and Congress have repeatedly confirmed the CFTC’s role in supervising commodity derivatives. The agency warned that state interference could create economic instability and weaken market structure.

Event Contracts Defined as Commodity Derivatives

Prediction markets allow users to trade contracts based on the outcome of future events. These events can include elections, sports results, corporate earnings, or energy price changes. Traders buy or sell contracts that settle based on a yes-or-no outcome.

The CFTC first recognized event contracts in 1992 through the Iowa Electronic Markets, a futures market linked to political and economic outcomes. After the 2008 financial crisis, Congress expanded the agency’s authority over contracts tied to commodities under the Commodity Exchange Act.

In its court filing, the CFTC argued that sports event contracts should be treated as swaps. A swap is a contract where parties exchange money depending on changes in an external factor, such as a game result.

The agency said rejecting this classification could weaken federal oversight and push some event contracts outside its control.

States Challenge Federal Position

Several states have pushed back against the CFTC’s claims. Regulators in Nevada and Massachusetts have filed lawsuits and issued restrictions, arguing that prediction markets operate as unlicensed gambling services.

Utah Governor Spencer Cox criticized the federal stance. He said prediction markets are gambling and pledged to fight the agency in court. Utah bans gambling under its state constitution, but residents can still access prediction platforms through online services.

As per critics, allowing federal control could weaken state authority over sports betting and gaming regulation. Some legal experts also question whether Congress intended prediction markets to cover contracts tied to sports outcomes.

Related: Polymarket Lawsuit Challenges Massachusetts Authority Over Prediction Markets