In a series of legal filings, the U.S. Commodity Futures Trading Commission (CFTC) is seeking to assert its jurisdiction over prediction markets.
The U.S. derivatives regulator filed a lawsuit against the state of Wisconsin on Tuesday, in response to the state’s own recently filed legal actions against various prediction market operators — including Kalshi, Polymarket, Crypto.com, Robinhood and Coinbase — alleging violations of state law, and seeking injunctions to block them from offering contracts on sporting events.
“Plaintiffs bring this action to halt defendants’ efforts to apply and enforce preempted state laws to national markets that are governed by federal law,” the regulator’s complaint said.
The lawsuit in Wisconsin follows several other recent legal actions — including lawsuits against New York, Illinois and Connecticut, an amicus brief that was filed last week in the Massachusetts Supreme Judicial Court asserting the CFTC’s jurisdiction over prediction markets, and the regulator obtaining a restraining order in federal court in Arizona against a criminal prosecution of a company regulated by the CFTC.
The regulator argued that the U.S. Congress has granted it oversight of various derivative products, including event contracts that are traded on prediction markets, but that certain states have begun taking action against operators of prediction markets, alleging violations of state gambling laws.
“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event will occur. When structured as ‘swaps’ or futures contracts as defined by [commodities legislation], and traded on CFTC-regulated exchanges, they are subject to the exclusive jurisdiction of the CFTC,” the filing in Wisconsin said.
“States cannot circumvent the clear directive of Congress,” said CFTC chairman, Michael Selig, in a release.
“Our message to Wisconsin is the same as to New York, Arizona and others: if you interfere with the operation of federal law in regulating financial markets, we will sue you,” he added.
In Canada, the operation of prediction markets is also not entirely clear from a legal, or regulatory perspective.
Earlier this month, the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) issued a joint statement highlighting the regulatory requirements that may apply to prediction markets — including the CSA’s ban on short-term binary options, and the limited access to trading in event contracts on foreign markets that CIRO has authorized.
The regulators also indicated that they intend to issue guidance on how securities, or derivatives legislation applies to prediction markets — and that they will also consider whether further regulatory action is required, given their “ongoing concerns around prediction markets.”