The Commodity Futures Trading Commission and the U.S. Department of Justice filed a lawsuit Thursday against Illinois and various state officials over the state’s efforts to shut down prediction market providers.
Illinois has sent cease and desist letters to some prediction market providers, arguing that the companies were offering sports gaming products that should be regulated under state law. The CFTC argued that prediction markets offer swap products, which are regulated by the Federal Commodity Exchange Act and therefore fall under that regulator’s “exclusive jurisdiction.”
In the lawsuit, the CFTC continued this argument, asserting that Illinois’ efforts “encroach upon” the CFTC’s role and that federal law preempts state regulations on the matter.
“Event contracts are derivative instruments that allow parties to trade their predictions about whether a future event – which may be related to the economy, elections, climate, sports, or any other potential financial, economic or commercial consequence – will occur,” the filing states.
The CFTC, particularly under current Chairman Mike Selig, has argued that prediction markets are federally regulated, even though many of these companies are expanding to allow customers to bet on sporting events. States, both Republican and Democratic, fought back. Nevada’s Gaming Control Board obtained a temporary restraining order against Kalshi last month, with a hearing scheduled for Friday.
The CFTC will participate in an appeals court hearing before the Ninth Circuit later this month in a consolidated case involving the North American Derivatives Exchange, Kalshi and Robinhood.
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