US CFTC Sues New York to Defend Prediction-Market Jurisdiction

Prediction markets allow users to trade contracts tied to the outcomes of elections, sporting contests and other events. The U.S. Commodity Futures Trading Commission argues that such contracts fall under federal regulation of commodity derivatives. Kentucky has taken action against operators under state law, including imposing an additional 14% tax, triggering a jurisdictional dispute between federal and state authorities.

As of July 19, 2026, the CFTC had sued Kentucky to block the state's legal proceedings against five prediction-market operators. The CFTC chair said the agency would defend the federal government's exclusive jurisdiction over prediction markets. Kentucky has become the ninth U.S. state to clash with the CFTC over the issue.

Prediction markets allow participants to trade event contracts tied to outcomes such as elections and economic data, but sensitive subjects including war and gambling have long occupied a gray area between derivatives oversight and gambling laws. Uniform review standards from the U.S. Commodity Futures Trading Commission could affect the compliant operation of Polymarket and Kalshi in the United States.

The CFTC issued a staff advisory on prediction markets on June 10 and formally opened a rulemaking and public comment process. Event contracts involving war, gambling and other sensitive categories will be reviewed case by case. Chairman Mike Selig said the era of operating without clear rules was over, as the agency shifts its policy focus from litigation to rules established in advance. The document did not address trading amounts or penalties.

Prediction markets allow traders to buy and sell event contracts tied to outcomes such as elections and sporting contests. The U.S. Commodity Futures Trading Commission, citing the Commodity Exchange Act, treats them as derivatives under its exclusive jurisdiction. The dispute centers on states continuing to pursue platforms such as Polymarket and Crypto.com under gambling laws, with federal preemption determining whether operators face uniform nationwide rules or a patchwork of state regulations.

On May 26, 2026, Donald Trump said on Truth Social that preserving the CFTC's exclusive jurisdiction over prediction markets was critical. The same day, a new CFTC rule was submitted to the White House Office of Management and Budget for review. On June 10, the CFTC released a proposal to amend Rule 40.11 and establish a 90-day review process for contracts involving war, terrorist attacks, assassinations and gambling. The proposal is a regulatory rule, and no financial amount was disclosed.

Prediction markets allow users to trade event contracts tied to outcomes such as elections and sporting events. The central dispute is whether these products are derivatives governed by the Commodity Exchange Act or wagers that states may regulate under gambling laws. The U.S. Commodity Futures Trading Commission argues that event contracts traded on designated contract markets fall under its exclusive federal jurisdiction. The ruling will affect whether platforms can operate across states under a single set of rules.

The Wisconsin Department of Justice sued five companies—Kalshi, Polymarket, Crypto.com, Robinhood and Coinbase—on April 23, 2026, accusing them of illegally offering sports betting. On April 28, the CFTC, together with the U.S. Department of Justice, filed suit in federal court in Wisconsin's Eastern District. It was the agency's fifth similar lawsuit against a state government. The complaint seeks a declaration that state gambling laws do not apply and a permanent injunction barring state enforcement, but requests no damages.

Prediction markets allow users to trade on the outcomes of political, sporting and other events, with trading volumes reaching billions of dollars. The U.S. Commodity Futures Trading Commission argues that event contracts traded on designated contract markets are “swaps” governed by the Commodity Exchange Act, preempting separate state regulation under gambling laws. The dispute will determine whether platforms such as Kalshi and Polymarket can operate nationwide.

Represented by the U.S. Department of Justice, the CFTC filed separate lawsuits against Illinois, Arizona and Connecticut on April 2, 2026. Since April 1, 2025, the Illinois Gaming Board had issued cease-and-desist orders to three CFTC-registered markets: KalshiEx, Crypto.com and Polymarket. The federal government is asking the courts to affirm the CFTC’s exclusive jurisdiction and permanently bar state enforcement, without seeking monetary damages.

Prediction markets allow users to trade contracts tied to the outcomes of political, economic and other events, and are legally classified as derivatives in the United States. After Coinbase launched its service in partnership with CFTC-regulated Kalshi, state governments continued to argue that the contracts constituted gambling. The dispute centers on whether federal commodities law preempts state regulation.

Coinbase Head of Litigation Ryan VanGrack accused multiple states of misleading the public and called claims that the CFTC was incapable of regulating the markets “gaslighting.” Coinbase has sued governments including Illinois and Connecticut, seeking court rulings affirming the CFTC's preemptive jurisdiction. Detroit is also preparing to join Michigan's legal battle.