A bipartisan group of 23 US senators has formally requested that the Commodity Futures Trading Commission (CFTC) avoid intervening in ongoing state-level lawsuits concerning the legality of prediction markets. These platforms, which allow users to wager on the outcomes of future events ranging from political elections to geopolitical conflicts, have rapidly gained traction but also attracted significant legal scrutiny.
The core dispute revolves around jurisdiction: the federal government classifies these markets as derivative trading, placing them under CFTC oversight. However, several states argue that they should be regulated like traditional gambling, subject to local laws. This clash has triggered at least 19 federal lawsuits, including a recent case in Massachusetts where a judge halted Kalshi’s sports contract offerings for operating without a state gambling license.
The senators’ letter, spearheaded by California’s Adam Schiff, urges CFTC Chairman Michael Selig to stay out of these state court battles. They also call for a ban on markets involving sensitive topics like war, terrorism, or assassination attempts. The move reflects growing concerns about the ethical and legal implications of these platforms, especially after recent arrests in Israel linked to the use of classified military intelligence for bets on Polymarket.
Why this matters: Prediction markets have exploded in popularity because they provide a real-time, crowdsourced forecast of future events. This has implications for financial markets, political analysis, and even national security. The question is whether they should be treated as speculative financial instruments under federal regulation or as gambling products subject to state control. The CFTC’s decision will shape the future of the industry, influencing the balance between innovation and consumer protection.
Selig has signaled an intention to defend the CFTC’s exclusive jurisdiction, arguing these markets aren’t simple wagers. The senators, however, contend that these platforms bypass state and tribal consumer protections, generate no public revenue, and undermine regulatory frameworks. Industry advocates, like former US representative Sean Patrick Maloney, argue that states lack the expertise to oversee complex derivatives markets.
The Biden administration previously attempted to implement stricter regulations, proposing a ban on certain contracts, but the Trump administration reversed course. Selig’s current approach, including establishing an advisory board with industry CEOs, has drawn criticism from lawmakers. The CFTC has not yet responded to the senators’ demands.
Ultimately, the outcome of these legal battles and the CFTC’s position will determine whether prediction markets continue to operate in a largely unregulated environment or face stricter oversight from state governments.
