CFTC takes legal action against New York and Massachusetts on prediction markets
The Commodity Futures Trading Commission (CFTC) has initiated legal action against the states of New York and Massachusetts in what it has presented as an effort to reaffirm its jurisdiction over prediction markets.
Prediction markets: betting or trading?
As things stand, prediction markets occupy a grey area between betting and trading. They are online platforms where users are essentially able to bet on the outcome of real-world events.
Options that may be available on prediction markets can cover a wide range, including elections to stock trends, as well as sporting event outcomes.
The American Gaming Association is one of the organisations which have argued that prediction markets function more in line with betting rather than trading. This distinction is important because whether prediction markets are considered to offer betting or trading determines if they are regulated at the state or federal level.
The CFTC has maintained that it has jurisdiction over prediction markets, arguing that they qualify under the Commodity Exchange Act. As the federal agency responsible for regulating derivatives markets, the CFTC would therefore also be the federal agency responsible for regulating prediction markets in the US.
CFTC sues New York
In a statement announcing its action against the state of New York, the CFTC said that it had filed a lawsuit in the US District Court of the Southern District of New York in an effort to halt the state’s efforts to apply state gambling laws against CFTC-registered contract markets.
The CFTC stated that New York has sought to enforce state laws against CFTC-registered entities through the use of cease-and-desist letters and civil enforcement lawsuits.
Detailing its complaint against New York, the CFTC said that it is seeking a declaratory judgment dictating that federal law grants exclusive authority to regulate event contracts. It added that it is requesting a permanent injunction to prevent New York from enforcing pre-empted state laws against registrants.
CFTC Chair Michael S. Selig said that CFTC-registered exchanges “have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets”.
He remarked that New York is ignoring federal law and “decades of precedent” by seeking to enforce state gambling laws against CFTC-registered exchanges. He added that the CFTC “will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets”.
The federal agency stated that its actions build upon ongoing efforts to affirm its exclusive jurisdiction over CFTC-registered designated contract markets. It said that this situation follows similar lawsuits filed in the states of Arizona, Connecticut, and Illinois.
In the case of Arizona, the CFTC said that it has secured a temporary restraining order against state regulation of CFTC-regulated prediction markets within the state.
CFTC files amicus brief in Massachusetts
On the same day that the CFTC sued New York, it also filed an amicus brief in the Massachusetts Supreme Judicial Court, which the agency said confirmed its exclusive jurisdiction over the US commodity derivatives market.
An amicus brief, which is a legal document generally filed by someone not directly involved in a case, is often filed to provide information or an additional perspective to help inform the court. In this instance, the brief was filed in the case of the Commonwealth of Massachusetts v. KalshiEx LLC.
Much like in the case of New York, the CFTC stated that the filing in Massachusetts comes as part of its “broader effort to protect its jurisdiction over prediction markets from an ongoing campaign of state encroachment”.
Selig said that the CFTC has been entrusted by Congress to maintain the sole authority of regulating the commodity derivatives market, which includes prediction markets. “To any state that seeks to nullify federal law and seize authority over these markets, I say again: We will see you in court,” he warned.
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