The Commodity Futures Trading Commission is trying to build a clearer federal framework around U.S. prediction markets just as federal courts increasingly question how far that authority can displace state gambling law. The agency’s 2026 rulemaking does not simply classify every event contract as a swap; instead, it creates a framework for deciding which federally traded contracts may be prohibited on public-interest grounds. The distinction is central to the increasingly complex regulatory treatment of prediction-market structures.
According to the CFTC’s June proposal, the agency would amend Regulation 40.11 and add a new Appendix F establishing a structured review for contracts involving gaming, terrorism, assassination, war or conduct that violates federal or state law. The proposal would require a contract-specific public-interest analysis rather than imposing a categorical ban on sports or political prediction markets. It also creates a review process examining price discovery, manipulation risk, settlement integrity and whether a registered venue has adequate compliance infrastructure.
The new framework followed a March ANPRM that sought broader public input on prediction markets and a February decision to abandon the previous administration’s 2024 event-contract proposal. The CFTC’s current position is that certain event contracts can qualify as federally regulated derivatives and that exchanges offering swaps or futures to the public must operate within the CFTC’s registered-market framework. A March staff advisory separately reminded designated contract markets of existing Core Principle 3 obligations against contracts readily susceptible to manipulation.
That approach has already produced direct operational conflicts with state regulators. Kalshi, for example, became caught between Michigan gambling restrictions and a CFTC directive affecting open event contracts. The dispute is fundamentally about preemption: whether a federally regulated derivatives market can still be subjected to state gambling rules when the underlying contract resembles a traditional wager.
Courts have not answered that question uniformly. The Third Circuit ruled earlier this year that New Jersey could not apply its gambling laws to Kalshi’s federally regulated contracts, while the Ninth Circuit subsequently allowed Nevada regulation. On September 25, the Sixth Circuit ruled that Ohio and Tennessee could enforce their gambling laws, concluding that Kalshi had not shown its sports contracts qualified as swaps entitled to exclusive CFTC oversight. The result is now a federal appellate split over the reach of CFTC preemption.
Market Integrity Becomes as Important as Jurisdiction
State governments have also challenged the CFTC directly. Forty-four attorneys general submitted comments opposing the agency’s treatment of sports prediction markets, arguing that gambling has traditionally fallen within state police powers. Tribal governments separately warned that broad federal authorization of sports contracts could conflict with tribal gaming rights and the Indian Gaming Regulatory Act. Those objections mean the final rule will operate inside a legal environment already being contested outside the CFTC’s own administrative process.
The agency is simultaneously focusing more closely on individual contract design. Its September advisory on so-called mention markets highlighted heightened manipulation and insider-information risks, while platforms have strengthened surveillance and participation controls. That regulatory direction is narrower than imposing universal swap-dealer registration, KYC mandates or new AML rules on every prediction-market participant, none of which is created by the June Rule 40.11 proposal itself.
The state challenge is becoming more concrete as well. New York has separately pursued prediction-market operators under state gambling law, while Kalshi continues arguing that federally regulated event contracts belong within a national commodities framework. The rulemaking may determine which contracts the CFTC permits inside federal derivatives markets, but the courts are increasingly deciding whether that federal permission is enough to keep states out. Until those two tracks converge, U.S. prediction-market access is likely to remain legally uneven across jurisdictions.
