The Commodity Futures Trading Commission (CFTC) has filed lawsuits against Arizona, Connecticut, and Illinois, accusing them of interfering in markets under federal jurisdiction. The regulator claims the states acted unlawfully by attempting to restrict or regulate designated contract markets (DCMs) that operate under CFTC approval.

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Federal Jurisdiction Dispute

According to the CFTC , the Commodity Exchange Act (CEA) grants it exclusive authority to oversee event contracts, which allow trading based on outcomes such as elections or company performance. The lawsuits aim to reaffirm that state regulators have no power to impose separate rules or bans on such activities.

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“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” said Chairman Michael S. Selig. He added that Congress rejected fragmented state oversight to prevent inconsistent standards and greater risk of fraud.

The new lawsuits extend a campaign that CFTC Chair Michael Selig started earlier this year to defend prediction markets from state-level challenges. In February, he said the agency had filed an amicus brief in ongoing cases and warned that state regulators “will see” the CFTC in court as it seeks to assert what he calls its exclusive jurisdiction over event contracts.

Clarifying the Regulatory Framework

The commission recently issued an Advanced Notice of Proposed Rulemaking to address confusion surrounding the application of federal rules to prediction markets. The CFTC officially recognized event contracts in 1992 through the Iowa Electronic Markets and gained expanded authority after the 2008 financial crisis.

The legal actions seek to reinforce a unified federal approach and protect market operators from conflicting state regulations that could disrupt the growing prediction market sector.

Selig’s position marks a shift from the agency’s earlier attempts to shut down political and event‑based markets run by platforms such as Polymarket and Kalshi.

Courts pushed back against parts of that crackdown, and after Donald Trump returned to the White House and replaced the CFTC’s leadership, the commission dropped those cases and withdrew a proposal that would have imposed broad restrictions on political and sports prediction markets.

The CFTC has also clarified that prediction market contracts fall under derivatives rules, not gambling laws, and that insider trading regulations fully apply. In his first public comments as Enforcement Director, David Miller said it is “wrong” to assume insider trading does not apply to these markets, stressing that firms must treat event-based trading like any other financial product when it comes to the use of non-public information.