The Commodity Futures Trading Commission is escalating a jurisdictional showdown over prediction markets, telling a federal appeals court that Ohio has overstepped its authority in a case against platform operator Kalshi.
In an amicus brief filed with the U.S. Court of Appeals for the Sixth Circuit, the agency argued that Ohio’s 2025 enforcement action interferes with federal oversight of derivatives markets and intrudes on the Commission’s exclusive jurisdiction over certain event-based contracts.
Clash over federal and state power
The CFTC’s brief directly challenges an Ohio lawsuit that treats Kalshi’s contracts as unlicensed sports betting subject to state gambling law. State officials, led by Casino Control Commission Executive Director Matthew Schuler, contend that Kalshi’s activity is functionally no different from sports wagering.
Kalshi has argued that its products are federally regulated derivatives, not gambling products, and previously sought temporary court protection from Ohio’s enforcement.
In March, Chief Judge Sarah D. Morrison of the U.S. District Court for the Southern District of Ohio rejected Kalshi’s request for a preliminary injunction. She concluded that Congress did not clearly preempt state gambling laws when it wrote the federal statutes governing derivatives.
The CFTC’s May 12 brief urges the Sixth Circuit to take the opposite view, asserting that contracts like those traded on Kalshi fall squarely within the Commission’s exclusive jurisdiction and are not properly regulated as state gambling products.
Growing national conflict over prediction markets
The Ohio dispute is one front in a broader national battle over how to classify and regulate prediction markets.
Over recent months, the CFTC has brought actions against five states—Wisconsin, Illinois, Arizona, Connecticut, and New York—seeking to reinforce its authority over platforms that allow trading on the outcomes of elections, economic indicators, and sporting events.
CFTC Chair Michael Selig has advanced proposed rules aimed at clarifying federal jurisdiction over event-based contracts. State regulators, however, argue that many of these platforms operate in violation of existing gaming laws, particularly where contracts are tied to sports results.
In April, New York Attorney General Letitia James led a coalition of 38 state attorneys general in filing an amicus brief supporting Massachusetts in separate litigation against Kalshi. That filing urged courts to back robust state gambling regimes and to treat market structures that resemble betting as subject to local control.
Judicial split raises prospect of Supreme Court review
The legal picture has grown more complex amid conflicting rulings in different jurisdictions. A federal appeals court previously sided with Kalshi in a clash with New Jersey, bolstering the company’s argument that its markets fall under federal derivatives law.
By contrast, the Sixth Circuit recently denied Kalshi’s request for an emergency injunction against Ohio’s enforcement efforts, leaving the state’s position intact for now and underscoring a widening judicial divide.
That split, combined with the CFTC’s assertion of exclusive jurisdiction in its latest brief, is increasing expectations that the U.S. Supreme Court may ultimately need to decide whether event-based contracts are commodities overseen by a single federal regulator or gambling products subject to a patchwork of state rules.
Fundamental question: financial instrument or gambling?
At the core of the Ohio case is a definitional dispute with sweeping implications: are event-based contracts sophisticated financial instruments subject to federal derivatives regulation, or are they simply wagers that fall under state gambling law?
How courts answer that question will shape the future of prediction markets and may serve as a template for the treatment of other novel digital markets that blur the line between finance and gaming. For platforms and participants, the uncertainty has created a complex legal landscape that varies significantly from one state to another.
Market growth outpaces regulatory clarity
Despite the legal turmoil, the market for event-based contracts has expanded rapidly. Global trading volume surged by more than 400% from 2024 to 2025, reaching nearly $64 billion, according to industry estimates.
Some analysts project that by 2026, trading volumes could increase fivefold, potentially exceeding $325 billion as these products move closer to mainstream adoption and attract a broader pool of traders.
This growth is heightening pressure on regulators to move beyond ad hoc enforcement and define a clear, durable framework.
CFTC shifts toward a national framework
Responding to the market’s expansion, the CFTC has begun laying the groundwork for a nationwide regulatory structure.
In March 2026, the agency published an Advance Notice of Proposed Rulemaking to solicit public input on a permanent framework for event contracts. At the same time, Chair Selig withdrew a more restrictive 2024 proposal and signaled a shift toward rules that support “responsible innovation” while maintaining oversight.
Selig has argued that a unified federal system is essential in a digital environment where platforms and traders operate across borders. A fragmented regime of 50 separate state systems, he has warned, could undermine liquidity, raise compliance costs, and reduce operational efficiency.
Coordination with sports leagues and broader markets
To buttress its oversight, the CFTC is in talks with major professional sports leagues to establish information-sharing agreements. Those arrangements are intended to monitor for manipulation and protect market integrity as event-based trading increasingly intersects with sports data and outcomes.
In public remarks at a financial industry conference on Tuesday, Selig reiterated that prediction markets require national, not state-by-state, oversight because activity flows freely across state lines. His comments echoed the themes in the CFTC’s latest court filing and underscored the agency’s view that these products belong inside the broader financial regulatory ecosystem.
High stakes for emerging digital markets
The outcome of the CFTC’s confrontation with Ohio—and related battles in other states—will set a precedent that extends well beyond prediction markets.
If courts affirm the CFTC’s position, innovative event-based products would likely fall under a single, coherent federal authority, giving platforms and traders clearer rules of the road. If states prevail, operators could face a fragmented landscape of inconsistent regulations, potentially limiting growth and complicating cross-border activity.
For those active in markets with similarly uncertain classifications, the Kalshi litigation and the CFTC’s evolving rulemaking process are emerging as a pivotal case study in how U.S. regulators respond to new financial technologies that straddle the line between trading and gambling.
Curious how traditional finance and crypto intersect? Explore Toobit’s perspective in What is TradFi and how does it work today.
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