The Commodity Futures Trading Commission filed an amicus brief in the U.S. Circuit Court of Appeals for the Ninth Circuit on Feb. 17, asserting its exclusive jurisdiction over prediction markets and pushing back against state regulatory challenges.
The brief was filed in *North American Derivatives Exchange, Inc. et al v. The State of Nevada on relation of the Nevada Gaming Control Board et al*, a case that centers on whether states can regulate prediction markets that the CFTC considers commodity derivatives under federal law.
"CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans' access to event contracts and undermine the CFTC's sole regulatory jurisdiction over prediction markets," said CFTC Chairman Michael S. Selig. "This power grab ignores the law and decades of precedent."
The dispute reflects broader tensions between federal and state regulators over the rapidly growing prediction markets industry, where users can trade contracts based on the outcomes of political elections, economic indicators, and other future events.
Selig characterized the state challenges as attempts to circumvent established federal authority. "Event contracts allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events," he said. "These products are commodity derivatives and squarely within the CFTC's regulatory remit."
The CFTC's position rests on decades of regulatory precedent and congressional action. The agency first officially recognized event contracts in 1992 when it allowed the Iowa Electronic Markets, a futures market at the University of Iowa where traders could buy and sell contracts tied to events such as presidential elections and corporate earnings.
Following the 2008 financial crisis, Congress expressly granted the CFTC comprehensive authority over any contract based on a commodity, which federal statute defines broadly. The Commodity Exchange Act was designed to accommodate innovation in financial markets, allowing for new and emerging use cases within CFTC-regulated markets.
In its amicus brief, the CFTC outlined the legal history establishing its exclusive jurisdiction over all commodity derivatives markets, including prediction markets. The agency argued that courts and Congress have repeatedly affirmed the CFTC's regulatory role in these markets over the years.
The commission contended that states and other federal entities lack authority to regulate markets within the CFTC's exclusive jurisdiction. According to the brief, attempts by states to impose additional regulations would have destabilizing economic effects on these markets.
The Nevada Gaming Control Board's involvement in the case reflects concerns from state gaming regulators who view prediction markets as potentially overlapping with their traditional oversight of gambling activities. However, the CFTC maintains that prediction markets serve legitimate financial functions beyond mere speculation.
The federal agency emphasized that event contracts provide valuable economic functions, including risk management tools for businesses and portfolio hedging opportunities for investors. These markets also generate information about the probability of future events that can inform business and policy decisions.
Chairman Selig stressed the CFTC's commitment to defending its regulatory territory. "As I've said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that's exactly what we'll do," he said.
The case comes as prediction markets have gained increased attention and participation, particularly around political events and economic indicators. Several CFTC-registered exchanges now offer event contracts, creating a growing market that generates millions of dollars in trading volume.
The Ninth Circuit's eventual ruling could have significant implications for the future of prediction market regulation. A decision favoring state authority could fragment regulatory oversight and create compliance challenges for exchanges operating across multiple states.
Conversely, a ruling supporting the CFTC's position would reinforce federal primacy over these markets and potentially clear the way for broader adoption of prediction market products.
The case also reflects broader debates about the appropriate scope of federal versus state financial regulation, particularly for emerging financial products that don't fit neatly into traditional regulatory categories.
While the Ninth Circuit has not yet scheduled oral arguments in the case, the CFTC's amicus brief signals the agency's determination to maintain its regulatory authority over prediction markets despite growing state-level challenges.
The outcome will likely influence how other courts and regulators approach similar jurisdictional disputes as prediction markets continue to evolve and expand their reach in American financial markets.