The Commodity Futures Trading Commission filed an amicus brief Tuesday in the Ninth U.S. Circuit Court of Appeals to defend its exclusive jurisdiction over prediction markets against a wave of legal challenges from state governments. The filing, made in support of Crypto.com, seeks to prevent states from establishing prohibitions that would bypass federal oversight of event contracts.
Defending Federal Regulatory Authority
The CFTC's legal action comes in response to the case North American Derivatives Exchange, Inc. et al v. The State of Nevada on relation of the Nevada Gaming Control Board et al. According to a CFTC press release issued February 17, 2026, the commission is asserting that states are attempting to undermine its sole regulatory authority over commodity derivatives.
In an op-ed published in the Wall Street Journal, CFTC Chairman Michael S. Selig stated that well-known CFTC-registered exchanges—including Kalshi, Polymarket, Coinbase, and Crypto.com—are facing an "onslaught of state-driven litigation" across the country. Selig noted there are nearly 50 active cases presenting legal challenges to these markets.
Legal Arguments Over Gambling Allegations
A primary point of contention in the ongoing litigation is whether prediction markets constitute a form of gambling subject to state laws. The CFTC argues that these instruments, which it refers to as event contracts, are actually "swaps" under the plain language of the Commodity Exchange Act.
Chairman Selig asserted Tuesday that the commission will not "sit idly by" while states attempt to establish statewide prohibitions on these products. He characterized the state-led efforts as a "power grab" that ignores decades of legal precedent and the agency's exclusive jurisdiction over commodity derivatives.
Economic Functions Of Event Contracts
The CFTC maintains that event contracts serve essential economic functions beyond simple speculation. According to the commission, these markets allow businesses and individuals to hedge risks related to real-world outcomes, such as farmers managing temperature fluctuations or small-business owners hedging against energy-price spikes or tax increases.
Chairman Selig also noted that these markets provide valuable public information regarding future events. He cited the scale of the 2024 presidential election victory for Donald Trump as an example where prediction markets provided clear signals to observers.
Historical Regulatory Framework
The regulatory history of these markets dates back several decades. The CFTC first officially recognized event contracts in 1992 by granting relief to the Iowa Electronic Markets at the University of Iowa, which allowed trading on events like corporate earnings and presidential elections.
Following the 2008 financial crisis, Congress granted the CFTC comprehensive authority over any contract based on a commodity. The commission noted that the statutory definition of "commodity" is broad enough to include most goods, services, and interests, excluding only onions and movie box-office receipts.
Market Oversight And Growth
The CFTC emphasized that these exchanges are not unregulated environments but are instead supervised by experienced staff to prevent fraud and manipulation. The commission noted that registered entities must comply with Bank Secrecy Act rules, including anti-money-laundering measures and the collection of customer information to prevent insider trading.
Industry reports cited by the commission suggest significant growth in the sector, with an estimate that the global number of users has quadrupled to 15 million over the last two years.
