CFTC Sues New Mexico To Block State Restrictions on Prediction Markets

The lawsuit seeks to prevent New Mexico from enforcing state gaming rules against CFTC-registered exchanges. The regulator argues that event contracts traded on federally designated contract markets fall under exclusive federal authority and cannot be restricted by individual states.

The case follows New Mexico’s lawsuit last week against Kalshi, a CFTC-regulated prediction market, which the state accused of offering unlawful online sports betting through its sports-event contracts.

Federal authority tested

The central dispute is whether prediction markets – platforms that allow users to trade on the outcome of real-world events – should be regulated as derivatives or as gambling. The CFTC maintains that Congress gave it sole jurisdiction over event contracts listed on CFTC-registered exchanges under the Commodity Exchange Act.

New Mexico claimed Kalshi’s sports-related contracts violated state online betting laws and moved to block the company from offering them. The state has argued that these contracts function similarly to sports betting and raise consumer protection concerns. The CFTC warned that allowing states to impose separate gaming rules would fragment the national derivatives market and create conflicting regulatory standards for platforms operating across state lines.

The agency has taken similar action elsewhere. In April, it sued Arizona, Connecticut and Illinois over comparable restrictions. It has also intervened in litigation involving Crypto.com’s US derivatives platform.

Momentum towards federal oversight

The CFTC’s position has gained judicial support. In April, the US Court of Appeals for the Third Circuit ruled that New Jersey could not apply state gambling laws to sports-event contracts offered by Kalshi when those contracts trade at CFTC-regulated venues.

The New Mexico lawsuit comes weeks after the CFTC eased certain reporting requirements for event-contract operators while continuing to challenge state-level restrictions.

With prediction markets expanding rapidly – including established platforms such as Kalshi and crypto-native operator Polymarket – the outcome of the case carries significant implications for the sector. A ruling in the CFTC’s favour would reinforce federal preemption and give platforms greater legal certainty to offer contracts nationwide. A loss could embolden more states to pursue enforcement actions, potentially forcing operators to limit or withdraw certain markets and reducing available liquidity for users.