The battle over who gets to control the new frontier of intensified as the Commodity Futures Trading Commission () filed lawsuits against Arizona, Connecticut and Illinois to counter their opposition to federally regulated events contracts offered by platforms like and .
At least nine US states have announced varying levels of legal resistance to the fast-growing exchange platforms that allow trading on the outcome of real-world events using event contracts, with most of the disputes focused on sports wagering and election outcomes.
The three states targeted by the CFTC in a 2 Apr statement have taken the most aggressive legal actions including criminal charges and cease-and-desist orders that usurp the federal regulator’s oversight.
"The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators," said CFTC Chairman Michael S. Selig. "This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation."
Focus on sports, elections betting
Regulators in the three states allege that prediction markets constitute unlicensed illegal gambling and lack essential consumer protections, including age limits and adherence to state gaming rules on sports betting. Arizona has warned that contracts involving elections create a financial incentive that may influence voting.
States are also concerned that the platforms may evade state taxes and licensing rules. Legalized sports betting is a cash cow for many states, and a designation of events contracts as federally regulated financial products could cost millions in revenue for state budgets.
New framework for prediction markets
The CFTC has issued an Advance Notice of Proposed Rulemaking (ANPRM) as a formal first step toward creating a new federal regulatory framework specifically for prediction markets.
In the statement, the CFTC revisited its connection with event contracts, noting that its first official recognition of these markets was in 1992 when it permitted the Iowa Electronic Markets to operate. "In the wake of the 2008 financial crisis, Congress expressly granted the CFTC comprehensive authority over any such contract based on a commodity, which is broadly defined in statute," the agency said.
