A Turf War Over Prediction Markets: Washington and the States Clash Again
The Commodity Futures Trading Commission (CFTC) has asked a
federal court in Arizona to stop the state from using its gambling and criminal
laws against federally regulated prediction markets.
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The regulator filed a motion on Wednesday seeking a
preliminary injunction and temporary restraining order to block Arizona’s
enforcement actions.
Federal Regulator Opposes State Enforcement
The filing follows a lawsuit lodged last week by the CFTC
and the Department of Justice, challenging Arizona’s efforts to prosecute
companies operating under federal oversight. The regulator argues that
Arizona’s actions conflict with federal law and could undermine the CFTC’s
authority over event-based contracts.
“Arizona’s decision to weaponize preempted state criminal
law against companies that comply with a comprehensive federal regime sets a
dangerous precedent,” said CFTC Chairman Michael Selig. He added that the
agency will “vigorously defend its exclusive authority” over prediction
markets.
The latest development follows the CFTC’s recent filings of lawsuits against Arizona, Connecticut, and Illinois, accusing the states of
overstepping their authority by interfering with federally regulated prediction
markets.
The agency argues that these states unlawfully sought to
impose restrictions on designated contract markets (DCMs) approved by the CFTC,
in violation of the Commodity Exchange Act (CEA). Selig said
the commission will continue to defend its exclusive jurisdiction over event
contracts, financial instruments that allow trading on outcomes such as
elections or corporate performance, to prevent fragmented oversight and protect
market participants from inconsistent state rules.
Broader Dispute Over Jurisdiction
The lawsuits extend Selig’s campaign to reaffirm federal
control over prediction markets, following earlier filings and regulatory
clarifications issued by the commission.
Continue reading: CFTC Sues Arizona, Connecticut, and Illinois for Overreach on Prediction Markets
The CFTC maintains that event-based
contracts are derivatives under its jurisdiction, not gambling products, and
that insider trading laws apply to all such trading activities. Arizona has gone further by pursuing criminal
charges, prompting the federal regulator to seek judicial intervention.
Under the Commodity Exchange Act, the CFTC holds exclusive
authority to regulate event contracts, which include prediction markets. The
agency says this federal law preempts state-level efforts to impose overlapping
regulation. The outcome of the Arizona case could shape how prediction markets
operate across the United States.
Earlier, Selig escalated a jurisdictional clash between federal and state regulators over prediction markets, declaring that the U.S. derivatives watchdog, not state authorities, has sole oversight of event contracts. He said the agency has filed an amicus brief to reinforce its “exclusive jurisdiction” over prediction markets, describing these contracts as derivatives subject to federal regulation.
This article was written by Jared Kirui at www.financemagnates.com.
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