The integrity of US federal markets will be undermined if states can impose their own rules on prediction market operators, says Michael Selig, the Chairman of the Commodity Futures Trading Commission.
Selig made the comments while speaking onstage with the Nebraska congressman Mike Flood during this week’s Flyover Fintech conference, in Lincoln, Nebraska.
He was speaking just days after a federal judge in Utah ruled that the Beehive State can apply its own gambling laws to the prediction market platform Kalshi.
“If states can impose certain additional requirements or certain criminal penalties on exchanges, then we don’t have a federal, national market system here in the United States,” said Selig. “I think this is very concerning. And it’s really important that we fight these attempts by the states to nullify federal law.”
In New York, state officials are stepping up their campaign to sue Kalshi for $36 billion.
The state has reportedly issued Kalshi with subpoenas, demanding details of sports-related contract transactions allegedly involving residents aged under 21.
States’ Prediction Market Regulation Sparking ‘Race to the Bottom’
Selig took aim at the states, claiming their efforts to police CFTC permit-holding prediction market exchanges could result in a fragmentation of the market.
“[If states get their way,] what we have is essentially a race to the bottom,” said Selig. “It’s going to be a system where I’m going to set up my exchange, and it’s going to be in Florida, or in Texas, as opposed to New York or California, because I don’t want these additional […] transaction costs imposed on my exchange. And I certainly don’t want to go to jail for offering a bad contract.”
But while the states continue to duke it out with Kalshi and other operators, Selig said the CFTC will stay away from cases that involve prediction market operators.
Instead, the commission will continue efforts to sue the states in separate actions, he said.
“We’ve sued a number of states, really in reaction, as opposed to being the one going on the offensive,” said Selig. “We want to set the stage for litigation. So we’re not joining third-party exchanges’ litigation, typically. We are bringing our own cases, so they have clean facts and are really focused on the narrow issues at hand.”
Politicians opposed to granting prediction markets more regulatory freedom have objected to Selig’s legal moves. A group of Senators recently launched a bill aimed at cutting off the CFTC’s access to federal funds in the commission’s efforts to sue states.
But Selig said the CFTC must press ahead with its legal cases.
“We believe this litigation is vitally important to protecting the agency’s mandate to regulate these markets on a national scale,” he said.
Sports Contracts: A Sticking Point
On X, critics objected to Selig’s claims, arguing that states’ main issue with prediction markets is that they can offer sports-related contracts.
Selig also reiterated his previous assertions that prediction market contracts and gambling are two different things.
Contracts “have specific terms around settlement,” as well as “certain guarantees” that casino operators and bookmakers cannot provide, Selig said.
He called prediction markets “a novel kind of derivative” that allow for “risk management in a wide range of products.”
Selig said prediction market contracts “work very well” for groups including agricultural producers growing speciality crops, and provide an alternative to conventional futures contracts.
The legal tug-of-war between states, the CFTC, and prediction market operators continues to take twists and turns.
Late last month, a judge in Minnesota ruled in favor of prediction market operators who objected to the state’s attempt to ban most of their event contract offerings.
Lawyers have told CasinoBeats that even if prediction markets emerge triumphant in their battle with the states, more legal challenges are now inevitable.
