1. What did the CFTC tell prediction markets on November 5?
The Commodity Futures Trading Commission said late on Thursday, November 5, that federally regulated prediction markets may not cut off customers state by state, a position that puts the agency at odds with courts that have ordered firms such as Kalshi to do exactly that. Companies have 30 days to restore nationwide access or explain why that is not feasible.
The agency issued the position as a new interpretation of its rules and named Kalshi and Polymarket as examples of exchanges covered by it. Kalshi and similar platforms list event contracts on subjects such as sports, weather and politics. They operate as designated contract markets, the category of exchange that sits under federal derivatives law and answers to the commission.
The agency's view is that a designated contract market cannot go dark in particular states and has to operate nationwide. That is true even where a court has found otherwise, which is the source of the clash: the commission is effectively telling regulated firms to restore access in places where judges have told them to close it.
2. Why does the CFTC oppose geographic restrictions?
CFTC Chairman Mike Selig argues that derivatives markets must function uniformly across the country to serve the purposes of the Commodity Exchange Act. In his statement, he said geographic access restrictions conflict with those purposes and with the act's requirement of impartial access to regulated markets.
The interpretation also makes a market-quality argument. Excluding an entire state, it warns, could leave a market depending on a narrower group of participants, particularly where the excluded state accounts for a large share of activity. A thinner pool of traders generally means less liquidity, which can widen the gap between buying and selling prices and make contracts less useful as a gauge of expectations.
The guidance uses sports as an illustration. Some contracts attract strong regional interest, such as whether a local team will reach the playoffs, and cutting off those regions could reduce trading in them. It adds that election markets may be especially vulnerable, because statewide or local election contracts can draw most of their volume and knowledge from residents of the place holding the vote. In the guidance's words, election markets may be particularly sensitive to harms from geographic access restrictions.
3. Which courts have ruled against the platforms?
The new position arrives after a run of court setbacks for both the industry and the agency in disputes over whether prediction markets violate state gambling laws. Several of the rulings came in recent days.
The Second Circuit ruled against Kalshi and Coinbase, a decision that could open the door to enforcement actions in Connecticut and New York. The Ninth Circuit found that Kalshi is likely to lose its argument that its contracts do not violate tribal gambling laws. That case went back to a federal judge in California, who ordered access blocked in certain tribal jurisdictions.
Kalshi users in Nevada, Washington and Michigan have already been geofenced while the company contests those states' cases and others. Utah, whose state constitution bans all gambling, is pressing hard against Kalshi. It is pursuing a civil case and has recently brought criminal charges. Federal appeals courts and state courts are therefore pointing the same way, while the federal commission is pointing the other.
4. What does geofencing mean for prediction market users?
Geofencing means a platform uses location checks to block residents of specific states from trading. For a company under a court order, it is the obvious way to comply: the platform keeps operating elsewhere while shutting out users in the jurisdiction that won the ruling. For users in affected states, it means they can no longer open new positions on the platform.
The CFTC's interpretation puts that compliance method into question. If the commission's view prevails, a firm that blocks a state to satisfy a judge would be violating federal expectations, while a firm that reopens it would be defying the judge. Companies are caught between two authorities, each of which says its own law controls.
That tension explains the 30-day window. Firms must either reopen closed regions or tell the agency why doing so is not feasible. Presumably, a court order would be the central reason a company could give, though the agency has not said what explanations it will accept. A Kalshi spokesperson did not respond to a request for comment on the company's compliance plans before publication.
5. What is a designated contract market, and why does it matter for CFTC prediction markets?
A designated contract market is an exchange that the commission has approved to list futures, options and similar contracts. To win that status, an exchange has to meet requirements on surveillance, recordkeeping, fair access and the handling of customer funds. Kalshi holds this status, which is why it argues that its event contracts belong under federal supervision instead of state gambling regulators.
The status carries a trade-off. Because the exchange is federally regulated, the commission can set expectations for how it admits customers and how it writes its rules. The new interpretation relies on that power, telling exchanges to examine their access criteria, their rulebooks and the intermediaries through which customers reach them. Intermediaries, such as brokers and apps that route orders, are therefore also within the scope of the review.
The Commodity Exchange Act is the federal statute that created this framework. Selig's argument leans on its stated purposes, including fair and orderly markets, and on its requirement of impartial access. The reasoning is that a market open in one state and closed in another is not impartial, and that a market with participants missing from large regions may not price risk as well as one with national participation.
6. Is this a new type of legal conflict?
Disputes over whether federal law overrides state law are common in American regulation, and they usually end in the courts. What is unusual here is that a federal agency is publicly instructing regulated firms to take a course that judges have prohibited. A company in that position cannot easily satisfy both parties, so the commission's guidance effectively moves the dispute toward a direct confrontation.
The guidance does not, by itself, overrule any court. Judicial orders remain binding on the companies named in them, and the agency has no power to cancel an injunction. What the interpretation does is state how the commission will view the conduct of exchanges that comply with such orders, which could matter if the agency later examines those firms.
For the industry, the episode shows how much of the sector's future depends on a question that no single ruling has settled. Appeals courts have so far issued mixed signals across different circuits, and the Supreme Court has not resolved the matter. Until a definitive decision arrives, operators face a patchwork in which access depends on where a customer lives and which court has most recently spoken.
7. How have critics responded?
Better Markets, a consumer advocacy group, called the federal court rulings part of a long line of clear decisions. It said the commission's stance has no basis, urged that the gambling be stopped and called for those involved to be prosecuted. The group's statement said that the law is clear.
The criticism reflects the central legal dispute. Prediction market operators argue that federal law governs their contracts as derivatives and overrides state rules. State officials and advocacy groups argue that contracts on sports outcomes and similar events are gambling, which states have traditionally regulated. The agency has sided with the industry's reading, while several courts have not.
8. Why is the CFTC acting alone?
The agency is supposed to have five bipartisan commissioners, but only one currently serves: Selig, a Republican. As a result, actions by the commission are issued without the votes of colleagues, so the interpretation reflects a single official's judgment rather than a majority decision.
Selig has made prediction markets a top priority and wants friendlier federal oversight of them. At the same time he is fighting states that argue the platforms offer unregulated gambling that belongs under state gaming law. Utah, with its full gambling ban, is one of those states.
The latest move follows a similar one in July. Then, the commission urged Kalshi to ignore a Michigan court order to reverse certain trades, making an argument comparable to the one in the new interpretation. The pattern suggests the agency is willing to challenge state court outcomes directly when it believes federal authority is at stake.
9. What happens next for Kalshi, Polymarket and the courts?
The immediate deadline is the 30-day period set by the commission. By the end of it, firms such as Kalshi are expected either to restore service in regions they have closed or to explain why they cannot, and the agency has said it expects exchanges to review their access criteria, exchange rules and intermediary arrangements.
The harder question is what happens if a firm follows a court order and the commission treats that as a violation. The interpretation does not resolve the conflict between the federal agency and the judges, and the cases in the Second and Ninth Circuits, in Utah and in other states continue. Further rulings could either narrow the commission's room to maneuver or strengthen the case that federal law preempts state gambling rules.
For traders, the practical effect is uncertainty. Access in some states remains blocked under court orders, the federal regulator is saying such blocks should not exist, and the companies have not yet said how they will respond. Readers following prediction markets should expect the dispute to be decided in the courts rather than by the commission's guidance alone.