Chairman Selig and the CFTC Make the Case for Federal Jurisdiction Over Prediction Markets

The Commodity Futures Trading Commission (CFTC or the Commission) is not waiting for the courts to sort out who regulates prediction markets. In the span of a couple days, CFTC Chairman Michael S. Selig published an op-ed in The Wall Street Journal[1] making the affirmative case for federal oversight of event contracts, and the Commission filed an amicus brief in North American Derivatives Exchange, Inc. v. The State of Nevada in the Ninth Circuit (Nadex)[2] arguing that state gambling laws are preempted by the CFTC’s exclusive jurisdiction over swaps and futures traded on designated contract markets (DCMs).

The timing is not incidental. Attorneys general in multiple states have moved aggressively to shut down event contract trading within their borders,[3] and a Ninth Circuit appeal brought by Nadex (d/b/a Crypto.com) is now testing whether the CEA’s grant of exclusive jurisdiction bars states from treating exchange-traded event contracts as illegal gambling. Below, we walk through the Chairman’s and the Commission’s principal arguments.

What Event Contracts Are and Why They Matter

Event contracts are binary options or swaps that pay out based on whether a specified real-world outcome occurs: an election result, a temperature anomaly, a macroeconomic indicator. Unlike pooled betting or pari-mutuel wagering, these instruments are standardized, cleared through central counterparties, and traded on CFTC-regulated exchanges, where they serve recognized price discovery and risk transfer functions.

Chairman Selig’s op-ed emphasizes the hedging utility these markets provide: agricultural producers can manage weather-driven basis risk, corporate treasurers can offset exposure to policy changes, and portfolio managers can express views on macro events without taking directional positions in equity or fixed-income markets. More broadly, prediction markets aggregate dispersed information into probability-weighted price signals and empirical research suggests they do so with notable accuracy.

The CFTC’s Existing Oversight Framework

The CFTC has had jurisdiction over derivatives markets since 1974, with a mandate to promote market integrity, mitigate systemic risk and protect customers. Registered exchanges must maintain surveillance programs, implement KYC and AML protocols, and enforce position limits and anti-manipulation rules. Chairman Selig pushes back against characterizing these markets as under-regulated, noting that derivatives exchanges operate as self-regulatory organizations under continuous CFTC oversight and must comply with 23 core principles. The resulting framework, he argues, strikes a workable balance between encouraging innovation and protecting investors.

How States Are Challenging Federal Authority

As event contract trading has grown on CFTC-regulated exchanges, state regulators have pushed back. Attorneys general in Nevada, Massachusetts, Maryland, Utah and other states have issued cease-and-desist orders and brought enforcement actions, contending that event contracts constitute illegal gambling under state law. Their position is that if a product’s payout resembles a wager, state gambling laws should apply regardless of how the instrument is classified at the federal level. Whether states can recharacterize a federally regulated derivative as gambling to sidestep federal preemption is the central question in this dispute.

The CFTC’s Arguments in Its Amicus Brief

The CFTC filed its amicus brief in Nadex in support of the reversal of the Nevada district court’s decision, which concluded that sports event contracts are not “swaps” under the CEA by relying on a distinction between an event’s occurrence and its outcome. The CFTC's brief rejects that distinction and advances both statutory and preemption arguments.

Event Contracts Are Swaps Under the CEA. Under CEA Section 1a(47)(A)(ii), a “swap” includes any agreement providing for payment “dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.” The Commission argues that an “event” is, by ordinary meaning, “something that happens: occurrence,” and a “contingency” is an “event that may but is not certain to occur.”[4] The Commission notes that the final score of a game is plainly that. The Commission further notes that the CEA’s definition of “swap” does not limit coverage to binary outcomes. It expressly encompasses contracts dependent on “the extent” of an occurrence.”

The CEA Preempts State Gambling Laws as Applied to DCM-Traded Swaps. The brief separately argues that Section 2(a)(1)(A) of the CEA grants the CFTC “exclusive jurisdiction” over swaps and futures traded on registered exchanges, preempting state gambling laws under both field preemption and conflict preemption theories. On field preemption, when an instrument trades on a CFTC-regulated market as a swap, state gambling laws do not apply. On conflict preemption, state gambling bans create an impossibility conflict: DCMs are required by federal regulation to provide “impartial access” to all eligible participants nationwide, and they cannot comply if individual states ban the contracts being traded.

Destabilizing Economic Consequences. The brief also warns that a ruling against the CFTC’s position would destabilize markets well beyond sports contracts. The Commission notes that at least eight DCMs have collectively self-certified more than 3,000 event-based contracts with the CFTC, the vast majority of which are tied to non-sport outcomes, including cryptocurrency price levels, GDP releases, interest-rate decisions, election outcomes and temperature forecasts. The Commission argues that excluding event contracts from the swap definition would provide no principled boundary to prevent states from recharacterizing other event-based derivatives as gambling, reintroducing the state-by-state fragmentation that Congress displaced in 1974.

What the Ninth Circuit’s Decision Will Mean for Market Participants — and Who Gets to Decide

If state gambling statutes can reach federally regulated event contracts, the consequences for exchanges and market participants would be significant. The same instrument could be legal in one state and prohibited in the next, creating a fragmented compliance environment that would drain liquidity and erode the informational value that makes prediction markets useful in the first place. These are not hypothetical concerns — Super Bowl LX alone generated over $1 billion in notional volume on regulated prediction market platforms.[5]

The case also raises questions well beyond prediction markets. It will test whether states can recharacterize financial instruments as gambling to circumvent an express federal jurisdictional grant. As Chairman Selig wrote: “Any erosion of the CFTC’s ability to regulate transactions in commodity derivatives is a direct threat to the markets and investors Congress intended the agency to oversee.”