The U.S. Commodity Futures Trading Commission invoked emergency authority on August 11 to order prediction market operator KalshiEX to continue nationwide operations, directly countering a $36 billion lawsuit filed by New York Attorney General Letitia James on July 31. The order, issued under Sec...
"The Commodity Exchange Act has established exclusive federal regulatory authority over event contracts." — North Carolina Senate Bill 257, signed into law July 7, 2026
The U.S. Commodity Futures Trading Commission invoked emergency authority on August 11 to order prediction market operator KalshiEX to continue nationwide operations, directly countering a $36 billion lawsuit filed by New York Attorney General Letitia James on July 31. The order, issued under Section 8a(9) of the Commodity Exchange Act, marks the first time the CFTC has used emergency powers to shield a registered exchange from state enforcement action.
The intervention escalates a jurisdictional dispute that now spans nine federal lawsuits, a coalition letter from 44 state attorneys general, one felony statute, one appellate ruling, and a proposed rulemaking — all centered on whether prediction markets are federally regulated derivatives or state-regulated gambling. At stake: a market that hit $111 billion in notional volume in Q2 2026 alone, more than all of 2024 and 2025 combined.
On August 11, the CFTC published Release 9281-26, directing KalshiEX to continue operating in accordance with the Commodity Exchange Act's Core Principles. The agency cited Section 8a(9), which permits intervention when the Commission determines a "major market disturbance" threatens orderly trading.
The order does not resolve the underlying preemption question. It is not a judicial ruling. It directs Kalshi to maintain normal exchange operations while the state court case proceeds. According to Bettors Insider, the CFTC indicated it may force Kalshi to continue trading in New York even if a state court issues a ban — a position that would set up a direct confrontation between federal regulatory authority and state judicial power.
New York Attorney General Letitia James filed suit on July 31, accusing Kalshi of operating an unlicensed gambling operation. The complaint, filed jointly with Governor Kathy Hochul, alleges that Kalshi's sports-related prediction markets allow New Yorkers as young as 18 to bet on sporting events without a state gaming license. New York's legal gambling age is 21.
The state seeks a minimum of $36 billion — calculated as three times the company's estimated gains — plus forfeiture of all illegal proceeds, restitution to consumers, and a nationwide injunction on operations. According to the New York Attorney General's office, the lawsuit also seeks a temporary restraining order that would have prohibited Kalshi from offering all event contracts.
The financial magnitude of this dispute is substantial. According to data compiled by NextPredict, total notional volume across tracked prediction market platforms reached $111 billion in Q2 2026, up from $80 billion in Q1. The FIFA World Cup drove a single-month record of $52.7 billion in June.
Kalshi dominates. The platform posted $31 billion in notional volume in June 2026, a 70% increase from May. Daily volume has exceeded $1 billion every day since June 13. Monthly revenue reached annualized $2 billion by May. In May 2026, Kalshi closed a $1 billion Series F at a $22 billion valuation, led by Coatue with participation from Sequoia, Andreessen Horowitz, Morgan Stanley, and ARK Invest. That valuation doubled in five months.
Polymarket recorded $10.8 billion in June volume. Its offshore arm recorded $9 billion in April volume alone, compared to $1.3 billion on the regulated U.S. platform. Polymarket's U.S. entity, QCX LLC, holds CFTC-issued designated contract market and clearing licenses, obtained through the November 2025 Amended Order of Designation.
Robinhood entered via Rothera, a joint venture with Susquehanna International Group. Rothera saw $2 billion in notional volume during June and now holds approximately 7% of U.S. prediction market activity.
Together, Kalshi and Polymarket command 91% of tracked volume. Institutional trading volume on Kalshi increased 800% over the prior six months.
Courts are divided. The most significant ruling to date came on April 6, when the U.S. Court of Appeals for the Third Circuit ruled 2-1 in Kalshi's favor, upholding a preliminary injunction that blocked New Jersey gaming regulators from enforcing state gambling laws against the platform.
The Third Circuit held that Kalshi's sports-related event contracts qualify as "swaps" subject to the CFTC's exclusive jurisdiction, triggering both field and conflict preemption under the Commodity Exchange Act. According to Holland & Knight, this was the first federal appellate decision on the question of whether CFTC jurisdiction over sports event contracts is exclusive.
Within days, the CFTC and DOJ filed federal lawsuits against Arizona, Connecticut, and Illinois, bringing the total to nine states sued by federal regulators: Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin.
However, the pro-state side has wins as well. Courts in the District of Maryland, Suffolk County Superior Court of Massachusetts, and the Southern District of Ohio have ruled in favor of state authority. The lack of appellate consensus means the issue may ultimately require Supreme Court resolution or congressional action.
On July 28, as the CFTC's comment period on its proposed prediction market rule closed, 44 state attorneys general submitted a joint letter contesting the Commission's authority over sports event contracts. The coalition was led by Ohio Attorney General Andy Wilson.
According to CNBC, the letter argued that the CFTC's proposed rule exceeds its statutory authority under the Commodity Exchange Act and that the agency should draft new rules. The states contend that sports-related prediction contracts are functionally equivalent to sports bets — an area they have regulated, taxed, and licensed for decades.
The 44-state letter represents the broadest state-level opposition to CFTC preemption in the history of derivatives regulation. Only six states did not sign.
Minnesota became the first U.S. state to criminalize prediction market operations. Governor Tim Walz signed SF4760 on May 18, making it a felony — punishable by up to five years in prison and a $10,000 fine — to create, operate, host, or advertise a prediction market platform within the state. The law took effect August 1.
The statute targets platform operators, not individual users. A Minnesota resident who places a trade on Kalshi or Polymarket does not face criminal liability; the exposure falls on companies facilitating operations within the state. Traditional insurance contracts and agricultural hedging instruments are explicitly exempted.
Kalshi sued Minnesota on May 28 to block the law. The CFTC filed its own preemption suit within 24 hours of the bill's signing. Both cases are pending in federal court.
North Carolina took the opposite path. On July 7, Governor Josh Stein signed Senate Bill 257 as part of the state's $34 billion budget, imposing a 6% tax on net trading fee revenue apportionable to North Carolina residents, effective January 1, 2027. A fiscal memo projects $2 million in initial annual revenue.
The legislation explicitly recognizes that the CEA establishes "exclusive federal regulatory authority" over prediction markets. A CFTC-registered platform may operate lawfully in North Carolina if it complies with CEA and CFTC regulations. No state gaming license is required.
According to Holland & Knight, this makes North Carolina the first state to codify CFTC jurisdiction over prediction markets in its statutes. The 6% tax rate is significantly below the state's 23% tax on sports betting operators, reflecting the legislature's view that prediction markets are derivatives, not wagers.
On June 10, the CFTC issued a Notice of Proposed Rulemaking that would revise the framework governing event contracts traded on registered prediction markets. The proposed rule employs a three-step analysis: (1) whether a contract is an event contract in an excluded commodity; (2) whether it "involves" an enumerated activity (gambling, terrorism, assassination, war, or similar); and (3) whether the contract is contrary to the public interest.
Under the proposal, permitted sports event contracts would include final scores, point differentials, win-loss results, tournament advancement, and season-long performance metrics. The rule would disallow trades on specific individual plays — a single pitch, a single shot, a single foul — as well as contracts tied to in-game injuries, officiating decisions, or pre-collegiate events. Comments closed July 27.
The rulemaking is the CFTC's attempt to define the boundary between legitimate derivatives and what states consider gambling. The 44-state letter was filed in response to this rulemaking.
The jurisdictional battle has direct consequences for blockchain-based markets. Polymarket's offshore platform — not subject to CFTC rules — handled $9 billion in April volume. Onchain prediction markets, including those on Ethereum and Solana, operate without any regulatory registration.
If federal preemption prevails, CFTC-registered platforms gain a moat: state-by-state compliance becomes unnecessary, and the regulatory burden falls on a single federal agency. This benefits centralized, licensed operators like Kalshi at the expense of decentralized alternatives that cannot or will not register.
If states prevail, the prediction market industry fragments into a patchwork of state licensing regimes — similar to sports betting post-PASPA — with felony statutes in some jurisdictions and 6% taxes in others. Offshore and decentralized platforms would continue operating outside any regulatory framework, capturing volume that regulated platforms cannot serve.
The economic value at risk is real. Prediction markets generated an estimated $850 million in cumulative fee revenue in 2026 through May. The question of who regulates this revenue stream — and who taxes it — is the core economic dispute beneath the legal arguments.
The prediction market jurisdiction battle is the most significant federal-state regulatory confrontation in financial markets since the post-2008 Dodd-Frank preemption disputes. A $111 billion quarterly market has grown faster than the legal system can adjudicate its status. The CFTC's emergency order buys time but resolves nothing. Nine lawsuits, 44 opposing attorneys general, one felony statute, and one tax framework cannot coexist indefinitely. The outcome will determine whether prediction markets follow the path of derivatives (federal oversight, national market) or sports betting (state-by-state licensing, geographic fragmentation) — and whether the $22 billion platforms built on one assumption survive a ruling that validates the other.