Commodity Futures Trading Commission chairman Michael Selig used a Wall Street Journal opinion column Monday to defend federally regulated prediction markets, signaling a more assertive federal posture as the agency prepares to weigh in on a closely watched appeals court case involving Crypto.com and Nevada regulators.
“The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products,” Selig wrote in the column headlined “States Encroach on Prediction Markets,” in which he positions the issue as a direct challenge to federal derivatives oversight.
The op-ed arrives amid intensifying legal clashes between state authorities and federally regulated event contract exchanges, and appears designed to reinforce the CFTC’s argument that prediction markets fall under federal commodities law rather than state gambling statutes.
“The Commodity Futures Trading Commission for decades has overseen regulation of prediction markets — or event contracts, as we refer to them — that help market participants hedge risk, aggregate information and test hypotheses about future outcomes,” he wrote.
Recent CFTC filing signals federal involvement in Nevada dispute
The timing of the op-ed aligns with a Feb. 5 filing in the U.S. Court of Appeals for the Ninth Circuit in which the CFTC requested permission to submit an amicus brief supporting Crypto.com | Derivatives North America (CDNA), Crypto.com’s CFTC-regulated U.S. derivatives exchange through which it offers event contract trading to U.S. customers. The appeal stems from a dispute between CDNA and Nevada gaming regulators over whether sports prediction markets fall under federal or state authority.
In its motion for leave to file an out-of-time amicus brief, the agency said the appeal raises significant questions about whether state authorities can regulate trading on CFTC-registered Designated Contract Markets despite the Commodity Exchange Act’s grant of exclusive federal jurisdiction.
In explaining its late filing request, the CFTC pointed to leadership changes, noting Chairman Selig was confirmed in December and a new general counsel was sworn in Jan. 28, transitions that “altered the CFTC’s programmatic priorities and institutional posture.”
The commission said it intends to file its amicus brief by Feb. 17 and asked the court to adjust the briefing schedule to allow time for responses.
‘Derivatives vs. gambling’ fight intensifies
The legal dispute reflects a growing national conflict over whether prediction markets, particularly those tied to sports outcomes, should be treated as financial derivatives or as a form of online gambling.
Selig noted exchanges face “an onslaught of state-driven litigation across the country, with nearly 50 active cases presenting a range of legal challenges,” most commonly ones that argue that sports event contracts constitute gambling.
State regulators, tribal gaming interests and some lawmakers have increasingly advanced that interpretation, arguing prediction markets encroach on regulated betting industries and consumer protections traditionally overseen at the state level.
Prediction market platforms and their supporters continue to emphasize the CEA’s expansive definition of commodities and swaps as the governing framework. A central theme of Selig’s op-ed is the economic usefulness of event contracts beyond recreational trading.
“Event contracts serve legitimate economic functions,” he wrote. “They allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events. Farmers can manage risk related to temperature changes that may affect crops, and small-business owners can hedge against tax increases or energy-price spikes, to name two examples.”
In the op-ed, Selig doesn’t once mention the word “sports,” a notable omission as sports-related event contracts have become the primary flashpoint in the state-vs.-federal regulatory debate.
Selig defends event contracts as regulated markets
Selig also framed his argument around existing federal commodities law, stressing that event contracts fit squarely within established financial market rules rather than representing a regulatory gray area.
“Under the plain language of the Commodity Exchange Act, event contracts are ‘swaps.’ They are derivative instruments that allow two parties to speculate on future market conditions without owning the underlying asset,” he wrote.
Selig argued that Congress intentionally designed derivatives law to accommodate innovation, cautioning against treating newer products differently simply because they are unfamiliar.
“The CEA’s text is designed to account for financial innovation,” Selig wrote. “Futures were novel at one point. So were swaps and exchange-traded funds.”
Selig also sought to counter criticism that prediction markets operate without sufficient safeguards.
“These exchanges aren’t the Wild West, as some critics claim, but self-regulatory organizations that are examined and supervised by experienced CFTC staff,” he wrote, pointing to surveillance requirements, anti-money-laundering rules and fraud prevention obligations as evidence the markets operate within established financial regulatory guidelines.
Jurisdiction battle far from settled
Ultimately, the dispute may hinge on whether courts accept the CFTC’s preemption argument or allow states authority to regulate certain event contracts as gambling products. While no definitive appellate ruling has settled the issue, some courts and most regulators have so far shown reluctance to fully embrace blanket federal preemption, particularly where event contracts closely resemble traditional wagering products.
Selig closed his column with a warning about the broader stakes.
“America is home to the most liquid and vibrant financial markets in the world because our regulators take seriously their obligation to police fraud and institute appropriate investor safeguards,” he 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.”
With appellate litigation advancing, multiple parallel lawsuits underway, and potential future rulemaking on the horizon, the jurisdictional battle over prediction markets is far from settled. Federal regulators now appear increasingly willing to play a bigger role in shaping how that boundary is ultimately defined.
