WASHINGTON, April 2 — The Commodity Futures Trading Commission said it has filed lawsuits against the U.S. states of Arizona, Connecticut, and Illinois, challenging actions taken against CFTC-registered designated contract markets and seeking to reaffirm its exclusive jurisdiction over prediction markets, according to a CFTC press release.
Federal jurisdiction over event contracts
The CFTC said the lawsuits contest efforts by the three states to outlaw, regulate, or otherwise restrain the activities of designated contract markets that facilitate trading in event contracts. The agency stated that it maintains clear and longstanding exclusive jurisdiction over such contracts under the Commodity Exchange Act.
The regulator said Congress determined that a unified national framework for commodity derivatives markets was preferable to a fragmented system of state-level oversight, citing risks to market integrity and consistency.
Challenge to state-level actions
“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” said Michael S. Selig, according to the release.
The agency added that previous attempts by states to impose differing requirements on market participants had been rejected by Congress in favor of federal oversight, which it said provides stronger consumer protection and reduces risks of fraud and market manipulation.
Regulatory outlook for prediction markets
The CFTC said it recently issued an advanced notice of proposed rulemaking to clarify how the Commodity Exchange Act and its regulations apply to prediction markets, and that it expects to move forward with additional regulatory measures reinforcing those obligations.
Historical basis for CFTC authority
The agency said it first formally recognized event contracts in 1992 when it permitted the Iowa Electronic Markets to operate as a futures market allowing trading on outcomes such as elections and corporate performance.
Following the 2008 financial crisis, Congress granted the CFTC comprehensive authority over contracts based on commodities, which are broadly defined under the statute, the agency said, adding that the framework is intended to accommodate innovation in financial markets while maintaining regulatory oversight.
