CFTC, DOJ Sue Arizona, Connecticut and Illinois to Assert Federal Control of Prediction Markets

U.S. federal regulators have opened a new legal front over who gets to police prediction markets, moving to block state actions they say conflict with the national derivatives regime. The Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) filed lawsuits on April 2 against Arizona, Connecticut, and Illinois. The complaints seek to reaffirm what the agencies describe as exclusive federal jurisdiction over designated contract markets that list event contracts. CFTC Chairman Michael S. Selig said in a post on X that federal authority is "clear and longstanding," while arguing some state regulators have attempted to impose "inconsistent and contrary obligations" on CFTC-registered prediction markets. He said the three federal court actions were brought to reassert the agency's statutory authority. The CFTC is positioning the dispute as a challenge to the framework Congress established under the Commodity Exchange Act, which the agency says was designed to provide a unified, nationwide system for derivatives oversight. In the regulator's view, state-level interventions create conflicting requirements and add uncertainty for market participants operating across state lines. The agency recently issued an Advanced Notice of Proposed Rulemaking aimed at addressing confusion around prediction market regulation, and it signaled further rulemaking steps that could tighten and clarify compliance expectations for event contracts traded on federally supervised exchanges. Event contracts have been used for decades, including early academic markets tied to elections and economic data. Federal oversight expanded after the 2008 financial crisis, broadening regulation of contracts linked to commodities while preserving room for innovation alongside protections against manipulation and abusive practices. Selig said the CFTC will continue to defend its exclusive authority over these markets and protect participants from what he called overzealous state regulators. FAQ Why did the CFTC and DOJ sue states over prediction markets? They say they are defending exclusive federal jurisdiction and preventing state rules from disrupting regulated derivatives markets. How does the Commodity Exchange Act apply? The agencies argue it establishes a single federal framework that covers event contracts within the broader derivatives regime. What could this mean for market participants? A federal ruling could reduce regulatory uncertainty and standardize compliance requirements nationwide. Why do regulators see state actions as a risk? They say state requirements can conflict with federal rules, increasing operating complexity and legal exposure for exchanges and investors.