In a significant victory for prediction market provider Kalshi, a federal appeals court has ruled that New Jersey cannot temporarily ban the platform from operating in the state. The Third Circuit Court of Appeals decided that Kalshi's products fall under the federal Commodity Exchange Act, which takes precedence over New Jersey's state gambling laws. The ruling, which was decided by a 2-1 vote, determined that Kalshi's sports-related event contracts are subject to federal law and that the company had self-certified compliance with applicable laws and regulations.
As a result, the contracts were presumptively approved under federal law, and the Commodity Futures Trading Commission (CFTC) has not found them to be contrary to the public interest. The CFTC has not initiated any enforcement actions against sports-related event contracts, and the court ruled that New Jersey's argument that Kalshi's event contracts are not covered by the Act is unfounded.
The decision comes as states across the US have been filing lawsuits and issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging that their sports-related contracts violate state gambling laws. The CFTC has maintained that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The ruling may have implications for the ongoing debate over the regulation of prediction markets, with different courts issuing conflicting rulings.
CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's exclusive jurisdiction over these markets, stating that the definition of commodity and statute is broad and includes events on sports, politics, and other areas.