In a significant ruling, a federal appeals court has blocked New Jersey's attempt to temporarily ban Kalshi, a prediction market provider, from operating in the state. The Third Circuit Court of Appeals found that Kalshi's products fall under the federal Commodity Exchange Act, thereby preempting state gambling laws. The court's decision, made by a 2-1 majority, determined that Kalshi had self-certified compliance with applicable laws and regulations, and as such, its event contracts were presumptively approved under federal law.
The Commodity Futures Trading Commission (CFTC) has not commenced any enforcement actions against sports-related event contracts, further supporting Kalshi's position. New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' covered by the Act, but the court rejected this argument, stating that it raised the bar beyond what the Commodity Exchange Act requires. The dissenting judge, however, disagreed, arguing that New Jersey's state rules did not undermine the congressional objectives under the Commodity Exchange Act and that Kalshi's products constituted sports gambling.
This ruling comes as states across the US have begun filing lawsuits or issuing cease-and-desist orders against prediction market providers, including Kalshi and Polymarket, alleging violations of state gambling laws. The CFTC has maintained that prediction markets, or event contracts, are swaps governed by the Commodity Exchange Act, which preempts state rules. The decision may have significant implications for the industry, as courts have issued divergent rulings on the matter. CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's exclusive jurisdiction over these markets, stating that the definition of commodity is very broad and includes events on sports, politics, and other areas.