In a significant victory for prediction market provider Kalshi, a federal appeals court has ruled that New Jersey cannot temporarily ban the company's operations. The Third Circuit Court of Appeals decided that Kalshi's products fall under the federal Commodity Exchange Act, rather than being subject to New Jersey state gambling laws. The ruling, which was made by a 2-1 majority, stated that Kalshi had self-certified compliance with applicable laws and regulations, and that the Commodity Futures Trading Commission (CFTC) had not determined that Kalshi's sports-related event contracts were against the public interest.
The CFTC has not initiated any enforcement actions against sports-related event contracts, according to the ruling. The court rejected New Jersey's argument that Kalshi's event contracts are not covered by the Commodity Exchange Act because the outcome of a sports game is not connected to a financial instrument. Circuit Judge Jane Roth dissented, arguing that New Jersey's state rules did not undermine the congressional objectives under the Commodity Exchange Act and that the products available on Kalshi's platform constitute sports gambling. The ruling is the latest development in a series of lawsuits and cease-and-desist orders filed by states 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 decision has significant 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 is very broad and includes events on sports, politics, and other areas.