In a significant ruling, a federal appeals court has determined that New Jersey is not authorized to temporarily ban the operations of prediction market provider Kalshi. The Third Circuit Court of Appeals made this decision based on the understanding that Kalshi's products fall under the jurisdiction of the federal Commodity Exchange Act, rather than being subject to New Jersey's state gambling laws. The court's majority opinion stated that Kalshi had self-certified its compliance with applicable laws and regulations, resulting in its event contracts being presumptively approved under federal law.
Furthermore, the Commodity Futures Trading Commission (CFTC) has not deemed Kalshi's sports-related event contracts to be contrary to the public interest. New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' covered by the Act, but the court found this argument to raise the bar beyond what the Act requires. In a dissenting opinion, Circuit Judge Jane Roth expressed the view that New Jersey's state rules did not undermine the congressional objectives under the Commodity Exchange Act and characterized the products available on Kalshi's platform as 'sports gambling.' The ruling comes amidst a broader landscape of states filing lawsuits or issuing cease-and-desist orders against prediction market providers like Kalshi and Polymarket, alleging violations of state gambling laws.
The CFTC has maintained that prediction markets are swaps governed by the Commodity Exchange Act, which preempts state rules. The decision by the Third Circuit Court of Appeals suggests that prediction market providers may prevail in their argument that the Commodity Exchange Act preempts state rules, although different courts have issued mixed rulings.
CFTC Chairman Michael Selig emphasized the importance of defending the federal regulator's exclusive jurisdiction over these markets, highlighting the broad definition of commodity and statute that includes events on sports, politics, and other areas.