In a significant victory for prediction market provider Kalshi, a US appeals court has ruled that New Jersey cannot temporarily ban the company's sports-related markets. The Third Circuit Court of Appeals found that Kalshi's products fall under the federal Commodity Exchange Act, rather than state gambling laws. The ruling, 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 its sports-related event contracts to be contrary to the public interest.
The CFTC has not initiated any enforcement actions against such contracts, according to the ruling. New Jersey had argued that Kalshi's event contracts did not qualify as 'swaps' under the Act, but the court disagreed, saying this requirement was too stringent.
Circuit Judge Jane Roth dissented, arguing that New Jersey's rules did not undermine the objectives of the Commodity Exchange Act and that Kalshi's products constituted 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 violations of state gambling laws. The CFTC contends that these markets are governed by the Commodity Exchange Act, which preempts state rules. The decision 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 regulator's 'exclusive jurisdiction over these markets' and filed an amicus curiae brief with the Ninth Circuit ahead of a hearing later this month.