KEY TAKEAWAYS
- The CFTC said on Nov. 5 that registered prediction market operators must unblock any geoblocked states within 30 days, even if that puts them in defiance of court orders.
- Courts in states including Michigan and Nevada have imposed geofencing restrictions on companies including Kalshi and Polymarket.
- The CFTC again put its registered DCMs in a position of conflict between federal and state orders, although it gave operators a chance to explain why they cannot comply with its “impartial access” requirements.
The Commodity Futures Trading Commission (CFTC) once again ordered prediction market platforms to violate court orders on Thursday.
In a release issued on Nov. 5, the CFTC said that its interpretation of “impartial access” requirements for registered designated contract markets (DCMs) means the firms must not block residents in certain states from accessing their products.
New interpretative guidance from the federal commission directed DCMs to lift all domestic geographic restrictions that violate the fair access requirements within 30 days, or else explain in writing why they cannot. It also stated that exchanges must ensure that their partner intermediaries also comply with the guidance.
“Derivatives markets must operate on a uniform basis at a national scale in order to achieve the purposes set out in the Commodity Exchange Act,” said CFTC Chairman Michael Selig. “Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements.”
“Today’s interpretative guidance ensures that exchanges provide competitive, open, fair, and impartial access to their members pursuant to CFTC regulations,” added Selig on X.
CFTC pushes registrants toward state conflict again
By stating that federally regulated prediction market exchanges cannot restrict access based on where traders are located, for the most part, the CFTC once again set up its registrants to stand in conflict with the courts.
Rulings in cases in several states have included geoblocking requirements, including:
For instance, in a unanimous 3-0 ruling in August, U.S. Court of Appeals for the Ninth Circuit judges wrote that Kalshi’s repeated argument that it cannot satisfy both Nevada geofencing orders and federal uniform access requirements simultaneously is “a false, all-or-nothing proposition.”
Speaking of the Ninth Circuit, on Wednesday, the day before the CFTC issued its guidance, the appeals court ordered Kalshi to geofence its contracts in California so that they are not available on tribal lands.
Companies including Kalshi, Polymarket, and Crypto.com have taken sports event contracts offline in states such as Michigan as a result of court directives.
CFTC already told registrants to defy courts, states
This is not the first time that Selig’s CFTC has ordered some of its prediction market registrants to defy courts.
In July, the agency exercised its rarely used emergency power and told Kalshi to honor existing trades placed by Michigan despite a court order to void them. Kalshi Head of Enforcement Robert DeNault said at the time that the CFTC’s stance put the company in “an impossible position,” caught between a rock and a hard place.
The CFTC’s action was described as “extraordinary” by former special counsels to the agency during a Congressional hearing later that month.
In August, the CFTC issued another emergency declaration, this time directing Kalshi to continue operating in New York despite state orders to stop, a move that was described by an attorney as showing “blatant contemptuous disregard” for the rule of law.
But commission gives companies a potential opt-out route
The CFTC’s guidance does not offer any advice on what DCMs should do when the impartial access requirements may bring companies into conflict with court orders, nor does it outline what any potential punishments might be for non-compliance with the directive.
However, the press release did note that registrants have the right to submit a written explanation for why they cannot offer universal access to their products to the Division of Market Oversight. The commission said that, in those cases, it would consider the facts and circumstances on a case-by-case basis.
As well as court orders involving the likes of Kalshi and Polymarket, gaming operators that now also have DCM status, such as DraftKings, do not make sports event contracts available in states where they have sports wagering licenses. Several gambling operators recently pulled sports and other contracts out of Utah amid that state’s felony charges against Kalshi.
DraftKings not concerned by potential conflict
Speaking on DraftKings’ Q3 earnings call on Friday morning, CEO Jason Robins waved away concerns that the company could be negatively impacted by the CFTC guidance.
“As far as the CFTC thing, I would not make anything of that,” Robins told analysts. “I do not think that is going to affect anything for us. There is a process for demonstrating why you can only operate in certain geographies. We have had a really good relationship with the CFTC, and I think that will be something that we can work through with them easily.”
SBC Americas also reached out to CFTC-registered companies including Kalshi and Polymarket for this story, but had not received responses at the time of publication.
