CFTC Takes On New Mexico in Major Prediction Markets Showdown

The U.S. Commodity Futures Trading Commission (CFTC) has filed a federal lawsuit against New Mexico, seeking to stop the state from enforcing its gambling laws against federally regulated prediction markets. The case marks the latest escalation in the growing dispute over whether states can regulate sports event contracts listed on CFTC-approved exchanges such as Kalshi.

According to the official release, the complaint, filed on Friday, asks a federal court to declare that the Commodity Exchange Act (CEA) gives the CFTC exclusive authority over designated contract markets and permanently bars New Mexico from applying its gaming laws to those platforms.

CFTC Chairman Michael S. Selig said the lawsuit is intended to preserve the agency’s exclusive jurisdiction over derivatives markets. “New Mexico is the latest state seeking to nullify black letter law and decades of judicial precedent by imposing state gaming laws on federally regulated derivatives exchanges subject to the CFTC’s exclusive jurisdiction,” Selig said.

Lawsuit follows New Mexico’s action against Kalshi

The federal complaint comes just days after New Mexico sued prediction market operator Kalshi in state court, alleging its sports-related event contracts amount to illegal online sports betting designed to evade state gaming laws. New Mexico is seeking an injunction that would block Kalshi from offering sports event contracts within the state.

The CFTC argues those products are not state-regulated gambling but federally regulated derivatives that fall under the Commodity Exchange Act. According to the agency, Congress granted the CFTC exclusive jurisdiction over swaps and event contracts traded on federally designated contract markets, preempting conflicting state gaming laws.

CFTC says federal law overrides state gaming rules

At the center of the lawsuit is the Supremacy Clause of the U.S. Constitution. The CFTC argues that Congress intentionally centralized oversight of futures, swaps, and event contracts under federal law to prevent a patchwork of state-by-state regulation. It maintains that sports event contracts traded on registered exchanges meet the legal definition of swaps and therefore fall exclusively within the Commission’s authority.

The complaint also notes that the agency already supervises designated contract markets, reviews self-certified contracts, investigates insider trading and market manipulation, and is developing additional rules tailored to prediction markets.

Growing legal battle over prediction markets

New Mexico is the latest state targeted by the CFTC as disputes over prediction markets expand across the country. The Commission said similar litigation has emerged in Arizona, Connecticut, Illinois, Minnesota, New York, Rhode Island, and Wisconsin, where state regulators have attempted to apply gambling laws to federally regulated exchanges.

The agency argues that allowing individual states to regulate these markets would undermine national derivatives markets, create conflicting legal obligations for exchanges, and weaken federal oversight.

Rulemaking on prediction markets continues

The lawsuit comes as the CFTC is also moving ahead with broader rulemaking for prediction markets. Earlier this week, the Commission proposed a new regulatory framework that would establish a formal review process for determining whether event contracts involving sports, gaming, terrorism, war, or other activities listed under Section 5c(c)(5)(C) of the Commodity Exchange Act are contrary to the public interest.

Rather than imposing a blanket ban, the proposal outlines a three-step review process and public-interest criteria for evaluating contracts individually. It also seeks to define statutory terms such as “gaming” and “involve,” while reaffirming the Commission’s position that federally regulated prediction markets fall under its exclusive jurisdiction.

CFTC seeks permanent injunction

In its complaint, the CFTC asks the federal court to:

• Declare that New Mexico’s gaming laws are preempted when applied to CFTC-regulated event contracts.
• Permanently prohibit state officials from investigating or enforcing those laws against federally registered prediction markets.
• Award any additional relief the court considers appropriate.

If the Commission prevails, the case could strengthen federal authority over prediction markets and further limit states’ ability to classify CFTC-approved event contracts as illegal gambling.

Also Read: Millions Lost: Tennessee Crypto Operator Faces Federal Charges