Highlights
- The CFTC is reviewing proposed rules to address conflicts of interest between prediction-market exchanges and affiliated trading firms.
- Separately, New Jersey has petitioned the U.S. Supreme Court to rule on whether states can regulate sports-related event contracts on platforms like Kalshi.
- The petition follows a split between federal appeals courts: the Third Circuit sided with Kalshi, while the Ninth Circuit's reasoning pointed the other way.
- Together, the two developments show federal and state regulators converging on prediction markets from opposite directions at the same time.
U.S. regulators are pressing prediction markets on two fronts at once. The Commodity Futures Trading Commission is reviewing rules to address potential conflicts of interest between exchanges and their affiliated trading companies, while New Jersey has asked the U.S. Supreme Court to settle who has the authority to police sports-related event contracts offered by platforms such as Kalshi. Neither action targets the other directly, but both land on the same underlying question: who gets to regulate an industry that has grown explosively by selling financial-style contracts on outcomes once reserved for state-licensed sportsbooks.
The CFTC's Conflicts-of-Interest Push
The CFTC's proposed rulemaking, formally issued on July 30, targets corporate structures in which derivatives exchanges, clearinghouses and principal trading firms share common ownership — a setup increasingly common in prediction markets and digital-asset derivatives. Under the proposal, affiliated principal trading would generally be limited to bona fide market-making, and exchanges would have to document every conflict that arises and disclose affiliate relationships in their rulebooks and on their platforms. The comment period runs through October 5, giving exchanges, trading firms and state regulators a formal channel to weigh in before any rule is finalized.
New Jersey Takes the Jurisdiction Fight to the Supreme Court
New Jersey's petition asks the justices to overturn an April ruling from the Third Circuit Court of Appeals that found the CFTC has exclusive jurisdiction over Kalshi's sports-related event contracts, preempting the state's own gaming laws. That decision conflicts with reasoning out of the Ninth Circuit, giving the Supreme Court a genuine split to resolve. New Jersey's attorney general argues that states have long regulated sports wagering specifically to guard against problem gambling, underage betting and insider manipulation of sporting events, and that Congress never intended to strip that authority away by implication. Kalshi has pushed back publicly, framing itself as a nationally regulated financial exchange that cannot function under fifty separate state rulebooks.
Related: Kalshi, Polymarket Combined Volume Falls 14.5% in August, First Drop in a Year
Why It Matters for the Market
A Supreme Court ruling against Kalshi could force prediction-market operators to seek state-by-state licensing for sports contracts, fragmenting a business model built on uniform federal oversight and threatening the trading volumes that have made Kalshi and Polymarket household names in 2026. A CFTC rule that tightens affiliate trading, meanwhile, would hit the economics of exchanges that lean on in-house market makers for liquidity, regardless of how the state-federal fight resolves. Investors and platforms are effectively facing a pincer: survive the jurisdiction battle, then operate inside whatever conflict-of-interest guardrails the CFTC ultimately adopts.
What Comes Next
The Supreme Court has not yet decided whether to hear New Jersey's case, a decision that could take months. The CFTC's comment window closes October 5, after which the agency can move toward a final rule. Both timelines put late 2026 and early 2027 in focus for anyone tracking how far prediction markets can expand before regulators — state or federal — draw a hard line.
FAQ
What is the CFTC proposing?
Rules requiring exchanges to document and disclose conflicts of interest with affiliated trading firms, and limiting affiliate principal trading to bona fide market-making.
What is New Jersey asking the Supreme Court to decide?
Whether states retain authority to regulate sports-related event contracts on platforms like Kalshi, or whether the CFTC has exclusive federal jurisdiction.
Why did the appeals courts disagree?
The Third Circuit ruled Kalshi's contracts fall under exclusive CFTC jurisdiction, while the Ninth Circuit's approach pointed toward state authority, creating a split only the Supreme Court can resolve.
When does the CFTC's comment period end?
October 5, 2026, after which the agency can move toward finalizing the rule.
