A November 5 CFTC demand gives US derivatives exchanges 30 days to remove domestic geographic restrictions that violate impartial-access rules, or explain why compliance is not feasible, putting federal pressure on controls the Sixth Circuit said could coexist with Kalshi’s federal obligations.
The CFTC instruction applies to designated contract markets, which should ensure intermediaries accessing their markets comply within 30 days or explain why compliance is not feasible. The commission argues that excluding eligible traders by geography can fragment liquidity and weaken price discovery.
The guidance follows a September ruling by the Sixth Circuit Court of Appeals. The court held that Kalshi had not shown its sports-event contracts met the relevant statutory definition of swaps; alternatively, assuming they were swaps, it held the Commodity Exchange Act did not expressly or impliedly preempt Ohio and Tennessee gambling laws. In that second analysis, the court said geographic limits could coexist with impartial-access requirements. The new CFTC interpretation challenges that regulatory premise without reversing the court’s separate holdings on swaps and preemption.
Exchanges have two options within 30 days: end geographic restrictions that violate impartial-access rules or explain to the Division of Market Oversight why compliance is not feasible. Separately, the CFTC proposed on October 19 to add sports, political, cultural and weather event contracts to the definition of a swap, with comments due November 18.
Kalshi faces additional legal pressure. A November 4 federal order in California bars it from offering sports contracts on specific tribal lands and requires boundary maps and a compliance report. It has until December 7 to respond to a New Jersey Supreme Court petition that could give justices a route to address the federal-state dispute.
The immediate test for the industry is how exchanges respond to the 30-day demand. Phantom’s availability table lists Kalshi prediction markets in the US except Michigan, Nevada and Washington, and a related report says Kalshi faces $500,000 daily fines as Michigan forces sports event contracts offline.
Analysis
Why This Matters
- The CFTC order creates a direct regulatory test for prediction market exchanges, forcing a choice between federal impartial-access rules and compliance with state gambling laws.
- The dispute tests the limits of an agency's power to reinterpret rules in direct opposition to a federal court's reasoning.
- The outcome will determine whether US event contract markets operate nationally or remain fragmented by state-level restrictions.
Background
Kalshi operates a federally regulated prediction market for event contracts. It has been in litigation over whether its products are swaps or unlicensed gambling under state law. The Sixth Circuit ruled in September 2026 that state gambling laws were not automatically preempted, prompting Kalshi to impose geographic blocks. The CFTC has now moved to challenge those blocks under its own impartial-access rules.
Key Perspectives
CFTC: Argues that geographic restrictions violate impartial-access rules by fragmenting liquidity and excluding eligible participants, and has given exchanges 30 days to comply or explain why compliance is infeasible.
Sixth Circuit: Ruled in September that geographic limits can coexist with impartial access and that the Commodity Exchange Act does not preempt state gambling laws, providing the legal basis for the restrictions the CFTC now challenges.
What to Watch
- Whether any designated contract market requests an infeasibility exemption from the CFTC's Division of Market Oversight in response to the 30-day demand.
- Kalshi's December 7 response to the New Jersey Supreme Court petition, which could escalate the federal-state conflict.
- CFTC action on the proposal to expand the swap definition after the November 18 comment deadline.