The CFTC says it alone has the power to regulate prediction markets like Kalshi and Polymarket under the Commodity Exchange Act, which grants exclusive jurisdiction over designated contract markets (DCMs). “These are financial exchanges that offer financial instruments and operate across state lines,” CFTC attorney Selig said, asserting federal authority.

New York Attorney General Tish James pushed back, stating that “no matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers.” A federal judge rejected Kalshi’s request to block state enforcement on July 7, ruling that “Congress did not intend to preempt all state actions that may relate to DCMs.”

Kalshi has appealed to the US Court of Appeals for the 2nd Circuit and is trying to move James’ lawsuit from state to federal court. New York insists on keeping the case in state court, arguing that the state has a “strong interest in enforcing its police powers to regulate gambling” and that removal would disrupt the federal-state balance.

The New York fight is part of a broader legal battle between the Trump administration, prediction markets, and states. Minnesota, the first state to ban prediction markets entirely, saw its law blocked by a federal judge who said the total ban went too far but allowed states to ban wagers that don’t meet the legal definition of swaps.