CFTC looks to target Minnesota following string of state lawsuits

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2026/02/18: CFTC files amicus brief to keep prediction markets federally regulated 2025/11/24: Clearing Company looks to start prediction market with CFTC application 2026/05/01: Democrats urge CFTC to increase oversight over prediction markets 2026/05/06: Pennsylvania regulator criticizes prediction markets in comments to CFTC

The Backstory

Why Minnesota became the next flashpoint

Minnesota’s move to curb prediction markets did not arise in a vacuum. State lawmakers advanced a bill to outlaw platforms such as Kalshi and Polymarket, citing concerns over insider trading, regulatory gaps and consumer risk. The measure cleared a key committee on a voice vote and now heads to the Senate Commerce Committee, as detailed in the account of the Minnesota Senate’s push to ban prediction markets. Proponents pointed to the ease with which political or market insiders could wager on nonpublic information, framing the bill as a necessary update to state gambling rules. That posture tracks with a broader wave of state-level scrutiny this year as regulators and legislators test how far they can go in policing event contracts that look and feel like bets.

The stakes for Minnesota are larger than a single bill. The Commodity Futures Trading Commission has asserted exclusive federal jurisdiction over event contracts it classifies as swaps, setting up a collision between Washington and state capitals. As other states have learned, that collision can end in federal court. The Minnesota debate, moving quickly through committee, is the latest signal that a growing roster of states want to challenge or circumscribe federally regulated prediction markets within their borders.

The CFTC’s legal stance hardened this spring

The federal regulator has been preparing for this fight. In a high-profile step, the CFTC filed an amicus brief to reinforce federal oversight and counter state attempts to treat prediction markets as illegal gambling. The brief, lodged with the Ninth Circuit, aligned the agency with a crypto exchange fighting Nevada’s gaming regulator and underscored a simple message: these products sit under the Commodity Exchange Act, not state gambling codes. The filing and accompanying public statements are detailed in coverage of the CFTC’s amicus brief to keep prediction markets federally regulated.

The agency’s argument hinges on the idea that event contracts serve legitimate economic functions and are structured as swaps under existing CFTC rules. That framing has gained traction in a series of courtroom skirmishes, where federal judges have granted injunctions or rulings that favor market operators. The amicus and the chair’s public posture signal that the Commission will meet state-level challenges head-on, including by intervening in litigation when it believes states are intruding on federal turf. As Minnesota edges toward a ban, the legal table is set for a similar contest over preemption and jurisdiction.

States turn up the pressure, from letters to lawsuits

Even as the CFTC digs in, state officials have been expanding the case against prediction markets. Pennsylvania’s top gaming regulator urged the CFTC to constrain or block certain contracts, arguing that many of these products resemble unlicensed wagering and expose consumers, including minors, to risks. The regulator’s filing cited a proliferation of pop culture and political contracts as evidence the landscape has drifted from any legitimate hedging purpose. Those concerns and examples are laid out in the Pennsylvania Gaming Control Board’s critique submitted to the CFTC.

Legislators in Washington have also sought limits. A group of Democratic senators led by Jeff Merkley pressed the CFTC to codify bans on contracts tied to elections, military actions, sports and other government outcomes unless there is a valid hedging need. Their letter urged the agency to adopt rules to deter insider trading and corruption, reflecting a view that event markets risk undermining public trust in civic institutions. Those demands, recapped in the piece on Democrats urging tougher federal oversight, track with separate House legislation aimed at blocking sports event contracts nationwide. Together with actions in states like Minnesota, they form a layered pressure campaign: regulate tightly at the federal level, and where that falls short, erect state barriers.

Builders press ahead as institutions test the waters

While regulators spar, market infrastructure continues to evolve. A San Francisco startup, Clearing Company, has applied to become a derivatives clearing organization with the explicit aim of creating a purpose-built clearinghouse for prediction markets. The firm plans to seek an exchange license and launch in late 2026, signaling that new entrants see long-term potential despite today’s legal friction. Its approach emphasizes a stablecoin-native model for transparent, on-chain settlement while meeting traditional compliance standards, as described in the report on Clearing Company’s CFTC application.

Institutional activity is creeping in as well. Trading firm Jump Trading has begun making markets on Kalshi’s sports contracts, a sign that liquidity providers are willing to engage when there is regulatory clarity or at least a credible path to it. That shift matters for policymakers. As larger players participate and infrastructure professionalizes, prediction markets look less like fringe gambling and more like a maturing derivatives niche—complicating the argument that they should be fenced off wholesale at the state level.

What to watch as jurisdictional lines are tested

Minnesota’s bill, if it advances, will likely invite a federal showdown over preemption and the scope of the Commodity Exchange Act. The CFTC’s recent court filings and public posture suggest it will move quickly to assert authority, as it has in other disputes summarized in the analysis of the agency’s amicus push. Lawmakers’ demands for explicit federal rules could accelerate a formal rulemaking that clarifies what contracts are in bounds and under what guardrails.

For platforms and investors, the path forward hinges on three fronts: courts, Congress and the CFTC’s regulatory calendar. Court outcomes will determine how far states can go in blocking federally supervised markets. Congressional action could carve out bright-line bans, especially on elections and sports. And at the agency, any new rule addressing insider trading, contract categories and consumer protections would shape how prediction markets scale—or stall.

Against that backdrop, Minnesota’s case is more than a local policy debate. It is a test of how a novel financial product migrates from the edges of the internet into mainstream market structure, and of who gets to set the rules. As states press their claims and federal regulators defend theirs, the next phase will determine whether prediction markets consolidate under a national regime or fracture into a patchwork that limits where and how Americans can trade on events.