The Commodity Futures Trading Commission (CFTC) Thursday ordered prediction markets to unblock any states that they have blocked, or explain why they cannot do so.
The order could potentially force Kalshi to violate state-court orders, and companies like DraftKings and FanDuel to take actions that could put their sportsbook licenses at risk, if they wish to keep offering sports event contracts.
DCMImpartialAccessInterpretiveGuidance110526New interpretation
The CFTC issued an interpretation of its second core principle, regarding impartial access. Previously, it had not interpreted the principle to refer to geographic access across the U.S. That allowed prediction markets to geofence their sports offerings from states where courts determined that they were offering illegal gambling. Kalshi’s sports contracts have been banned by court orders in Michigan, Nevada, and Washington, and the company pulled the contracts from Utah after the state brought criminal charges. Other prediction markets have followed suit in those states.
It also allowed prediction markets run by companies that operate licensed sportsbooks to geofence sportsbook states. DraftKings, Fanatics, and FanDuel all restrict access to sports event contracts in this way, as state gaming commissions have threatened to revoke the licenses of operators that offer sports event and some other contracts in their states.
But the CFTC announcement means this would no longer be possible.
“Derivatives markets must operate on a uniform basis at a national scale in order to achieve the purposes set out in the Commodity Exchange Act,” CFTC Chairman Michael Selig said. “Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements.”
It said that this was especially true for sports contracts.
“Insomuch as particular contracts attract disproportionately regional interest (e.g., whether a home team advances to its playoffs), excluding such regions could decrease the contracts’ overall liquidity,” the interpretation said.
CFTC: Cease geofencing within 30 days
The interpretation says designated contract markets (DCMs), or exchanges, “must cease domestic geographic restrictions that violate the Impartial Access Requirements within 30 days, or else submit to the Division of Market Oversight (“Division”) an explanation for why such compliance is not feasible.”
The rule also applies to “intermediaries,” such as futures commission merchants (FCMs) or introducing brokers, who allow their customers to access other exchanges. FanDuel and Fanatics primarily operate as intermediaries.
It is not clear what explanations for non-compliance may be permitted. In the past, the CFTC has ordered Kalshi to disobey court orders. Before any state successfully banned sports contracts, Kalshi regularly warned courts that statewide bans would put it in violation of the impartial access rules.
The CFTC said restricted access can reduce liquidity, and therefore “could undermine a DCM’s ability to function as an effective marketplace for trading and risk management.”
