Federal regulators are stepping into an escalating court battle over prediction markets, backing Kalshi’s challenge to Rhode Island’s attempt to block sports-related event contracts.

On Thursday (May 28), the Commodity Futures Trading Commission and the United States asked to intervene in a case pending in the U.S. District Court for the District of Rhode Island. The filing focuses on what federal officials describe as a jurisdictional conflict between state gaming regulators and the federal framework governing derivatives markets.

According to the motion, the central question is “whether Rhode Island state officials can usurp the CFTC’s jurisdiction and enforce state gaming laws against federally regulated exchanges in connection with the listing of federally regulated event contracts.”

Kalshi, which operates as a CFTC-regulated exchange, sued Rhode Island last week over efforts to restrict trading tied to sports outcomes. Rhode Island later launched its own enforcement case against both Kalshi and prediction market platform Polymarket.

CFTC response to Rhode Island actions against Kalshi

In the proposed complaint, federal officials say Rhode Island claims that “Kalshi and Polymarket facilitate gambling (specifically sports wagering) in Rhode Island by allowing bettors to place wagers on the outcome of sports matches and individual player performances, under the guise of ‘trading’ ‘event contracts’ on ‘prediction markets.’”

State officials are seeking to halt those offerings within Rhode Island. The filing adds that Attorney General Peter Neronha characterized the goal of the state’s lawsuit as a demand that “Kalshi and Polymarket stand down.”

The CFTC argues that such action conflicts with federal law. In the agency’s view, event contracts listed on federally registered exchanges are derivatives products regulated under the Commodity Exchange Act rather than gambling products governed by individual states.

The proposed complaint states: “Rhode Island’s ‘demand’ that CFTC-regulated DCMs ‘stand down’ from offering CFTC-approved financial products intrudes on the exclusive federal scheme Congress designed to oversee the derivatives industry.”

Federal lawyers also pointed to a recent appellate ruling involving Kalshi. As quoted in the filing, the court found: “Because Kalshi’s sports-related event contracts are traded on a CFTC-licensed DCM and depend on event outcomes associated with economic consequences, they fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction.”

The Rhode Island case follows a growing series of legal clashes around the country. Recent disputes have involved Arizona, Connecticut, Illinois, Minnesota, New York and Wisconsin, where state officials have questioned or challenged prediction market offerings. The CFTC has increasingly responded by defending its authority and arguing that a patchwork of state restrictions could undermine a single national regulatory system.

In a statement released with the filing, CFTC Chairman Michael S. Selig said state challenges amount to “an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets.”

The agency is now asking the Rhode Island court to allow its intervention and reaffirm what it says is its exclusive authority over federally regulated event contracts and the exchanges that list them.

Featured image: Commodity Futures Trading Commission / Canva

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