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The Commodity Futures Trading Commission issued guidance Nov. 5 saying designated contract markets generally cannot exclude otherwise eligible U.S. participants based on location or residence.
Exchanges have 30 days to remove inconsistent geographic restrictions or explain why compliance is not feasible, according to Regulatory Oversight. The guidance adds tension to the dispute over state authority to restrict prediction markets.
Why the CFTC Opposes Geographic Restrictions
The guidance addresses impartial-access requirements for designated contract markets, or DCMs. These federally regulated exchanges face requirements under both the Commodity Exchange Act and Commission Regulation 38.151.
The act requires competitive, open and efficient markets that protect price discovery. The regulation requires impartial, transparent and nondiscriminatory access criteria.
The CFTC says excluding entire states can fragment liquidity, impede risk management and diminish price discovery. Its concerns can be especially acute for event contracts. Local participants may hold relevant information about elections, sporting events or other geographically concentrated markets.
States argue that certain event contracts constitute gambling activity under their traditional authority. The CFTC and prediction-market operators argue that federally regulated derivatives markets must be able to operate nationally.
State Court Orders Complicate Exchange Compliance
Courts have divided over important aspects of who should regulate sports prediction markets. Some exchanges have responded to adverse orders by restricting access in particular jurisdictions.
The Ninth Circuit rejected Kalshi’s argument that Nevada’s geographic restrictions necessarily create an irreconcilable conflict with federal impartial-access requirements. The court called that argument a “false, all-or-nothing proposition.”
The CFTC’s guidance does not direct exchanges to disregard contrary judicial orders. That distinction matters for operators whose geographic restrictions reflect court requirements.
A DCM unable to eliminate geographic restrictions may explain to the CFTC why compliance is not feasible. The agency says it will consider the facts and circumstances when deciding whether to take action.
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Source: As reported by Regulatory Oversight.
