TLDR
- The CFTC gave prediction market exchanges 30 days to remove domestic geographic restrictions.
- Exchanges can instead send a written explanation of why compliance is not feasible.
- Court orders in Michigan, Nevada and Washington require platforms to geofence users.
- Senator Adam Schiff said the guidance encourages platforms to defy court orders.
- DraftKings CEO Jason Robins said the guidance is unlikely to affect the company.
Registered prediction market exchanges now face a deadline from federal regulators. The Commodity Futures Trading Commission (CFTC) has told them to remove geographic restrictions within 30 days or explain in writing why they cannot.
The interpretive guidance was issued on November 5. That places the deadline around December 5.
The guidance is based on Commission Regulation 38.151(b). That rule requires designated contract markets, known as DCMs, to give members and traders competitive, open, fair and impartial access.
Two Paths for Exchanges
Under the guidance, exchanges must drop domestic geographic limits that break those access rules. The other option is to send a written explanation to the CFTC’s Division of Market Oversight stating why compliance is not feasible.
The commission said it will look at the facts and circumstances of each case before deciding on any regulatory action. Exchanges must also make sure intermediaries that access their markets follow the same rules.
The guidance does not say how exchanges should handle conflicts between federal access rules and court orders. It also does not list penalties for failing to comply.
“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.”
Court Orders Point the Other Way
Court orders in several states, including Michigan, Nevada and Washington, require platforms to restrict access. Kalshi, Polymarket and Crypto.com have pulled sports event contracts from states such as Michigan after court rulings.
In August, the U.S. Court of Appeals for the Ninth Circuit ruled 3-0 against Kalshi in a Nevada case. The court rejected the company’s claim that it could not follow both state geofencing orders and federal access rules, calling it a “false, all-or-nothing proposition.”
On November 4, the same court ordered Kalshi to geofence its contracts in California. The order aims to keep the contracts off tribal lands.
California Senator Adam Schiff, a Democrat, called the guidance “the CFTC’s most egregious attempt yet to undermine state law, the Tribes, and now, the courts.” He said the agency appears to be encouraging platforms to keep offering gambling products in contempt of court orders.
The guidance follows two earlier emergency actions involving Kalshi. In July, the CFTC told the exchange to honor trades placed in Michigan even though a state court had ordered them canceled.
Kalshi Head of Enforcement Robert DeNault said that stance put the company in “an impossible position.” Former special counsels to the agency later called the move “extraordinary” at a congressional hearing.
In August, the CFTC issued another emergency declaration telling Kalshi to keep operating in New York despite state orders to stop. One attorney said the move showed “blatant contemptuous disregard” for the rule of law.
Several gambling operators have also recently pulled sports and other event contracts from Utah. That followed felony charges against Kalshi in the state.
DraftKings, which holds DCM status, does not offer sports event contracts in states where it has sports wagering licenses. CEO Jason Robins addressed the guidance on the company’s third-quarter earnings call on November 6.
“As far as the CFTC thing, I would not make anything of that,” Robins told analysts. “There is a process for demonstrating why you can only operate in certain geographies. We have had a really good relationship with the CFTC, and I think that will be something that we can work through with them easily.”
