What is the Commodity Exchange Act?

The Commodity Exchange Act is the US federal statute that governs trading in futures, options, swaps and other derivatives, and it is the source of the Commodity Futures Trading Commission's authority. It gives the CFTC exclusive jurisdiction over swaps and futures traded on a designated contract market; prediction market exchanges argue that sports event contracts are such swaps, so state gambling laws cannot apply to them.

Does the Commodity Exchange Act preempt state gambling law?

Courts disagree. In April 2026 the Third Circuit held that Kalshi was likely to succeed in arguing that the Act preempts New Jersey's gambling law as applied to its sports event contracts. The Ninth Circuit (Nevada, August 2026) and the Sixth Circuit (Ohio and Tennessee, September 2026) held that such contracts are likely not swaps and that state gambling law can apply. New Jersey and Robinhood have asked the Supreme Court to resolve the question.

What is the special rule for event contracts?

Section 5c(c)(5)(C) of the Act, added by the Dodd-Frank Act in 2010, lets the CFTC determine that event contracts involving unlawful activity, terrorism, assassination, war, gaming or similar activity are contrary to the public interest, and bars contracts so determined from being listed. States argue that the gaming category shows Congress did not treat such contracts as ordinary derivatives.

Regulatory

CEA (Commodity Exchange Act)

Commodity Exchange Act

Definition

The United States federal statute governing derivatives trading and the basis of the Commodity Futures Trading Commission's authority. Prediction market operators argue it displaces state gambling law.

Key takeaways

The Commodity Exchange Act is the US federal law governing derivatives trading and the source of the CFTC's authority.
Prediction market exchanges argue it preempts state gambling law for contracts listed on a CFTC-registered designated contract market.
The Third Circuit sided with Kalshi in 2026 while the Ninth and Sixth Circuits ruled for the states, and petitions ask the Supreme Court to settle the preemption question.

Why it matters

The Act is the whole of the prediction market legal defence. Exchanges argue that because it grants the Commission exclusive jurisdiction over swaps and futures traded on a designated contract market, and sports event contracts are such swaps, a state cannot apply its gambling laws to those contracts without being preempted. If that reading holds, a federal registration is a licence to operate nationally and state gaming regulators have no role.

Courts have divided in the sporting context: the Third Circuit sided with Kalshi against New Jersey in April 2026, while the Ninth Circuit (Nevada) and the Sixth Circuit (Ohio and Tennessee) held that sports contracts are likely not swaps and that state gambling law can apply. The federal preemption entry sets out where the litigation stands. The Act's own special rule for event contracts involving gaming cuts against the exchanges as well, since Congress would have had no reason to give the Commission a review power over gaming contracts if such contracts were simply ordinary derivatives.

The question is not settled. The circuit split has produced petitions for certiorari, including New Jersey's in Flaherty v. KalshiEX, No. 26-299, filed on 2 September 2026. On 9 October 2026 the CFTC proposed adding event contracts, including sports contracts, to the statutory definition of swap, and the same day issued an interim final rule excluding casino-style gambling products, such as sportsbook bets, from that definition.

The bottom line

The Commodity Exchange Act is either a national licence or an irrelevance to state gambling law, depending on how one clause is read. Every prediction market dispute is ultimately about that clause.

Sources

KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. Apr. 6, 2026) - United States Court of Appeals for the Third Circuit
Docket No. 26-299: Flaherty v. KalshiEX, LLC - Supreme Court of the United States
7 U.S. Code § 7a-2: Common provisions applicable to registered entities - Legal Information Institute, Cornell Law School
KalshiEX LLC v. Schuler; KalshiEX LLC v. Orgel, Nos. 26-3196/5235 (opinion, 25 September 2026) - US Court of Appeals for the Sixth Circuit
CFTC Seeks Public Comment on Proposed Rule Concerning the Inclusion of Certain Event Contracts in the Definition of Swap (Release 9310-26) - Commodity Futures Trading Commission

Frequently asked questions

What is the Commodity Exchange Act?
The Commodity Exchange Act is the US federal statute that governs trading in futures, options, swaps and other derivatives, and it is the source of the Commodity Futures Trading Commission's authority. It gives the CFTC exclusive jurisdiction over swaps and futures traded on a designated contract market; prediction market exchanges argue that sports event contracts are such swaps, so state gambling laws cannot apply to them.
Does the Commodity Exchange Act preempt state gambling law?
Courts disagree. In April 2026 the Third Circuit held that Kalshi was likely to succeed in arguing that the Act preempts New Jersey's gambling law as applied to its sports event contracts. The Ninth Circuit (Nevada, August 2026) and the Sixth Circuit (Ohio and Tennessee, September 2026) held that such contracts are likely not swaps and that state gambling law can apply. New Jersey and Robinhood have asked the Supreme Court to resolve the question.
What is the special rule for event contracts?
Section 5c(c)(5)(C) of the Act, added by the Dodd-Frank Act in 2010, lets the CFTC determine that event contracts involving unlawful activity, terrorism, assassination, war, gaming or similar activity are contrary to the public interest, and bars contracts so determined from being listed. States argue that the gaming category shows Congress did not treat such contracts as ordinary derivatives.