Who Has the Say Over Prediction Markets

The future of prediction markets became a shared question for courts, regulators, federal prosecutors, Congress and exchanges at the NEXTPredict Summit held in New York on its second day. A question that came up repeatedly in the sessions was who will decide what these markets are allowed to do and what will be prohibited.

The biggest uncertainty of the day concerned whether sports event contracts will be treated as federally regulated swaps or as gambling supervised by the states. Federal appeals courts are divided on the issue, and an application by New Jersey to the Supreme Court is still pending. Panelists agreed that the matter will not be resolved quickly. Bill Pascrell III, a partner at Princeton Public Affairs Group, noted that the case is moving slowly and said the court may not rule until next June.

Josh Sterling, a partner at Milbank and a former CFTC official, argued that federal jurisdiction will not eliminate state regulation of casinos and betting. Jovy Dedaj, head of litigation at Kalshi, said the company complied with a court ruling in Michigan, yet the CFTC criticized it anyway. Dedaj said that after New York took action, the CFTC instructed the company to comply before the judge had even spoken.

Dorothy DeWitt, a former CFTC official, warned that the agency currently having only one commissioner could lead to regulatory instability. In her view, there could be serious back and forth over what is considered acceptable.