Opposition movement against the legalization of gambling! Former SEC Chairman submits a letter of opinion, strongly opposing CFTC's expansion of prediction market regulation

Former U.S. SEC Chair Gensler files a brief opposing the CFTC’s regulatory claims, arguing that event contracts—highly similar to sports betting—should be subject to state gaming regulations.

Gensler personally steps in, predicting the market-regulation battle will heat up

Former U.S. SEC Chair Gary Gensler recently filed an amicus brief with the court, openly opposing the U.S. Commodity Futures Trading Commission (CFTC)’s regulatory claims regarding sports event prediction markets. The move further escalates the legal dispute between prediction markets and sports gambling, and also brings the fight over regulatory authority between the federal government and state governments to the forefront.

Image source: Court Listener Former U.S. SEC Chair Gary Gensler recently publicly opposed the CFTC’s regulatory claims over sports prediction markets

In the filing, Gensler pointed out that event contracts, although traded in the form of financial products, do not change their nature if their economic effects are highly similar to sports betting—even if they are dressed up as derivative products.

He believes that when the U.S. Congress originally authorized the CFTC to regulate commodity and derivatives financial markets, it did not authorize the CFTC to take over the sports gambling industry that had originally been managed by the states.

This is also one of the few cases in which, after stepping down as SEC Chair, Gensler directly intervened in major cryptocurrency and financial regulatory disputes, and it has therefore drawn particular attention in the market.

The line between prediction markets and sports gambling becomes the biggest controversy

In recent years, prediction markets have risen rapidly. Platforms allow users to trade on election results, economic data, policy decisions, international events, and sports events. Supporters argue that, in essence, these markets trade probabilities of future events and thus serve functions such as price discovery and information aggregation, so they should be considered part of the financial markets.

However, opponents argue that some products are extremely close to traditional sports gambling. Users put in funds and profit based on game results, and their operating model differs only marginally from gambling markets. Gensler therefore argues that if such products are fully brought under a federal regulatory framework, it could weaken the state-level gambling management systems that have been established over many years.

Currently, state governments with mature gambling industries, including Nevada and New Jersey, have also repeatedly raised questions about relevant platforms, claiming that some prediction market operators are entering gambling markets that are originally regulated under state laws by exploiting legal gray areas.

Kalshi and the CFTC argue for federal regulatory primacy

The core of the controversy stems from the legal positions taken by the prediction market platform Kalshi and the CFTC.

Kalshi has long argued that the event contracts it provides fall within the scope of the Commodity Exchange Act, and therefore should be supervised by the CFTC rather than managed by state gaming regulators.

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Some prior court rulings have also leaned in favor of this view, allowing Kalshi to continue rolling out prediction products related to political events, economic data, and sports events. Supporters believe that prediction markets can improve information transparency, reflect the collective judgment of the market, and even help with risk management and price forecasting.

However, Gensler believes that if this interpretation is accepted, in the future a large number of gambling products could be repackaged in the form of financial contracts, thereby bypassing state regulation. He warns that this would change the legal framework in the U.S. that has long been used for state-managed gambling activities.

Key ruling ahead for the next stage of prediction market development

Over the past two years, prediction markets have become one of the most closely watched emerging industries in the cryptocurrency and financial technology sectors. Especially during the U.S. presidential election, large amounts of capital flowed into related platforms, causing the influence of prediction markets to rise rapidly and also attracting more regulatory agencies and members of Congress.

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Gensler’s entry into the fray reflects that there is still clear disagreement within the U.S. regulatory community about the rapid expansion of prediction markets.

• One side argues that event contracts are financial innovation and should be incorporated into the federal regulatory system;
• The other side argues that when the product’s nature has already become very close to gambling activities, it should still be bound by state-level laws.

How courts will define the legal boundary between prediction markets and sports gambling, and just how far the CFTC’s regulatory authority can extend, will directly affect the direction of development for the entire industry. If the courts support the views of the states and Gensler, prediction market operators may need to obtain gambling licenses from the states in the future; if they support Kalshi and the CFTC’s position, it could open up more room for growth in the event contract market and further drive prediction markets into the mainstream financial system.