The future of the global derivatives market, a multi-trillion-dollar enterprise underpinning the smooth functioning of everything from air travel to international currency exchanges, could soon be decided in a Camden, New Jersey courtroom.
The court case in question turns on whether New Jersey’s casino regulator should be able to police Kalshi, which is a futures exchange where investors manage risk by hedging the outcomes of the Super Bowl, presidential elections, and other marquee events that generate economic activity. Why is this court case unnecessary? Because Kalshi is already fully licensed, supervised, and regulated by the Commodity Futures Trading Commission (CFTC), the same federal agency that oversees the rest of the futures industry.
The state casino regulator wants to freeze trades on Kalshi’s sports prediction markets, arguing they are cutting into New Jersey casino profits from sports gambling. In an early ruling, a federal judge in another New Jersey court sided with Kalshi, blocking the state from taking action against the platform until the Camden appeals court can hear arguments in the broader case, which could begin next month.
On its face, the case appears to be a narrow business fight, pitting a new financial market against an entrenched local casino industry and its government regulator. Yet a ruling in New Jersey’s favor would carry sweeping consequences, undermining the CFTC’s authority and destabilizing the $730 trillion worldwide derivatives market in the process.
The fallout is easy to imagine and alarming to contemplate. If a New Jersey state agency succeeds in trampling on the CFTC, other states will feel empowered to follow suit. This action would further erode the federal regulator’s ability to oversee futures contracts that farmers and companies of all sizes, in the U.S. and abroad, rely on to run their businesses. These futures contracts protect them from big swings in interest rates, commodity prices, and currencies. With the U.S. regulator undermined, capital would flee the U.S. commodities market, precipitating a global market disorder and an erosion of U.S. soft power. These devastating consequences are why it's crucial that the appeals court rules in Kalshi’s favor.
Robust federal oversight of the derivatives markets is precisely what policymakers worked hard to create in the wake of the 2008-2009 global financial crisis. My then-colleagues and I agreed, on a bipartisan basis, that we had to establish a strong regulatory framework that would restore confidence in derivatives markets that had been deeply damaged by their role in the crisis. As chair of the Senate Agriculture Committee, I took the lead in ensuring the CFTC had the command it needed to do the job. This requires that the agency have sole discretion over which futures contracts are banned and the power to guarantee that the same rules apply to everyone participating in these markets.
In the fifteen years since the adoption of those Wall Street reforms, the CFTC has demonstrated that it is more than up to the task. Minute to minute, the agency safeguards fair and orderly trading, preventing fraud and abuse while allowing the market to fulfill its role of determining the values of contracts. As a result, America’s futures markets are the deepest and most resilient in the world. They empower American businesses from farms to airlines to hedge risk safely and predictably, and American investors to engage in price discovery and profit seeking.
Now, as financial markets continue to evolve, the CFTC is expanding its scope to include oversight of prediction markets operated by Kalshi and other similar firms. The utility of these markets is clear. They allow companies that will be impacted by elections and other momentous events to protect themselves from the risk associated with major changes in policy and business environments.
Not surprisingly, there has been strong demand for prediction markets, driving a rapid expansion, including into sports. This has drawn an outcry from the brick and mortar casino industry and state regulators like those in New Jersey, who insist that prediction markets are cannibalizing their business. This is simply not true. The casino industry’s own figures show states are collecting record tax revenues from sports gambling this year, as brick-and-mortar casinos also set new revenue records.
Further, the proposed “solution” would subject consumers to significant harm. Prediction market trading platforms registered with the CFTC must adhere to nearly two dozen “core principles,” certifying they comply with agency rules, list contracts that aren’t prone to manipulation, and prevent conflicts of interest. If New Jersey and other states succeed in shutting down regulated prediction markets, American traders will simply move their activity to offshore platforms that lack rules or oversight. The result would be dire for consumer protection.
To preserve American primacy in the global derivatives market, the CFTC must keep its sole authority over futures markets. This requires the court to reject New Jersey’s casino regulator.
