CFTC Orders Prediction Market Companies to Cease Geofencing States Within 30 Days

• The Commodity Futures Trading Commission today ordered designated contract markets to end geofencing restrictions within 30 days
• The new interpretation of its second core principle states that access restrictions are inconsistent with an open and fair makret
• Prediction market operators may submit an explanation to the CFTC as to why compliance is not feasible

The Commodity Futures Trading Commission today issued an order to its designated contract markets to cease any prediction market geofencing restrictions in the U.S. within 30 days or provide them with an explanation of why they cannot comply with the order.

The Commodity Futures Trading Commission (CFTC) issued a new interpretation of its second core principle to provide a fair and impartial market, requiring designated contract markets (DCMs) to unblock any states it may have geofenced off due to a court order, pending litigation, or other reason.

“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 S. Selig said in a press release. “Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements.”

No Geographic Restrictions

The new interpretation essentially requires all DCMs to offer their event contracts nationally and to ignore any court orders to prohibit certain markets from certain states. Kalshi, for instance, received court orders to block their sports event contracts from Nevada, Michigan, and Washington.

Several other DCMs have done so voluntarily in states where litigation is pending or they fear a potential loss of licensure. DraftKings, FanDuel, and Fanatics, for example, do not offer their sports event contracts in states where they also hold a sports betting license. States such as Ohio and Massachusetts have threatened companies with loss of their licenses if they also offer their event contracts within their boundaries.

This new CFTC interpretation requires these companies to offer their event contracts without “geographic restrictions.”

“Limiting access by geographic location raises significant concerns for both financial integrity and risk management within derivatives markets. For instance, if a market participant establishes a position in a region where access is allowed but subsequently travels to a location where access is restricted, that participant would be unable to manage their position. That participant may not be able to adequately manage their position, respond to market events, or meet margin calls,” the CFTC noted in its new interpretation.

30 Days to Comply

The CFTC informed DCMs they must “cease domestic geographic restrictions that violate the Impartial Access Requirements within 30 days, or else submit to the Division of Market Oversight an explanation for why such compliance is not feasible.”

Additionally, the CFTC told DCMs that intermediaries accessing their markets (such as FanDuel and Fanatics) must also comply with the requirement or submit an explanation for why such compliance is not possible.

The CFTC noted it will consider the facts and circumstances for all particular cases that say they cannot comply with the order.

Potential penalties for violation of the new interpretation were not released by the CFTC.