The struggle among the various levels of financial regulation and lawmakers in the US is heating up, as to which body should be setting rules for Prediction Markets trading.

Soon after a bipartisan Senate bill was introduced to ban sports related Prediction Markets, derivatives markets regulator The Commodity Futures Trading Commission (CFTC) has announced that it has filed lawsuits challenging the actions of Arizona, Connecticut, and Illinois against CFTC-registered designated contract markets.

Despite the CFTC’s clear and longstanding exclusive jurisdiction to regulate event contracts under the Commodity Exchange Act, various states have attempted to outlaw, regulate, or otherwise restrain the activities of DCMs that facilitate trading in lawful event contracts. The CFTC stated that Congress long ago decided that a national framework for commodity derivatives markets was preferable to a fragmented patchwork of state regulations.

CFTC Chairman Michael S. Selig said,

“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators. This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation.”

The CFTC recently issued an Advanced Notice of Proposed Rulemaking to assist the agency with identifying areas of confusion regarding the proper application of the CEA and the CFTC’s regulations to prediction markets and expects to move forward with regulation reinforcing those obligations.

The CFTC first officially recognized event contracts in 1992 when it allowed the Iowa Electronic Markets, a futures market at the University of Iowa in which traders can buy and sell contracts pegged to events such as presidential elections and corporate earnings. In the wake of the 2008 financial crisis, Congress expressly granted the CFTC comprehensive authority over any such contract based on a commodity, which is broadly defined in statute. The CEA is designed to account for innovation in the financial markets, allowing for new and emerging use cases within CFTC-regulated markets.