SEC Set to Co-Regulate Prediction Markets as CFTC Rejects State Unwinds and Tribes Report 5% Revenue Loss
Key Takeaways
- SEC-CFTC Overlap: The SEC is expected to join the CFTC in overseeing prediction markets and event contracts following the CFTC’s new regulatory proposal.
- Tribal Revenue Shift: Prediction markets have reduced tribal gaming revenue nationwide by 5% according to preliminary studies cited by the California Nations Indian Gaming Association.
- Michigan Dispute: The CFTC ordered Kalshi to honor executed trades for Michigan residents and stay any unwind rule despite a state court directive issued on June 29 and clarified on July 6.
- Sovereignty Pushback: “The rise of the prediction market is, without a doubt, the largest and most impending threat we have to tribal gaming and to tribal government and tribal sovereignty that we have currently,” Siva said. “It may be the biggest threat we’ve seen since the beginning of this industry.”
The SEC is expected to join the CFTC in overseeing prediction markets. This arrives as the CFTC asserts federal authority against state court actions and tribal leaders document revenue losses. Reports from Gambling Insider and Legal Sports Report detail the clashes.
Prediction markets now trade sports events in states where tribal compacts strictly control gaming. The CFTC’s recent actions in Michigan show regulators will not let state orders unwind executed contracts. Tribal gaming generated more than $43 billion nationally in fiscal year 2023. Early data shows prediction platforms already diverting spend.
Tribes Measure a 5% Revenue Drain
James Siva told Tribal Business News that prediction markets are pulling meaningful revenue from tribal operations. The California Nations Indian Gaming Association ran preliminary studies after exchanges such as Kalshi and Polymarket expanded quickly. California tribes have been preparing for online sports betting since before the COVID-19 pandemic. The rapid rise of prediction markets has accelerated those discussions.
The association continues to work with California Attorney General Rob Bonta while opposing legislation that would regulate only certain aspects of prediction markets. In the organization’s view, any measure short of an outright prohibition could strengthen the industry’s argument that the products are legal. The association argues these products bypass the constitutional process required for new gaming forms.
CFTC Uses Emergency Powers on Michigan Trades
On July 12 Kalshi filed an emergency rule to liquidate certain Michigan positions and issue refunds after a state court order. The Ingham Circuit Court issued a temporary restraining order on June 29 and clarified on July 6 that trades by Michigan residents must be voided, cancelled and refunded. The CFTC stayed the filing and directed Kalshi to fulfill the trades in accordance with normal practices.
CFTC Chairman Michael Selig stated “A state cannot force a DCM to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents.” Selig added “Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market.”
The Commission warned that allowing the unwind would risk shattering public confidence because traders could worry executed positions might be reversed later. It described the Michigan directive as an unprecedented order requiring Kalshi to unwind open, previously executed trades.
Kalshi Caught Between Federal and State Demands
Kalshi described those positions as a minute percentage of its sports trading volume. The exchange offered to absorb all losses itself so no other market participant would bear any shortfall. “We are disappointed by this decision and believe it is unfair to Kalshi,” Kalshi Head of Enforcement Robert DeNault wrote on X. “We already acted and unwound the trades, as the Michigan court order required us to do.”
DeNault added “We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations.”
This case marks the first time the CFTC deployed emergency powers to block a state court unwind of executed trades. The agency has sued multiple states and filed amicus briefs in related matters. An August 12 geofencing deadline in Michigan remains in effect.
Market Observers Highlight Clearing Risks
Supporters of the CFTC position stressed the mechanics of two-sided trades. As @a_kane47 posted on X “CFTC is correct here. Can’t just cancel trades made in the past. Each trade has two sides, so either the clearinghouse is stuck with the risk (not how clearinghouses are designed to operate), or the counterparties to the affected trades also have their trade busted?”
@GivnerAriel wrote “Imagine you ordered a pizza through a big national delivery app (like DoorDash or Uber Eats). You paid, the order is confirmed and matched with the restaurant, and it’s already being prepared. Then your state’s court says: “Cancel all orders placed by people in our state – we…”
Others questioned the optics of federal direction against a court order. @tphillips noted “This is WILD. Kalshi changed its rules to comply with a court order, forcing liquidation of certain contracts. The CFTC stayed that that rule. The CFTC appears to be forcing Kalshi to not comply with a lawful court order.”
@dan_bernstein_ observed that the order expands the CFTC’s use of impartial access principles.
What the Coverage Underemphasizes
The reporting captures the legal tension and the estimated 5% revenue impact from preliminary studies by the California Nations Indian Gaming Association. From the supplier side this regulatory friction directly slows platform integrations and hedging tools that operators need. Consistent federal signals matter more than any single court win because they let data infrastructure teams price risk and build reliable feeds.
The combined sources also leave open how SEC involvement would alter capital markets access. Tribal compacts created one regulated lane. Prediction platforms operate in another. Dual oversight could narrow that gap or widen it depending on final rule language. Those mechanics will decide whether these markets complement or compete with established operators.
The Data Infrastructure Test
Operators should map every new federal filing to their current data pipelines. The CFTC’s stand on executed trades protects market certainty. Yet state and tribal challenges will continue. The real metric is whether liquidity deepens and price signals stabilize across platforms. Preliminary studies suggest meaningful revenue has already shifted away from tribal gaming operations. Suppliers who treat these contracts as permanent will build the sharper tools while others wait for the next court ruling.
