CFTC Tells Exchanges to Stop Geofencing States

The Commodity Futures Trading Commission has told federally regulated exchanges to stop blocking traders based on the state they live in. In an interpretation issued on Wednesday, November 5, the agency gave designated contract markets, known as DCMs, 30 days to drop domestic geographic restrictions or explain why they can’t. That puts the federal regulator squarely against the court-ordered geofences that keep Kalshi’s sports contracts out of Nevada and off tribal land in California.

The 30 days run out on December 5. The interpretation doesn’t name a single exchange, and it doesn’t mention a single court order. Kalshi and the other prediction markets now face a regulator that calls state blocking inconsistent with federal law, and judges who have ordered them to do exactly that.

Selig Wants One National Market

CFTC Chairman Michael S. Selig framed it as a question of scale. “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,” he said in the agency’s release. “Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements.”

The legal hook is Regulation 38.151(b), the rule that requires an exchange to give its members “competitive, open, fair, and impartial access.” The interpretation itself says the Commodity Exchange Act and CFTC rules “generally do not permit a DCM to limit access based on the location of an otherwise eligible market participant within the United States.”

It reaches past the exchanges, too. Within the same 30 days, DCMs “should ensure that intermediaries accessing their markets are not impeding” the rule, and a footnote says exchanges must take reasonable steps so that the intermediaries trading on them don’t impose geographic restrictions of their own.

Why the Agency Says Borders Hurt

The CFTC’s reasoning is about liquidity, not gambling. A trader who opens a position in a state where access is allowed and then travels to one where it is blocked “would be unable to manage their position,” the document says, which can mean forced liquidations and missed margin calls.

It uses sports to make the point. Contracts with regional interest, such as whether a home team makes the playoffs, lose liquidity when that region is shut out. Election markets “may be particularly sensitive,” it adds, because the best-informed traders on a state race can be the people who live there.

Court Orders Point the Other Way

The geofences didn’t come from nowhere. In Nevada, Kalshi agreed in July to install a multi-source geofence through GeoComply by August 12, with $120,000 a day at stake if it ran late, to comply with a May 18 preliminary injunction, and that deal stays in place as long as the injunction does. A Washington state court ordered geofencing on August 12, and a Michigan state court ordered Kalshi on September 1 to use a licensed geolocation provider.

The newest one landed the day before the CFTC acted. On November 4, US District Judge Jacqueline Scott Corley barred Kalshi’s sports contracts on the lands of Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians in California. The tribes owe the court maps of their land by November 13, and Kalshi has to report on its compliance within 21 days of the order, which is November 25.

The Ninth Circuit Has Heard This Before

Kalshi made the impartial access argument in its Nevada appeal and lost. In an August opinion, the Ninth Circuit said “Kalshi’s argument offers a false, all-or-nothing proposition,” noted that regulated companies in Nevada already use geofencing, and added: “Kalshi could do the same; it just refuses to do so and instead seeks a competitive advantage over its competitors.” The court refused to rehear that case on November 4, one of two appeals court losses for Kalshi that week.

The CFTC left itself room. An exchange can send the Division of Market Oversight an explanation instead of complying, and the commission says it “will consider the facts and circumstances of any particular case in connection with potential Commission action.” Lawyers at Troutman Pepper Locke say that route “could prove particularly important where an exchange is operating under a binding injunction.”

Tribes and a Senator Push Back

The reaction from tribal gaming was fierce. James Siva, chairman of the California Nations Indian Gaming Association, said, “The CFTC cannot erase tribal sovereignty or give companies permission to ignore a federal court,” and called on the agency to withdraw the directive, according to Tribal Business News.

California Senator Adam Schiff went further in a November 6 statement. “Sports prediction markets are sports bets,” he said, accusing the CFTC and “its rogue chairman” of encouraging platforms to keep offering gambling products “in contempt of these court orders.” Better Markets, a financial reform group, put it more simply: “In this country, when courts issue orders, we follow them.”

It’s the latest turn in a fight that already includes a wave of state lawsuits against Kalshi.

A Second Deadline on November 18

The geofencing push isn’t the agency’s only open item, and it follows last month’s warning to Novig and ProphetX over sports micro contracts. On October 9 it proposed a rule that would expressly define the term “swap” to include event contracts, including those based on sports, politics and weather. It issued an interim final rule the same day that excludes casino-style gambling, including sportsbook wagers and casino games, from that definition. Comments on both are due by November 18.

The interpretation posted on the CFTC’s site is marked as approved “subject to pre-publication technical corrections,” and it takes effect when it is published in the Federal Register. Exchanges that want to keep their state blocks have until December 5 to tell the agency why.