What Happened
On July 14, 2026, the CFTC did two things that, individually, would each be unusual and together are noteworthy: it stayed an emergency rule self-filed by a regulated exchange, and then affirmatively ordered that exchange to honor contracts it had already proposed to unwind. The trigger: a Michigan state court order that the CFTC determined raised questions of federal preemption under the Commodity Exchange Act — specifically, a July 6, 2026 directive from the Circuit Court for Michigan's 30th Judicial District ordering that trades entered into by Michigan-based users be "voided, cancelled and refunded."
The agency noted that Michigan is the first state to attempt to interfere in transaction activity directly — a meaningful distinction from the cease-and-desist letters and state enforcement actions the CFTC has contested elsewhere. Retroactively unwinding executed contracts on a federally designated exchange is a different category of intervention than prospectively prohibiting new activity.1
The Jurisdictional Argument
The CFTC's legal theory is not new, but its application here is more aggressive than prior actions. The Commodity Exchange Act requires the CFTC to provide a uniform national market in derivatives transactions. A Third Circuit majority concluded in April 2026 that the CEA grants the CFTC "exclusive jurisdiction" over swaps traded on federally registered exchanges, preempting state laws that would otherwise regulate the same activity. The Michigan action tests whether that preemption principle extends to post-execution settlement — a point no appellate court has yet resolved.2
Congress long ago decided that a national framework for commodity derivatives markets was preferable to a fragmented patchwork of state regulations. The Michigan confrontation surfaces what that preference looks like in practice: a federal regulator ordering a private exchange to defy a state court directive rather than comply with it.
CFTC Chairman Michael Selig has been unequivocal about the agency's posture. "The commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations," he said in his statement alongside the order. Selig has also stated the agency will defend its authority over prediction markets "all the way up to the Supreme Court" if necessary.
What Remains Unresolved
The legal question is not settled — and that matters for anyone assessing the regulatory risk in this asset class. The Third Circuit's ruling is a significant win for prediction market platforms, but it is not the final word — the court affirmed the preliminary injunction but this remains a preliminary ruling, not a final judgment.
The CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin over their efforts to restrict prediction market activity — a scope that signals the jurisdictional dispute is structural, not episodic. Separately, Senators Curtis and Schiff introduced the Prediction Markets Are Gambling Act in March 2026, which would amend the CEA to reclassify sports and casino-style event contracts as gambling outside CFTC jurisdiction — legislation that, if enacted, would eliminate the ambiguity at the heart of the preemption dispute.
For investors in federally regulated prediction market platforms, the Michigan action establishes that the CFTC will use its emergency powers to protect the integrity of executed contracts against state-level interference. That is a meaningful data point. Whether the courts will ultimately sustain that position at the appellate and Supreme Court levels is the variable that defines the long-term regulatory environment for this asset class.
Footnotes
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Holland & Knight, April 2026 ↩
