Key Takeaways
- The CFTC gave exchanges 30 days to end state-by-state geographic restrictions or explain why they can’t.
- Exchanges must also make sure brokers and other intermediaries don’t impose their own geoblocks.
- A judge ordered Kalshi on Nov. 4 to block sports contracts on the lands of California tribes that sued it.
CFTC Says Geographic Restrictions Break Federal Rules
The CFTC on Thursday, Nov. 5, issued an interpretation of its impartial access rule, which requires designated contract markets (DCMs) to give eligible traders “competitive, open, fair, and impartial access.” The agency gave exchanges 30 days to end state-level geoblocks: DCMs “must cease domestic geographic restrictions that violate the Impartial Access Requirements within 30 days,” or else explain to the CFTC’s Division of Market Oversight why compliance is not feasible.
“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 Selig said. “Geographic access restrictions are inconsistent with those purposes and the Act’s impartial access requirements.”
The same 30-day window applies to intermediaries, such as brokers that route customers to an exchange. DCMs should ensure those firms are not impeding impartial access, or explain why they can’t. The CFTC said it “will consider the facts and circumstances of any particular case” in connection with any potential action.
Why the CFTC Opposes Geoblocking
In the six-page interpretation, the agency said federal law and its 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 takes effect when published in the Federal Register.
The CFTC listed several harms, highlighting that a trader who opens a position in a state where access is allowed and then travels to one where it is blocked could be unable to manage the position or meet margin calls. Blocking states can also fragment liquidity and lead to wider spreads, according to the agency.
A contract on “whether a home team advances to its playoffs” could lose liquidity if that team’s region were excluded, the agency added, while stating that in election markets “the most informed trading may be sourced on a state or local basis.” The interpretation does not mention court orders, state regulators, or tribes.
Guidance Collides With Court Orders Against Kalshi
The guidance lands as exchanges face court-ordered geoblocks. On Nov. 4, U.S. District Judge Jacqueline Scott Corley granted a preliminary injunction in a suit brought by California tribes including Blue Lake Rancheria. The order bars Kalshi from offering “any sports contracts” on the tribes’ Indian lands. The tribes must send Kalshi maps of those lands by Nov. 13, and Kalshi must report on its compliance within 21 days.
In Michigan, Kalshi is already under a state-court injunction that requires it to geofence Michigan users, with violations carrying a $500,000 daily fine. Several federal courts have also rejected Kalshi’s argument that blocking a state would breach the impartial access rule, according to NEXTPredict, including the Ninth Circuit in Kalshi’s Nevada case, which called it a “false, all-or-nothing proposition.”
States are also stepping up their own cases. Arkansas Attorney General Tim Griffin sued Kalshi on Nov. 4 under the state’s Deceptive Trade Practices Act, while the CFTC has sued Utah to stop it from enforcing its gambling laws against federally regulated prediction markets.
The announcement does allow exchanges to submit an explanation of why compliance is not feasible within the 30 days, but it does not say how the agency would treat one, including from an exchange under a court-ordered geoblock.
