The Third Circuit’s April 6, 2026 ruling in KalshiEX LLC v. Flaherty, No. 25-1922, holds that sports-related event contracts traded on a Commodity Futures Trading Commission (CFTC)-registered exchange are “swaps” under the Commodity Exchange Act (CEA) — and that the CEA preempts state gambling law for those products. One appellate decision has redrawn the boundary between federal derivatives regulation and a century of state gaming authority, while the United Kingdom and Canada have drawn the same line in the opposite place.

The 2-1 panel decision, authored by Judge David J. Porter and joined by Chief Judge Michael A. Chagares, affirms the preliminary injunction barring New Jersey’s Division of Gaming Enforcement from enforcing its gambling laws against Kalshi, resting on the CEA’s grant of exclusive CFTC jurisdiction over swaps “traded or executed on a [Designated Contract Market]” (7 U.S.C. § 2(a)(1)(A)), per Paul, Weiss. More than 34 states, the District of Columbia and the Northern Mariana Islands have filed amicus briefs on the other side. This analysis walks through what the ruling actually holds, how four jurisdictions now treat the same product, the enforcement record from the CFTC’s $1.4 million Polymarket order to Ontario’s two-year ban, and what the federal-state split means operationally for exchanges, brokers and compliance teams.

Key Facts:

• KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir.), decided April 6, 2026: first federal appellate holding that the CEA preempts state gambling law for DCM-listed sports event contracts — Holland & Knight
• The ruling affirms a preliminary injunction only — a likelihood-of-success finding, not a merits determination — Skadden
• 34+ states, DC and the Northern Mariana Islands filed amicus briefs asserting state regulatory authority — Paul, Weiss
• The CFTC fined Polymarket $1.4 million in January 2022 for operating an unregistered event-contracts market — CFTC Order, January 3, 2022
• Polymarket re-entered the US lawfully via the $112 million QCEX acquisition (July 2025) and a CFTC Amended Order of Designation (November 2025), launching for US iOS users on May 12, 2026 — PR Newswire
• The Ontario Securities Commission settled with Polymarket in April 2025: a $200,000 payment and a two-year ban from the province through 2027 — Casino.org
• Prediction-market traders price a 64% probability that the US Supreme Court accepts a sports event-contract case by the end of 2026 — PlayUSA

Methodology and sources

This analysis rests on the Third Circuit’s April 6, 2026 opinion in KalshiEX LLC v. Flaherty as summarised in client memoranda from Paul, Weiss, Holland & Knight and Skadden; the CFTC’s January 3, 2022 order against Polymarket (Press Release 8478-22); Polymarket’s November 2025 Amended Order of Designation announcement; the UK Gambling Commission’s published position on prediction markets; and the Ontario Securities Commission’s April 2025 settlement as reported by Canadian Affairs and Casino.org. Jurisdictional scope: United States (federal and state), United Kingdom, and Canada (Ontario), with reference to pending CFTC rulemaking. Time window: January 2022 through June 10, 2026. Caveat: Flaherty is a preliminary-injunction appeal; the merits remain before the District of New Jersey, and holdings summarised here may be revisited en banc or at the Supreme Court.

What the ruling actually says

The majority’s chain of reasoning runs in three steps. First, sports-related event contracts are “swaps”: the CEA’s definition reaches instruments contingent on an event “associated with a potential financial, economic, or commercial consequence,” and the panel held that sports outcomes qualify given the economic stakeholders they affect. Second, because Kalshi is a CFTC-registered Designated Contract Market (DCM), the CEA’s exclusive-jurisdiction clause (7 U.S.C. § 2(a)(1)(A)) occupies the field for products listed there. Third, conflict preemption applies independently: New Jersey’s enforcement “would create an obstacle to executing the [CEA]” by prohibiting what a federal licence permits.

What did the Third Circuit actually decide in Kalshi v. Flaherty? It held, 2-1, that sports event contracts listed on a CFTC-registered exchange are swaps within the Commodity Exchange Act’s exclusive federal jurisdiction, and that both field and conflict preemption bar New Jersey from applying its gambling laws to them. The decision affirms a preliminary injunction — a finding that Kalshi is reasonably likely to succeed, not a final merits ruling — and it binds only the Third Circuit’s territory of New Jersey, Pennsylvania, Delaware and the Virgin Islands. The court’s swap analysis turned on the CEA phrase “associated with a potential financial, economic, or commercial consequence,” which New Jersey warned would stretch federal jurisdiction from “bingo games to ping-pong matches.” The savings clauses Judge Roth invoked in dissent, including Dodd-Frank’s special rule at 7 U.S.C. § 7a-2(c)(5)(C), remain the strongest argument available to the 34-plus amicus states.

“Because Kalshi’s sports-related contracts are traded on a CFTC-licensed DCM and depend on event outcomes associated with economic consequences, they fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction.”

— Judge David J. Porter, writing for the majority, KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. April 6, 2026)
(Paul, Weiss)

How four jurisdictions treat the same product

Jurisdiction / Regulator	Status as of June 2026	Scope	Key requirement	Penalty / sanction precedent
US federal (CFTC)	Exclusive jurisdiction over DCM-listed contracts per 3d Cir., April 6, 2026	Swaps on registered DCMs	DCM designation; CEA 7 U.S.C. § 2(a)(1)(A); event-contract rulemaking pending	$1.4M Polymarket order, January 3, 2022 (unregistered market)
US states (NJ DGE + 34 amici)	Preempted within 3d Cir. pending merits; contested elsewhere	Sports wagering under state gaming acts	State betting licence; NJ cease-and-desist of March 2025 triggered Flaherty	Cease-and-desist orders; litigation in multiple circuits (e.g. Kalshi-Ohio)
UK (Gambling Commission)	Prediction markets classified as gambling	Event betting offered to GB customers	Operating licence as betting intermediary under the Gambling Act 2005	Unlicensed targeting of GB customers is unlawful; UKGC public warning, 2026
Canada (Ontario Securities Commission)	Securities-law perimeter; restrictive	Event contracts as securities/derivatives	Registration; only economic event contracts approved (Wealthsimple); no sports/politics	Polymarket: $200,000 settlement and two-year ban through 2027 (April 2025)

Sources: Paul, Weiss and Holland & Knight memoranda on No. 25-1922; CFTC Press Release 8478-22; UK Gambling Commission position via Focus Gaming News; OSC settlement via Casino.org and Canadian Affairs. Last updated June 10, 2026.

Why do the United States, United Kingdom and Canada now regulate the identical product under three different regimes? The divergence is definitional. The US federal courts ask whether the instrument is a swap on a registered exchange — a market-structure question that, after Flaherty, federalises anything a DCM lists. The UK asks what the customer is doing, and the Gambling Commission’s answer is that taking a position on an event outcome is betting, full stop — making the operator a betting intermediary requiring a licence under the Gambling Act 2005, in the same category as a betting exchange. Ontario asks what the contract is, treats it as a security or derivative, and registered Wealthsimple for economic event contracts while banning sports and political markets entirely. The arbitrage consequence is direct: one product, three perimeters — and an operator’s compliance map depends not on what it sells but on which question each regulator asks first.

The enforcement record: from $1.4 million to a licensed re-entry

The CFTC’s January 3, 2022 order against Polymarket (Press Release 8478-22) remains the foundational enforcement action: a $1.4 million civil monetary penalty for operating an illegal unregistered facility for event-based binary options, which pushed the platform offshore and walled off US users. The instructive part is the sequel. Rather than litigate the perimeter, Polymarket bought its way inside it — acquiring the CFTC-licensed exchange and clearinghouse QCEX for $112 million in July 2025, then securing an Amended Order of Designation in November 2025 that permits an intermediated US platform under the full DCM rulebook, before launching to US iOS users on May 12, 2026. New Jersey’s March 2025 cease-and-desist letter to Kalshi produced the opposite trajectory: federal litigation that has now generated the most consequential preemption holding in the sector’s short history. Two enforcement paths, two outcomes — one regularised through acquisition, one constitutionalised through the courts. The political layer is still moving: Senator Elizabeth Warren’s records request to the CFTC over staff departures and CLARITY Act negotiations lands squarely on the agency’s capacity to supervise the perimeter it has just been handed.

What this means for exchanges, brokers and compliance teams

For DCM operators and would-be entrants, Flaherty plus Polymarket’s Amended Order of Designation define the playbook: federal designation is now both the product licence and — within the Third Circuit — the state-law shield. Expect applications for DCM status and intermediated structures to accelerate, the same route mapped in The Industry Spread’s analysis of the CFTC’s crypto-perpetuals opening. For futures commission merchants and introducing brokers, intermediated access to event contracts is a new product line carrying ordinary CEA obligations — know-your-customer checks, the anti-money-laundering duties whose cross-border friction The Industry Spread mapped in its FATF Travel Rule analysis, margin and reporting — but with state-law exposure outside the Third Circuit still live; distribution decisions should be circuit-aware until the merits or the Supreme Court resolve the split. For multi-jurisdictional platforms, the UK and Ontario rows of the table are the hard constraints: GB-facing access requires a Gambling Commission licence, and Ontario access is closed for sports and politics regardless of any US designation. Compliance teams should treat marketing geo-targeting as the highest-risk surface — Kalshi’s UK warning and its advertising referral show regulators on both sides of the Atlantic are watching promotion, not just listing. The legislative wildcard is the CLARITY Act’s SEC-CFTC boundary redraw, covered in The Industry Spread’s stablecoin-deadline analysis — an event-contract title in any final text would reset this entire map.

“Gambling regulation has been largely left to the state legislatures… the presumption against preemption applies with special force when Congress has legislated in a field traditionally occupied by the states.”

— Judge Jane R. Roth, dissenting, KalshiEX LLC v. Flaherty, No. 25-1922 — describing Kalshi’s products elsewhere in the dissent as “virtually indistinguishable from the betting products available on online sportsbooks”
(PlayUSA)

The forward view: merits, rulemaking and a probable certiorari

Three tracks now run in parallel. In the courts, Flaherty returns to the District of New Jersey for the merits while parallel Kalshi litigation proceeds in other circuits — including the Ohio dispute where the CFTC has filed its own views — and any divergent appellate outcome creates the circuit split that makes Supreme Court review near-automatic; prediction markets themselves price a 64% probability of a cert grant by year-end, a recursion in which the regulated product forecasts its own regulation. At the agency, the CFTC’s event-contract rulemaking remains pending, and its outcome will determine whether sports and political contracts face listing standards, position limits or public-interest review even inside the federal perimeter. In the states, the 34-amici coalition is unlikely to accept field preemption quietly: expect state legislation taxing or conditioning intermediated distribution, and pressure on Congress to amend the CEA’s special rule — the same multi-perimeter fragmentation The Industry Spread traced in retail FX rules beyond the 30:1 leverage cap. The operational stance that survives all three tracks is the conservative one — build to the DCM rulebook, geo-fence to the strictest active jurisdiction, and document the circuit-by-circuit exposure until the Supreme Court speaks.

FAQ

What is KalshiEX LLC v. Flaherty?

It is the Third Circuit case, No. 25-1922, decided April 6, 2026, in which a 2-1 panel held that Kalshi’s sports event contracts are swaps under the Commodity Exchange Act and that federal law preempts New Jersey’s gambling laws as applied to contracts listed on a CFTC-registered exchange. The ruling affirms a preliminary injunction; the merits remain in litigation.

Are prediction markets legal in the United States?

On federally designated exchanges, yes: Kalshi operates as a CFTC-registered DCM, and Polymarket re-entered the US in May 2026 through its CFTC-licensed QCEX subsidiary. State-law exposure persists outside the Third Circuit, where roughly three dozen states assert gambling-law authority and litigation continues.

How does the UK regulate prediction markets?

The UK Gambling Commission treats prediction markets as gambling: an operator taking event-outcome positions from GB customers is a betting intermediary requiring a Gambling Act 2005 operating licence, and the Commission has warned unlicensed platforms not to target Great Britain.

What happened to Polymarket in Ontario?

The Ontario Securities Commission settled with Polymarket in April 2025: a $200,000 payment and a two-year ban from operating in the province through 2027. Ontario has since approved only economic event contracts (via Wealthsimple), excluding sports and political markets.

What was the CFTC’s 2022 Polymarket enforcement action?

On January 3, 2022, the CFTC ordered Polymarket to pay a $1.4 million civil monetary penalty for operating an illegal, unregistered facility offering event-based binary options (Press Release 8478-22). The order forced Polymarket offshore until its licensed re-entry via the QCEX acquisition.

Will the Supreme Court hear a sports event-contract case?

Unresolved — but prediction-market traders price a 64% probability of the Court accepting such a case by the end of 2026, and a circuit split in the parallel Kalshi litigation would make review substantially more likely.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.