CFTC tells exchanges to end domestic geofencing or explain why they cannot

The Commodity Futures Trading Commission has told federally regulated derivatives exchanges that domestic geographic restrictions generally violate their obligation to provide open and impartial market access, creating a direct tension with court orders that have required prediction-market platforms to block users in particular places.

The interpretation, issued Nov. 5 under CFTC Regulation 38.151(b), says designated contract markets must remove noncompliant location-based restrictions within 30 days or explain to the Division of Market Oversight why doing so is not feasible. They face the same deadline to ensure intermediaries accessing their markets do not impede impartial access, or to submit a feasibility explanation.

The agency said access rules must be transparent, non-discriminatory, clearly defined, published in advance and applied uniformly. It said domestic geofencing arbitrarily distinguishes otherwise eligible participants solely by location, while the Commodity Exchange Act requires markets to operate uniformly at a national scale.

The guidance applies to designated contract markets including Kalshi and Polymarket, which operate under federal derivatives laws. Kalshi had geofenced customers in Nevada, Washington and Michigan while pursuing disputes with those jurisdictions. As covered in August, a Washington judge ordered Kalshi to halt most event-contract markets in the state.

The CFTC said it would assess the facts and circumstances of individual cases before deciding whether to act. Its interpretation nevertheless puts exchanges in a difficult position where complying with state or court-imposed restrictions may conflict with the federal agency’s view of their obligations.

The agency argued that geographic exclusions can fragment national liquidity, impair arbitrage and prolong temporary price disparities. They can also prevent traders from managing positions or meeting margin calls after travelling into a restricted location, potentially forcing liquidations and increasing systemic risk.

It singled out markets whose value depends on local information or interest. Excluding residents from a state-specific election market could reduce trading volume and price discovery, the guidance said, with implications for media groups and others that use contract prices as information. Sports contracts may similarly draw concentrated interest from the home region of a team.

The interpretation arrives amid conflicting judicial outcomes. The Second Circuit issued a decision involving Kalshi and Coinbase that may permit enforcement actions in Connecticut and New York. In September, the Ninth Circuit found two California tribes were likely to succeed in arguing that Kalshi sports contracts purchased on tribal land constituted unauthorized class III gaming under the Indian Gaming Regulatory Act.

That ruling held that a wager occurs where the customer stands, rather than where an exchange’s servers operate, and that neither the Commodity Exchange Act nor the Unlawful Internet Gambling Enforcement Act displaced the tribal gaming statute. A federal judge subsequently barred Kalshi sports contracts on the lands of Blue Lake Rancheria and Chicken Ranch Rancheria of Me-Wuk Indians.

The CFTC’s position extends an older impartial-access principle. In 2013, agency divisions said that restrictions preventing participants from interacting with selected counterparties were inconsistent with the equivalent requirements for swap execution facilities. Better Markets called the latest federal court rulings part of a long line of decisions rejecting the CFTC’s case for unrestricted prediction markets.