A Sixth Circuit Court of Appeals panel ruled on September 25 that prediction market provider Kalshi's sports-related events contracts are not swaps, and therefore are subject to state gaming regulations rather than federal CFTC oversight. The three-judge panel agreed with Kalshi that it had the right to bring the case, but disagreed that the products in question were federally regulated swaps. As reported by Reuters, the ruling addresses two cases involving Ohio and Tennessee, with the platform seeking injunctions blocking the states from suing it. While an Ohio federal court denied Kalshi's motion, a Tennessee federal court granted it, creating a mixed legal landscape for the prediction market provider. The ruling affirmed Ohio's denial of protection and vacated Tennessee's injunction, returning both cases to lower courts.
The ruling creates further complexity in the ongoing legal battle between states and prediction market providers, with multiple appeals courts reaching different conclusions on the regulatory framework. According to the court ruling, the Sixth Circuit panel concluded that Kalshi's contracts do not depend on events that are 'associated with a potential financial, economic, or commercial consequence' within the federal statutory definition. The court used the example of the New York Giants winning a Super Bowl to illustrate the distinction, noting that whether the event is defined as the Giants winning or the game being played determines the regulatory classification. This circuit split with the Third Circuit ruling that the CFTC has jurisdiction over prediction markets and the Eighth Circuit ruling that sports-related contracts are not swaps suggests the matter may ultimately reach the U.S. Supreme Court for resolution. The Ninth Circuit has also allowed Nevada to enforce its gaming rules during litigation, adding another conflicting decision to the legal landscape.
Despite the legal challenges, Kalshi has filed with the Commodity Futures Trading Commission to approve a margin framework for eligible event contracts. The filing, submitted on September 22, 2026, asks for amendments to the clearinghouse's rules and margin risk framework under Regulation 40.5(a). The proposal introduces a new initial-margin method specifically for selected event contracts, targeting contracts tied to economic data, financial developments, politics, commercial activity and other verifiable events. As reported by CNBC, the framework would allow institutional traders to buy prediction-market contracts with borrowed money, ending the requirement that every event contract on a regulated U.S. exchange be paid for in full. In a memo provided to CNBC, Kalshi explained that leverage would make longer-dated prediction markets more attractive to institutions. This filing represents the latest move by prediction market platforms as they increasingly seek to attract institutional liquidity to event contract exchanges.
The Sixth Circuit ruling addresses practical operational challenges for Kalshi as it operates across multiple jurisdictions. Ohio and Tennessee each set 21 as the minimum age for sports wagering, according to the opinion, creating compliance requirements that differ from state to state. Kalshi self-certified sports contracts on January 22, 2025, but neither state has issued it a gaming license. The court examined whether federal impartial access rules would make state-by-state compliance impossible, ultimately finding that geofencing technology could allow compliance with both federal and state requirements. The opinion cited Sporttrade as an example of companies using geofencing while maintaining impartial access in permitted areas. This means Kalshi could restrict sports contracts by state while offering other contracts to the same customers in other jurisdictions, though the company would need location checks at account opening and order entry, rules for open positions if customer location changes, and systems to prevent restricted users from accessing restricted products through other interfaces.
As reported by crypto.news, Kalshi has demonstrated significant growth in its trading volumes. The company's annualized trading volume reached $178 billion, up from $52 billion six months earlier, with institutional volume rising 800%. The company's $1 billion Series F in May valued the company at $22 billion, with participation from major investors including Coatue, Sequoia Capital, Andreessen Horowitz, IVP, Paradigm, Morgan Stanley and ARK Invest. The platform has seen its valuation double in months, with earlier reports suggesting it was looking to raise fresh capital at a valuation of $40 billion, up from around $22 billion in May. The August securities filing showed the company had sold $1.12 billion of a nearly $1.5 billion equity offering since April, leaving about $380 million available. Trading volumes on prediction markets such as Kalshi and rival Polymarket have surged this year, driven by the World Cup soccer tournament and other sports gambling events.
