Paradigm Files (Another) Amicus Brief to Oppose State Encroachment on Federal Regulation

Yesterday, Paradigm filed an amicus brief in KalshiEX LLC v. Martin, a Fourth Circuit case about Maryland’s effort to treat federally regulated swaps as gambling. This isn’t a close call. As we explained in our Third Circuit amicus addressing a similar power grab by New Jersey, Congress decided long ago that the CFTC, not fifty different states, sets the rules for these markets. Maryland’s position ignores that history, and the Fourth Circuit should put an end to it.

Same Old, Same Old

Maryland’s argument – that a futures contract is really just a “bet” – would fit right in at a 1905 statehouse debate. Back then, when farmers first started using grain futures to hedge prices, states passed “bucket shop” laws to ban trades that didn’t involve physical delivery. Legislators saw something unfamiliar and thought, “hmm, that must be gambling.”

The Supreme Court eventually corrected the states’ overreach. Justice Oliver Wendell Holmes explained that futures serve “a legitimate and useful purpose” of letting producers and investors hedge risk and allocate capital more efficiently. Congress followed suit, enacting the Grain Futures Act in 1922, then the Commodity Exchange Act in 1936, each time pushing financial markets toward national regulation and away from a patchwork of state interest group power exercises.

The Meaning of “Exclusive”

The real turning point came with the Commodity Futures Trading Commission Act of 1974. Congress created the CFTC and gave it exclusive jurisdiction over contracts traded on federally designated exchanges. That phrase wasn’t decorative. Congress had watched courts and state regulators spend decades confusing hedging with wagering, and it decided to end the argument once and for all.

When Congress revisited the issue a few years later, state regulators begged for their power back. The answer was “immediately no.” The Senate report confirmed that the CFTC’s jurisdiction “supersedes State as well as Federal agencies.” Later, in 2010, the Dodd-Frank Act extended that same preemptive structure to a newer class of instruments called “swaps,” explicitly putting them on the same exclusive jurisdictional footing as other derivatives. This law is the final word for courts; as a former CFTC GC says, event contracts are swaps.

Kalshi’s event contracts fall squarely within that framework. They’re traded on a CFTC-designated exchange, governed by federal law, and subject to federal supervision. The statute’s text, history, and structure all point in one direction: the CFTC regulates them, not Maryland (or New Jersey, or Nevada, or any other state).

The Stakes

At bottom, this case isn’t about whether Maryland dislikes prediction markets. It’s about whether any state can override a federal regulator and call something “gambling” just because it involves risk. If that logic held, states could ban commodity futures, regular equities trading, weather derivatives, or even airline fuel hedges – all of which are, at heart, “bets” on future outcomes.

Allowing Maryland’s approach to stand would resurrect the very chaos the CFTC was created to end. Consumers would suffer from a janky patchwork. Every exchange would have to vet its products against fifty different sets of state laws, turning the national derivatives market into a compliance nightmare. The result would be chaos.

Federalism has a critical place in law – but not here, where “the Supreme Law of the Land” has displaced state laws. The Court should abide by Congress’s wisdom.

The full brief is available here.