Securities Regulation Daily Wrap Up, FEDERAL PREEMPTION—Illinois enjoined from enforcing wagering laws against swap trading, (Nov 3, 2026)

By Rebecca E. Hoffman, J.D.

The October 30 preliminary injunction extends the earlier relief to fees and taxes, issues the court had reserved for further briefing, and also bars compulsory investigative process.

The Northern District of Illinois preliminarily barred Illinois from enforcing several state gambling laws against the trading of swaps, including sports event contracts, listed on or available through CFTC-regulated designated contract markets and futures commission merchants. Judge Martha M. Pacold's October 30 order expressly covers licensing requirements, associated fees, taxes, and compulsory investigative process. The fee and tax coverage follows an October 2 opinion that reserved fee-preemption questions for further briefing (Coinbase Financial Markets, Inc. v. Raoul, No. 1:26-cv-03659 (N.D. Ill. Oct. 30, 2026)).

The injunction prevents enforcement of 230 ILCS 45/art. 25, et seq., 720 ILCS 5/28-1(a), 230 ILCS 10/18(a)(1), and 11 Ill. Admin. Code 1900.1210(a), including related criminal provisions, civil or criminal enforcement actions, subpoenas, and other compulsory investigations.

Parties. The cases involve Coinbase Financial Markets, Inc., KalshiEX LLC, and the U.S., with Coalition for Fair Markets and North American Derivatives Exchange, Inc., d/b/a OG, intervening in the federal government's case. Coinbase, Kalshi, and the U.S. separately sued Illinois officials, and the three cases were consolidated. Kalshi operates a designated contract market. Through a partnership, Coinbase users can buy and sell Kalshi-listed contracts using cryptocurrency stored on Coinbase.

Illinois amended its sports wagering law on June 16. The law newly defines "exchange wager" to explicitly bring sports-related transactions on prediction markets within the scope of the statute, effectively asserting the state's oversight authority over exchanges like Kalshi that offer trading on sports-related events. Furthermore, the court, in its October 2 opinion, explained that Illinois law now imposed a 1.75 percent transaction fee on a prediction market or exchange's first five million “exchange wagers” and a 3.5 percent fee on subsequent wagers in the same fiscal year. These were layered on an existing 15 percent fee on "gross sports wagering receipts" and a fee of 25 cents or 50 cents per wager imposed by another provision.

In the earlier opinion, the court found that Illinois laws impermissibly controlled Kalshi’s federally regulated sports event contracts, which were likely to qualify as swaps, over which the CFTC has “exclusive jurisdiction,” with some exceptions. Therefore, concerns about underage sports gambling were for the CFTC to address, not Illinois, the court found.

The plaintiffs had not yet met their burden when it came to the fees, the court said then, and asked for further briefing, offering a preliminary view that a state can impose a cost on an activity without creating a conflict, as long as fees are not so “draconian” that they “covertly” bar the activity.

Title games. The October 2 analysis focused on representative title-game contracts, including whether the Chicago Cubs would win the 2026 World Series. The CEA's definition of swaps, 7 U.S.C. § 1a(47)(A)(ii), covers payment dependent on an event or contingency associated with a potential financial, economic, or commercial consequence. The court concluded that winning a title game was likely associated with a potential financial, economic, or commercial consequence, and therefore that Kalshi’s representative title-game contracts likely qualified as swaps.

For a consequence to be financial, it must affect finances in a material way, the court said. For example, contracts that depend on additional games happening in a series have financial consequences. A bet on what color sports drink is dumped on the coach’s head after a Chicago Bears win does not.

The interpretation does not federalize all sports gambling, and purchaser motive does not decide swap status, the court explained. “Many of the financial instruments at issue are likely swaps as defined by the Commodity Exchange Act—they just happen to be swaps that people find entertaining and fun.”

Market regulation. Illinois' licensing requirements would require Kalshi and other designated contract markets to obtain a license to offer their contracts and would impose various restrictions including a prohibition on offering trading to anyone under 21. These restrictions conflicted with the CFTC regime and were therefore likely preempted, the court said, because Congress intended the CEA to “bring the markets under a uniform set of regulations.” The court also found irreparable harm from the choice between stopping operations and facing imminent civil and criminal penalties.

Judge: Pacold, M.

Attorneys: Alexandra Schulte, U.S. Department of Justice, for the U.S. Darren Bernens Kinkead, Illinois Attorney General's Office, for the State of Illinois. George D. Sax (Scharf Banks Marmor LLC) for Coinbase Financial Markets, Inc. Susan Meyer (UB Greensfelder LLP) for KalshiEX LLC.

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