Securities Regulation Daily Wrap Up, FEDERAL PREEMPTION—S.D.N.Y.: DCM seeks declaratory and injunctive relief from New York’s enforcement of gambling bans, (Aug 6, 2026)

By Rebecca E. Hoffman, J.D.

Among other distinctions, the plaintiff pointed out that a sports gambling outfit typically controls the odds, whereas in the case of event contracts, prices are determined by the market.

Ludlow Exchange, LLC, a designated contract market doing business as Novig, brought a civil action against New York’s attorney general and a handful of other state officials, in an attempt to block the state’s prosecution of Novig under the gambling laws, asserting that the CFTC exclusively regulates the trading of sporting event contracts (Ludlow Exchange, LLC v. James, No. 1:26-cv-06676 (S.D.N.Y. Aug. 5, 2026)).

This matter adds to the ever-growing list of prediction market entities’ challenges to the application of state gambling laws to those federally regulated markets. New York and other states have also faced challenges from the CFTC for sending cease-and-desist letters to the exchanges related to alleged illegal gambling.

Novig’s complaint explained that it was formed for the purpose of operating as a CFTC-regulated DCM, and that event contracts fall under the Commodity Exchange Act’s definition of “swaps.” Novig noted that “[u]nder the CFTC’s supervision, event-contract markets have flourished.”

The plaintiff also highlighted its careful supervision of those who trade on its platform, excluding anyone under 21 and screening out those who might have inside information that would give them an unfair advantage.

CFTC exclusively governs. The New York officials asserted that Novig’s event contracts involving sporting events are wagers under New York’s laws, requiring Novig to obtain a license to offer such contracts in New York, or face prosecution. “The CEA forecloses this theory,” however, the complaint declared. “The statutes’ text, history, and context all show that Congress intended to vest the CFTC with centralized authority over regulated derivatives markets and to ensure nationwide uniformity in those markets.”

Novig asserted that it will incur irreparable harm absent an injunction, in that it is likely to be found criminally liable and be required to pay “ruinous” sums for its misconduct, including disgorgement and penalties. Hence, Novig asks the court to immediately block enforcement of the gambling statutes while this matter is under review.

‘Incompatible.’ When Novig was founded in 2021, it obtained a state sports betting operator license in Colorado. It discovered that “a state-by-state licensing model is structurally incompatible with an event-contract exchange,” and thus gave up that state license.

“Like other designated contract markets, Novig administers a market-maker function that supplies baseline depth and liquidity so that participants can enter and exit positions efficiently.” Conversely, sports betting operations posts odds based “on its own exposure and revenue objectives inside a licensed territory rather than the result of competitive bidding,” resulting in economic interests that are opposed to those of its customers.

If Novig were to comply with the defendant’s demands, it would have to “confine its service to persons physically located within New York and to route wagers through equipment at a licensed New York casino,” the complaint said, observing that “[s]uch geographic partitioning would deprive Novig’s markets of the liquidity on which they depend, because an event contract can be executed only if a buyer and a seller can be matched at the same price.”

The complaint states that the CEA preempts New York’s restrictions. The CEA places swaps within the exclusive jurisdiction of the CFTC, and event contracts, which pay out based on the occurrence or nonoccurrence of an event, are swaps by definition, Novig said. There is language indicating that Congress did not intend to leave room for states to exercise authority in this realm.

Further, the CEA requires DCMs to “‘provide its members … with impartial access to its markets and services,’” rather than impose geographical limits. Such limits make it impossible to comply with New York’s laws, further cementing a finding of preemption. “Congress created the CFTC and conferred exclusive jurisdiction on it to eliminate the patchwork of state regulation and bring futures trading under a uniform national framework,” the complaint said.

The case is No. 1:26-cv-06676.

LitigationEnforcement: CommodityFutures Derivatives Enforcement ExchangesMarketRegulation FederalPreemption Swaps NewYorkNews