The U.S. Commodity Futures Trading Commission (CFTC) is drawing a line in the jurisdictional battle over prediction markets. On October 9, the CFTC issued two documents at the same time: a proposed rule that would explicitly include event contracts covering sports, politics, culture, weather and other events in the definition of “swap,” bringing them under CFTC jurisdiction; and an interim final rule stating that “casino-style gaming products,” such as sports betting and casino games, are not swaps and are therefore left to state regulators.
Two documents: one includes, the other excludes
The proposed rule’s key point is to include event contracts in the definition of swaps. CFTC Chair Selig said Americans use event contracts to hedge and speculate, and also to help the public understand the possible outcomes of future events. “These products are commodity derivatives and fall squarely within the CFTC’s regulatory authority under the Commodity Exchange Act, making them subject to the CFTC’s exclusive jurisdiction.” The proposal’s public comment period will run for 30 days after publication in the Federal Register. It is not yet a final rule.
The interim final rule takes the opposite approach, excluding casino-style gaming products from swaps, including bets placed with sportsbooks and casino games. “Casino-style gaming products are not derivatives,” Selig said, clarifying the boundaries of the CFTC’s regulatory authority. According to the full text of the rule, the CFTC emphasized that its regulation of derivatives markets would not infringe on the traditional authority of state governments and Native American tribes over gambling; the SEC is also participating in the rulemaking as required by law. The interim final rule takes effect immediately upon publication in the Federal Register and is likewise open for public comment for 30 days.
Why act now? Federal courts are divided
According to the full text of the proposal, the CFTC’s rationale is that federal courts are sharply divided over the interpretation of “swap.” In April, the Third Circuit ruled that sports event contracts traded on a CFTC-approved exchange meet the definition of a swap and fall under the CFTC’s jurisdiction. But in August, the Ninth Circuit took the opposite view, finding that the substance of these contracts is “sports gambling” and that they may not qualify as swaps. In September, the Sixth Circuit also ruled that sports event contracts are not swaps, reasoning that sporting events are not events “inherently related to financial, economic, or commercial consequences.”
Meanwhile, states are stepping up their efforts against prediction market platforms. The proposal notes that Arizona brought 20 criminal charges against one exchange; New York sought an injunction in state court to try to bar it from offering contracts related to sports, culture, and elections; and courts in Michigan, Washington, and Nevada also ordered it to block local users from accessing sports contracts. The CFTC believes there is “widespread confusion and inconsistency” over the definition of a swap, and has therefore decided to exercise its statutory authority to further define it.
What this means for prediction markets
At the heart of this dispute is whether event contracts on sports and other topics are financial products regulated by the federal government or gambling under state jurisdiction. If event contracts are explicitly defined as swaps, federal law would generally take precedence over state law when they are traded on a CFTC-approved exchange, giving platforms such as Kalshi stronger grounds to challenge state bans. As previously reported, the NFL also told the Supreme Court that sports contracts on prediction markets constitute gambling and should be regulated by the states, showing that the dispute has reached the highest level of the judiciary.
However, the proposed rule must still go through a public comment process before it can be finalized, and the already-divided court rulings will not automatically change because of a proposal. By bringing event contracts under federal oversight while explicitly placing sportsbooks and casinos under state authority, the CFTC is trying to draw a clear line between the two. Whether that line can withstand scrutiny in the courts and Congress will determine the next chapter for prediction markets in the United States.
This article, “CFTC Proposes Bringing Prediction Market Event Contracts Under the Definition of Swaps, While Sports Betting Remains Under State Authority,” first appeared on .