The U.S. Commodity Futures Trading Commission (CFTC) is working to reinforce its jurisdiction over prediction markets by modifying how federal regulations define event contracts. The regulatory body has released an interim final rule to define which sports transactions are excluded from swap classifications, alongside a separate proposal designed to bring a broader array of event contracts under federal supervision.
This initiative arrives as the CFTC combats legal battles with multiple states concerning whether marketplaces like Kalshi and Polymarket ought to be governed by federal derivatives statutes or state-level gambling regulations.
CFTC Proposes Bringing Event Contracts Under Swap Rules
On Friday, the CFTC issued a notice of proposed rulemaking aimed at explicitly integrating event contracts into the legal framework for swaps. This measure encompasses agreements linked to political outcomes, sports, meteorological events, and cultural occurrences.
According to the commission, these instruments function as financial tools recognized commercially as swaps. By refining this definition, the CFTC seeks to clear up debates regarding whether existing federal statutes grant it oversight over these assets.
Chairman Michael S. Selig noted that participants utilize event contracts for risk management, speculation, and gathering insights regarding future occurrences.
“These products are commodity derivatives squarely within the CFTC’s regulatory remit under the Commodity Exchange Act and are within the agency’s exclusive jurisdiction,” Selig said.
This pending regulation would subject eligible event contracts traded on venues such as Polymarket and Kalshi to standard federal swap oversight. Nonetheless, the rule remains unfinalized, and the commission will review written public feedback for a 30-day window following its entry into the Federal Register.
Interim Rule Separates Casino Gambling from Event Contracts
Concurrently, the CFTC introduced an interim final rule defining which categories of sports betting fail to meet the swap criteria. As detailed in the agency’s release, this directive explicitly omits casino-style gambling from the definition of a swap.
This boundary is intended to mitigate worries that the agency’s broader definitions might inadvertently subject bets placed at state-licensed sportsbooks and casinos to federal derivatives oversight. The interim final rule goes into effect immediately while simultaneously welcoming public comments.
TD Cowen policy analyst Jaret Seiberg suggested this step might strengthen the agency’s defense against legal challenges brought by state governments.
“We view this interim final rule as designed to improve the agency’s position in court as the states are arguing that the CFTC’s definition of a swap would make federally illegal any wager made at a state or tribal casino or sportsbook,” Seiberg wrote in a note to clients.
At the same time, he cast doubt on whether the strategy would fully succeed, noting, “Whether this actually works is a different question.”
States Challenge CFTC Authority Over Prediction Markets
A number of state governments have initiated litigation contending they retain the right to oversee sports-centric contracts distributed by prediction market operators. While state authorities have charged certain platforms with running unlawful gambling operations, the agency insists that eligible event contracts fall under its sole federal purview.
Judicial outcomes have proven inconsistent. While a single federal appellate ruling went against the states, two separate federal appellate decisions favored them. Furthermore, the conflict has escalated to the U.S. Supreme Court, where states and former government officials have filed briefs concerning the regulator’s statutory interpretation.
These recent regulatory updates provide the CFTC with additional crypto regulatory measures to cite as the litigation unfolds. Even so, the newly introduced directives neither terminate pending lawsuits nor ensure that the judiciary will validate the agency’s stance.
This regulatory push also unfolds while Selig operates as the sole commissioner of the CFTC, despite its structural design for a five-member panel. Because the Trump administration has not yet named additional commissioners, Selig is advancing policy initiatives without a full panel.
Consequently, the interim final rule and the proposed directive target both the boundaries of federal jurisdiction and the legal line separating derivatives transactions from state-governed betting. The results of the public feedback window and ongoing judicial battles will ultimately shape the implementation of the CFTC’s strategy.
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