Summary
- On Friday, the CFTC introduced two significant measures: a proposed rule that expands the definition of “swap” to encompass event contracts, and an interim final rule that explicitly excludes traditional gambling activities such as sportsbooks and casino games.
- Chairman Michael Selig emphasized that event contracts are “commodity derivatives squarely within the CFTC’s regulatory remit” and fall under its “exclusive jurisdiction,” while asserting that “casino-style gambling products are not derivatives.”
- These rules formalize earlier proposals submitted to the White House last month, as the agency seeks to assert its authority amid ongoing state-level lawsuits and a Supreme Court challenge.
The Commodity Futures Trading Commission (CFTC) is taking steps to assert its oversight over prediction markets by unveiling two measures that will officially categorize event contracts as “swaps” under federal law while excluding conventional gambling activities.
The first measure, a proposed rule currently open for public feedback, aims to broaden the definition of “swap” to include event contracts that relate to sports, politics, cultural happenings, and weather events. The CFTC states that these contracts are recognized in the industry as swaps, eliminating any ambiguity regarding their classification. According to Chairman Michael Selig, “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.”
The second measure is an interim final rule, which takes effect immediately upon publication and reinforces the CFTC's long-standing position that casino-style gambling products, which include bets placed in sportsbooks and casino games, are not classified as swaps.
“Casino-style gambling products are not derivatives,” Selig stated, framing this decision as a clarification of “the limits of its regulatory remit.” Both measures open a 30-day comment period for public input.
These two rules are pivotal in clarifying a contentious jurisdictional debate: if event contracts are deemed swaps, they come under the CFTC’s authority, which Selig maintains is exclusive, thereby protecting platforms like Kalshi and Polymarket from state gambling regulators. Several states have initiated lawsuits against prediction market operators, alleging illegal gambling activities, prompting the CFTC to file counterclaims to defend its jurisdiction.
The legal landscape surrounding prediction markets is becoming increasingly complex. A split among courts regarding whether event contracts qualify as federally regulated swaps has caught the attention of the Supreme Court, setting the stage for a potential judicial resolution on an issue the CFTC is currently attempting to address through regulatory measures.