CFTC Plans Swaps Rule Changes for Event Contracts Amid Ongoing Regulatory Disputes

The U.S. Commodity Futures Trading Commission (CFTC) has taken further steps to establish its regulatory authority over prediction markets, proposing changes that would classify certain event contracts as swaps under federal law. The move aims to strengthen federal oversight and limit the ability of state gambling regulators to challenge these platforms.

On Friday, the agency issued an interim final rule and introduced a separate proposal to clarify the legal status of event contracts. The CFTC argues that these products qualify as swaps, placing them within its jurisdiction rather than under state gambling laws.

The new measures seek to distinguish financial contracts tied to event outcomes from conventional gambling activities. The interim final rule excludes casino-style wagering from the swaps definition, while the accompanying proposal would explicitly cover event contracts linked to sports, politics, cultural events and weather.

The interim final rule takes effect immediately, although the public can submit feedback during its implementation. The separate proposal remains open for consideration and includes a 30-day public comment period.

The CFTC’s interpretation has encountered opposition from several states and former federal officials who helped establish the existing legal framework. Critics submitted their arguments to the U.S. Supreme Court this week, seeking a decision on whether prediction markets should fall under federal jurisdiction or state gambling regulations.

Should the dispute reach the Supreme Court, the CFTC will be able to point to its ongoing efforts to implement Chairman Mike Selig’s regulatory approach.

Several states are already challenging the agency in court, arguing that they retain authority over sports-related contracts offered by platforms such as Kalshi and Polymarket. State officials have accused these companies of operating illegal gambling businesses. Recent federal appeals court rulings have been mixed, with one decision rejecting the states’ position and two others supporting it.

TD Cowen policy analyst Jaret Seiberg said the interim final rule appears designed to strengthen the CFTC’s arguments in court. In a Friday note to clients, he noted that states contend the agency’s broad interpretation of swaps could make wagers placed at state-regulated or tribal casinos and sportsbooks illegal under federal law. However, he said it remains unclear whether the rule will successfully address those concerns.

The measures were submitted for White House review less than two weeks before their announcement, indicating a rapid regulatory process. The agency faces mounting pressure to defend its claim that prediction markets fall exclusively under its supervision. Clarifying that traditional casino gambling is excluded from the swaps definition is part of its effort to counter legal challenges.

Prediction market operators, including Kalshi, support the CFTC’s position because they want to operate under a single federal regulator instead of facing different gambling rules across individual states.

Mike Selig currently serves as the only commissioner on a body designed to have five members, allowing him to make policy decisions without input from other commissioners. President Donald Trump has not yet nominated additional members to fill the vacancies.

The Securities and Exchange Commission faces a similar situation, with only two commissioners currently serving on its five-member panel. The Trump administration has also pursued efforts to reduce Democratic representation across federal regulatory agencies.