U.S. CFTC seeks event contract definitions that may defy states' gambling claims

U.S. CFTC seeks event contract definitions that may defy states' gambling claims

As it battles with states over prediction markets, the CFTC sent two related rules on swaps definitions for White House review.

The U.S. Commodity Futures Trading Commission has submitted regulatory plans to White House review on prediction markets’ event contracts, seeking to formally include them as “swaps” and sever them from ties to gambling. The position could run counter to states’ claims that sports trades on platforms such as Kalshi’s are unregulated gambling, and the CFTC moves could also defy recent federal court rulings.

The U.S. regulator of derivatives and the prediction markets has submitted another two rules for review at the White House's Office of Management and Budget. One would wed event contracts to the regulatory definition of swaps and another would insist they're not connected to gambling — pointed positions as the agency battles with states over the nature of these products.

The Commodity Futures Trading Commission has fully embraced a role as the federal regulator of prediction markets and the event contracts they trade in, generally binary yes-or-no bets on the outcome of measurable situations, such as sporting events and elections. To that end, the CFTC has embarked on a campaign to regulate prediction markets such as Kalshi and defend against legal pushback from states insisting they have the power to oversee certain contracts as gambling.

The most recent federal court decision explicitly ruled that Kalshi's sports-tied contracts are not swaps and are subject to state gambling regulations, though an earlier federal ruling had come to a different conclusion.

The latest CFTC moves would counter that view by more clearly defining swaps, which are agency-regulated financial instruments in which two parties agree to an exchange. The CFTC is seeking to propose a new rule that would extend the regulatory definition of swaps to include event contracts, traded on popular platforms including Kalshi, Polymarket, Crypto.com and Robinhood. It's also pursuing an "interim final rule" that would remove "casino-style gambling products" from what can make up a swap.

Both were received by the OMB this week, where a review is generally a final step on the path to submitting rules for public comment. In the case of an interim final rule, that would be an immediately effective move that would remain open for input and revision.

If event contracts are swaps, and such swaps are not gambling products, this could undermine the states' position in a wide array of lawsuits against prediction markets companies — routinely Kalshi — that are being accused of operating illegal gambling platforms in their states.

The CFTC has actively engaged in these lawsuits, regularly suing the states as it defends what Chairman Mike Selig has argued is the agency's sole jurisdiction over prediction markets. The matter has drawn some conflicting rulings in federal appellate courts, suggesting the likelihood that the U.S. Supreme Court could eventually be tapped to decide the matter.

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Last week, the U.S. Sixth Circuit Court of Appeals issued the ruling that sports bets on Kalshi are not swaps, and the Eighth Circuit Court of Appeals agreed in its own similar ruling. But the Third Circuit had decided that the CFTC had proper jurisdiction over the prediction markets, which leaves a legal rift at the federal level.

Though the CFTC's disclosed requests with the White House, dated September 28, don't include any further detail or text of the rules, the agency declared both rules as not being "economically significant."

The agency is legally designed as a five-member commission, but President Donald Trump has so far declined to nominate other commissioners, leaving Selig as its lone member. Because of that, he’s been acting unilaterally on regulatory and policy decisions.

OMB disclosures also reflect the CFTC's recently submitted "prerule" to the White House focused on crypto regulations, though the agency didn't describe the contours of that effort.

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