U.S. CFTC Moves to Classify Event Contracts as Swaps, Deepening Clash With State Gambling Regulators

The U.S. Commodity Futures Trading Commission on Friday took new steps to cement its claim of primary authority over prediction markets, proposing to treat event contracts as "swaps" under federal law and, in doing so, place them outside the reach of state gambling regulators. In an interim final rule that takes effect immediately, the CFTC said casinostyle gambling would not fall within the agency's swap definition. At the same time, a separate proposed rule would explicitly bring "event contracts, including those based on sports, politics, cultural, and weatherrelated events" into the existing U.S. swaps framework. Those contracts are commonly traded on platforms such as Kalshi and Polymarket. The proposal is subject to a 30day public comment period. The effort unfolds as states and former federal officials who helped craft the governing statutes challenge the CFTC's interpretation. This week, opponents submitted their views to the U.S. Supreme Court, which has been asked to weigh in on the dispute. If the agency is called to defend its stance, the CFTC can now point to active rulemaking aligned with Chairman Mike Selig's approach to prediction markets. Several states are already suing the regulator, arguing they retain authority over sports betting conducted on these platforms and accusing some operators of running illegal gambling. Recent court outcomes have been mixed, including one federal appellate decision siding against the states and two federal appellate rulings backing them. "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," TD Cowen policy analyst Jaret Seiberg wrote in a note to clients on Friday. "Whether this actually works is a different question." The rules were submitted for White House review less than two weeks ago, reflecting an unusually fast process. The CFTC has argued that clarifying the boundary between swaps and casinostyle gambling is central to addressing legal attacks on its claim that prediction markets fall within its sole domain. Companies including Kalshi have supported that position, seeking to establish the CFTC as their only federal watchdog. Selig is currently the only commissioner at an agency designed to have five members, giving him wide latitude to set policy. President Donald Trump has not named additional CFTC commissioners to date. A similar staffing shortage has taken hold at the Securities and Exchange Commission, where the five-member panel is down to two. Trump's administration has moved to remove or limit the number of Democrats serving at regulatory agencies.