The United States Commodity Futures Trading Commission (CFTC) has introduced two regulatory measures aimed at defining its authority over prediction markets and distinguishing event-based financial contracts from conventional gambling products. Announced Friday, the measures would formally classify event contracts linked to sports, politics, culture and weather as swaps while explicitly excluding sportsbook wagers and casino games from that category.
The actions arrive as federal courts disagree over whether prediction market operators can offer sports-related contracts without complying with state gambling laws. The dispute has reached the US Supreme Court, where New Jersey is seeking review of a ruling that favored Kalshi, a CFTC-registered prediction market operator.
One measure proposes expanding the regulatory definition of swaps to cover event contracts. The other, an interim final rule, codifies the commission’s position that casino-style gambling products fall outside the definition of a swap under the Commodity Exchange Act.
“Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events,” CFTC Chairman Michael S. Selig said. “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 interim final rule takes effect upon publication in the Federal Register, while the proposed definition remains subject to consultation. Both measures allow stakeholders 30 days from publication to submit written comments through Regulations.gov.
CFTC Draws a Regulatory Boundary Between Contracts and Bets
The proposed rule would expressly include event contracts within the definition of swaps, formalizing the agency’s position that these instruments belong under federal derivatives oversight. The contracts allow participants to take positions on the outcomes of future events, including sporting competitions and political developments.
The commission’s separate interim final rule addresses traditional gambling products. It states that wagers placed through state- or tribal-licensed sportsbooks and casinos do not qualify as swaps under the Commodity Exchange Act and therefore do not fall under the CFTC’s jurisdiction on that basis.
“Casino-style gambling products are not derivatives,” CFTC Chairman Michael Selig explained. “Just as the CFTC has done with respect to other products historically regulated by the states, the Commission today provides clarity regarding the limits of its regulatory remit by codifying the exclusion of casino-style gambling products from the ‘swap’ definition.”
The interim measure reinforces what the agency describes as its longstanding interpretation of the law. According to the CFTC, the rule does not alter existing legal rights because the commission has already treated conventional sportsbooks as outside its regulatory remit. Instead, the agency expects the measure to reduce what it calls “interpretive uncertainty.”
The commission has also challenged the reasoning used by federal appeals courts that ruled against Kalshi. The Sixth and Ninth Circuits concluded that sports event contracts and conventional sportsbook wagers share enough similarities to raise questions about whether both should receive the same legal treatment. The CFTC characterized the premise behind those decisions as “erroneous,” arguing that the courts read restrictions into the statutory definition of swaps that Congress did not establish.
To support its interpretation, the commission identified five distinctions between event contracts and sportsbook bets. Event contracts trade through central order books at market-determined prices, whereas sportsbooks establish their own odds. Event contracts also pass through clearinghouses, and Congress addressed gaming-related event contracts in a specific provision of the Commodity Exchange Act. The agency further noted that exchanges have listed these instruments under federal oversight since the 1990s and that the derivatives industry commonly refers to them as swaps.
The CFTC acknowledged that “a person can achieve similar economic exposure” through either type of product. However, it maintains that similar financial outcomes do not make the instruments legally identical, drawing a comparison with insurance and credit default swaps.
The agency’s interim rule also reflects an approach suggested by the Third Circuit in its April decision favoring Kalshi in the dispute with New Jersey. That court discussed how regulators could address unusual products, including bingo games or ping-pong matches, if questions arose over their classification. The CFTC said its rule “implements the Third Circuit’s suggested approach.”
Conflicting Appeals Court Decisions Bring Supreme Court Into the Dispute
The regulatory announcements coincide with a growing legal contest over whether federal derivatives law preempts state gambling regulations when prediction market platforms offer sports-related contracts.
New Jersey filed its petition in Flaherty v. KalshiEX on September 2, asking the Supreme Court to review the Third Circuit’s April 6 decision. That ruling restricted the state’s ability to apply its sports wagering laws to Kalshi’s event contracts. The Ninth Circuit reached a different conclusion on August 28, followed by the Sixth Circuit on September 25, creating conflicting interpretations among federal appeals courts.
Kalshi and other prediction market operators, including Polymarket, maintain that their products qualify as federally regulated financial instruments. State regulators argue that contracts tied to sporting outcomes function as wagers and should comply with the same licensing and consumer protection requirements that govern traditional sports betting.
The Supreme Court has yet to agree to hear New Jersey’s case. Kalshi has until November 9 to respond to the petition after receiving an extension.
Support for New Jersey’s request has expanded beyond state officials. Attorneys general representing 39 states and the District of Columbia have backed Supreme Court review. Gaming regulator associations and tribal gaming interests have also supported efforts to resolve the jurisdictional dispute.
The National Football League submitted a separate brief supporting New Jersey. The league argues that sports event contracts should not receive treatment as swaps under federal law and has raised concerns about the implications for sports integrity and state oversight.
The states maintain that federal commodities legislation should not automatically displace their authority to regulate sports betting. Their responsibilities include licensing operators, protecting consumers and enforcing responsible gambling requirements. A Supreme Court decision could establish clearer boundaries between those powers and the CFTC’s oversight of federally registered exchanges.
Rulemaking Advances as Prediction Markets Seek Expansion
Both measures were logged for review by the White House Office of Information and Regulatory Affairs on September 28, according to the source materials. The CFTC’s proposed rule would formally define swaps to include event contracts associated with sports, politics, cultural developments and weather-related outcomes.
The interim final rule follows a different timetable. It becomes effective immediately upon publication in the Federal Register, with comments due within 30 days of publication. The proposed rule also carries a 30-day consultation period following its publication.
The measures could affect how prediction market businesses structure their products and seek authorization to operate across the United States. The sector has attracted companies from outside the traditional derivatives industry as operators pursue federal approval to list event contracts.
Blockchain.com recently applied to the CFTC for licenses covering event contracts and cryptocurrency derivatives. Its application adds to 11 other companies that have filed for designated contract market licenses this year, according to the provided reporting.
Companies already associated with sports betting have also entered the prediction market sector. DraftKings and FanDuel have launched prediction market products, placing businesses with established sportsbook operations within the wider debate over how federal and state rules should apply to event-based contracts.