The Commodity Futures Trading Commission released two regulatory proposals intended to separate prediction-market products from traditional casino betting. One measure would expand the legal definition of a swap to cover contracts tied to sports outcomes, political events, cultural happenings and weather, while the other would expressly keep casino-style wagers out of that category.
Defining event contracts as swaps
The commission’s first proposal clarifies that contracts based on real-world events qualify as commodity derivatives. By labeling them as swaps, the agency argues they fall squarely under the Commodity Exchange Act, granting the CFTC exclusive jurisdiction. The language emphasizes that these instruments are already treated as swaps by market participants and that the clarification would eliminate existing ambiguity.
Carving out casino gambling
In a companion proposal, the CFTC states that bets placed on casino games or sportsbook lines do not constitute derivatives. By codifying this exclusion, the agency seeks to draw a regulatory boundary that mirrors historic separations between federally regulated derivatives and state-regulated gambling activities.
Both proposals open a 30-day comment period for public input, signaling the commission’s intent to move quickly toward a formal rulemaking process.
Legal backdrop and recent court decisions
State authorities have repeatedly challenged prediction-market operators such as Kalshi and Polymarket, accusing them of illegal gambling. The CFTC has responded with counter-lawsuits to protect its claim of federal jurisdiction over event contracts. A recent appellate ruling in the Sixth Circuit rejected Kalshi’s argument that its sports-event contracts are swaps, siding with Ohio and Tennessee. Conversely, an April decision by the Third Circuit allowed Kalshi to continue operating in New Jersey, indicating that federal law may pre-empt state gambling rules.
These divergent rulings have set the stage for a potential Supreme Court review. A coalition of state lawmakers has filed an amicus brief urging the high court to resolve whether prediction-market platforms fall under federal or state authority.
Why it matters
Clarifying the regulatory status of event-based contracts could provide certainty for traders, platforms and investors, while preserving state control over traditional gambling. The outcome of the Supreme Court case will likely shape the future landscape of prediction markets across the United States, influencing everything from product design to market access.
