The Commodity Futures Trading Commission (CFTC) has strengthened its oversight over prediction markets, issuing two proposals that would formally define event contracts as “swaps” under federal law while prohibiting traditional gambling.
The first proposed rule would expand the definition of “swap” to include event contracts, including those tied to cultural events, weather, politics, and sports.
In a statement, the CFTC notes that these contracts are financial instruments that are commonly known to the trade as swaps and proposes to resolve any ambiguity regarding these contracts.
“Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events,” Chairman Michael S. Selig said.
Selig stressed that these products are commodity derivatives squarely within the CFTC’s regulatory remit under the Commodity Exchange Act (CEA) and are within the agency’s exclusive jurisdiction.
The second, an interim final rule, effective upon publication in the Federal Register, confirms the agency’s longstanding position that casino-style gambling, including sportsbook wagers and casino games, are excluded from the swap definition.
“Casino-style gambling products are not derivatives,” said Selig, clarifying “the limits of regulatory remit.”
Both measures, released on Friday, carry 30-day comment periods.
The filings formalize both proposals the CFTC sent to the Office of Information and Regulatory Affairs, the White House office that reviews federal rules before publication, on September 28.
As the legal battle over prediction markets may be determined by the U.S. Supreme Court, the CFTC is now trying to cement it grip on prediction markets, especially sports-event contracts, before the issue is heard by the nine justices.
A court split, between the U.S. Court of Appeals for the Third and Ninth Districts, over whether event contracts qualify as federal regulated swap has put the National Football League (NFL) and others against Kalshi, Polymarket and other prediction market firms.
The rules come as the Supreme Court considers hearing New Jersey’s petition in Flaherty vs. KalshEX. Last week, supporting briefs from gaming regulators, 39 states and the District of Columbia, joined the NFL in urging the high court to take up the case.
The NFL is urging the Supreme Court to rule on the regulation of prediction markets, arguing in a brief that states are better positioned to oversee sports-related contracts “given the current landscape.”
The NFL filed its brief in support of New Jersey’s request for a high court decision on the governing authority for prediction markets. The CFTC has maintained it has exclusive jurisdiction, while states have argued prediction markets fall under their purview.
“Absent the clarity that only this court can provide, (prediction market) operators will continue exploiting the gap between state and federal regulation, endangering consumers and the integrity of sports events across the country,” lawyers for the NFL wrote.
