CFTC Submits Event Contract Rule Proposals to White House Review Amid Federal-State Court Clashes
CFTC forwarded two rules to clarify event contracts as swaps while excluding casino games, sent amid state challenges to platforms like Kalshi and Polymarket. Courts have split on federal preemption of state gambling laws, with New Jersey seeking Supreme Court input. An interim rule could enable swift effect and litigation.
SCCG Take — Operators must prepare for prolonged federal-state friction that shapes market access and compliance costs across prediction platforms.
The Commodity Futures Trading Commission has sent two proposed rule changes on event contracts to the White House for review. The submissions to the Office of Information and Regulatory Affairs seek to clarify how these products fit within the legal definition of a swap, with major implications for platforms including Kalshi, Polymarket, Rothera, and Novig.
One proposal would expand the swap definition to include event contracts. The second, an interim final rule, would exclude casino-style gambling products. Chairman Michael Selig, the agency’s sole commissioner, would need to vote on the measures after review and before public comment. The full texts have not been released, according to Bloomberg, as reported by World Casino News.
Swaps Definition Central to Regulatory and Market Disputes
The CFTC maintains that most prediction market offerings qualify as swaps under the Commodity Exchange Act. This places them under exclusive federal jurisdiction. Traditional swaps serve institutional hedging and speculation in finance, agriculture, and energy. Prediction markets have expanded access to retail participants on outcomes from Federal Reserve decisions and celebrity events to elections and sports contests.
Current CFTC-regulated platforms avoid casino-style games such as blackjack. States contend that operators violate local gambling laws, sidestep taxation, and bypass sports betting structures. The proposed rules aim to reinforce the federal position by codifying it in regulatory definitions.
Litigation Produces Conflicting Rulings on Jurisdiction
A federal appeals court ruled last week that Ohio and Tennessee may enforce sports gambling laws against Kalshi. The court rejected arguments that federal law and CFTC oversight preempt state authority. New Jersey Attorney General Jennifer Davenport requested Supreme Court review in September of whether sports contracts qualify as swaps and whether CFTC power supersedes state gaming rules. New York has sued Polymarket to block operations in the state.
Gaming and sports betting attorney Daniel Wallach addressed the interim rule’s procedural status. Wallach said: “If the interim rule goes beyond the title’s suggestion (e.g., excluding casino-style products) and provides tacit authorization for sports-event contracts, it could prompt immediate APA litigation in federal court.” The proposals remain under review and do not yet alter the landscape.
Reporting: World Casino News
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