CFTC Classifies Prediction Market Event Contracts as Swaps in Bid to Assert Federal Oversight
The CFTC proposed classifying sports, political, and other event contracts as swaps while excluding casino and sportsbook products. This asserts federal jurisdiction amid conflicting appeals court rulings and New Jersey’s Supreme Court petition on Kalshi. Comments are due in 30 days; the interim rule takes effect on Federal Register publication.
SCCG Take — The move bolsters CFTC-registered operators but escalates state pushback on sports integrity and licensing. Regulators and platforms must track the Supreme Court outcome for market structure.
The Commodity Futures Trading Commission moved to define event contracts on prediction markets as swaps under the Commodity Exchange Act. The two measures distinguish these products from traditional sportsbooks and casino games, which fall outside CFTC jurisdiction. The announcement arrives as federal appeals courts split on whether state gambling laws apply to sports-related event contracts, with New Jersey’s petition now before the Supreme Court.
CFTC Chairman Michael S. Selig stated that Americans use event contracts to hedge risks, speculate, and provide information on future events. These instruments, he said, are commodity derivatives squarely within the agency’s exclusive jurisdiction. One proposal expands the swap definition to cover contracts tied to sports, politics, culture, and weather. The companion interim final rule codifies the exclusion of casino-style gambling products.
Line Between Derivatives and Bets
The CFTC identified five distinctions to support its view. Event contracts trade through central order books at market-determined prices, pass through clearinghouses, and have been listed under federal oversight since the 1990s. Sportsbooks set their own odds. The agency called the premise of recent Sixth and Ninth Circuit rulings erroneous for reading limits into the statutory definition that Congress did not establish. Selig noted that similar economic exposure does not render the instruments legally identical, comparing them to insurance and credit default swaps.
The interim final rule takes effect upon publication in the Federal Register. Both measures provide stakeholders 30 days from publication to submit comments via Regulations.gov. The CFTC maintains the interim rule reduces interpretive uncertainty without changing existing treatment of state-licensed sportsbooks.
Pending Supreme Court Review
New Jersey filed its petition in Flaherty v. KalshiEX on September 2, seeking review of the Third Circuit’s April 6 decision that limited state sports wagering laws on Kalshi’s contracts. The Ninth Circuit ruled differently on August 28 and the Sixth Circuit followed on September 25. Kalshi has until November 9 to respond. Attorneys general from 39 states and the District of Columbia, tribal gaming interests, gaming regulator associations, and the National Football League filed supporting briefs.
The rulemaking, logged for White House review on September 28, could influence pending license applications. Blockchain.com is among 12 companies seeking designated contract market approval this year. DraftKings and FanDuel have also entered the space. According to World Casino News, the measures implement an approach referenced by the Third Circuit.
Where jurisdictional lines fall next will determine how prediction market operators structure products and seek approvals nationwide. The tension between federal derivatives authority and state licensing duties remains unresolved until the Supreme Court decides whether to hear the case.
Reporting: World Casino News
Generated by SCCG’s automated editorial system from published source reporting. SCCG Management holds editorial responsibility.
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