CFTC Proposes to Classify Event Contracts as Swaps While Excluding Casino-Style Gambling

The U.S. Commodity Futures Trading Commission has issued two measures to clarify federal oversight of prediction markets. One proposed rule would classify event contracts as swaps. An interim final rule excludes traditional casino-style gambling from that definition.

Details of the CFTC Measures

The proposed rule expands the definition of “swap” to cover event contracts linked to cultural events, weather, politics, and sports. CFTC Chairman Michael Selig said the proposal aims to resolve ambiguity surrounding the classification of these contracts under federal law.

Selig said: “Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events.” He said event contracts are commodity derivatives that fall within the agency’s regulatory remit under the Commodity Exchange Act and its exclusive jurisdiction.

The interim final rule takes effect upon publication in the Federal Register. It confirms the CFTC’s longstanding position that casino-style gambling, including sportsbook wagers and casino games, does not qualify as swaps. Selig said casino-style gambling products are not derivatives, describing the measure as clarifying “the limits of regulatory remit.”

Both measures were released on Friday and carry 30-day comment periods. The filings formalize proposals the CFTC submitted to the White House Office of Information and Regulatory Affairs on September 28, as reported by Yogonet International.

Jurisdiction Dispute and Supreme Court Petition

The moves come as a legal dispute over prediction market regulation could reach the U.S. Supreme Court. The CFTC asserts exclusive federal authority over event contracts while states argue that sports-related contracts fall under their jurisdiction.

Differing positions in the Third and Ninth U.S. Circuit Courts of Appeals have created a split over whether event contracts qualify as federally regulated swaps. The Supreme Court is considering whether to hear New Jersey’s petition in Flaherty vs. KalshiEX. Gaming regulators from 39 states and the District of Columbia have joined the NFL in urging the court to take up the case.

The NFL has argued that states are better positioned to oversee sports-related contracts, citing concerns about consumer protection and the integrity of sporting events. Lawyers for the NFL wrote: “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.”

The CFTC proposals seek to establish a clearer federal framework as the legal battle continues over whether prediction markets should be regulated primarily at the federal or state level.

Reporting: Yogonet International

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