CFTC Moves To Cement Authority Over Prediction Markets With New Swap Classification Rules

Key Takeaways

• The CFTC has forwarded two regulatory proposals to the White House Office of Management and Budget concerning event contracts on prediction platforms.
• The first proposal seeks to designate event contracts as “swaps,” placing them under CFTC regulatory jurisdiction.
• The companion proposal aims to exclude “casino-style gambling products” from swap classification.
• These regulatory actions follow conflicting federal appellate court decisions regarding whether platforms like Kalshi operate under CFTC oversight or state gambling statutes.
• Acting Chairman Mike Selig currently serves as the CFTC’s sole commissioner and is making these determinations independently.

The U.S. Commodity Futures Trading Commission has submitted two new rules to White House regulators for evaluation. Both proposals address the regulatory classification of event contracts traded on prediction market platforms.

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Regulators have now made at least 9 moves to build crypto rules without Congress.

1. SEC Crypto Task Force
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2. Project Crypto
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3.… pic.twitter.com/wviv65MA7p

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The agency seeks to formally categorize event contracts as “swaps.” Under existing financial regulation, swaps represent CFTC-supervised instruments where counterparties agree to exchanges contingent on specific outcomes.

The accompanying proposal would carve out “casino-style gambling products” from the swap category. Combined, these regulatory changes seek to firmly establish prediction markets outside state gambling jurisdiction.

The Rationale Behind CFTC’s Regulatory Push

Event contracts function as binary wagers on quantifiable events. Users deploy them to speculate on outcomes ranging from political elections to sporting competitions.

Platforms including Kalshi, Polymarket, Crypto.com, and Robinhood facilitate these contracts for participants. The CFTC has asserted primary federal regulatory authority over both these platforms and their contract offerings.

State governments have contested this interpretation. Multiple states maintain that sports-focused event contracts should be governed by state gaming statutes rather than federal regulatory frameworks.

This jurisdictional conflict has spawned litigation in numerous state courts. Kalshi has faced particular scrutiny, with several states alleging the platform operates as an unlicensed gambling enterprise.

Federal Courts Deliver Conflicting Interpretations

Federal appellate courts have issued contradictory opinions on contract classification. Last week, the Sixth Circuit Court of Appeals determined that Kalshi’s sports-related contracts do not qualify as swaps.

The Eighth Circuit Court of Appeals arrived at a comparable judgment. Both appellate panels concluded these contracts belong under state gambling regulatory authority.

However, the Third Circuit Court of Appeals issued a divergent ruling. That panel affirmed the CFTC’s regulatory jurisdiction over these marketplace activities.

This circuit split leaves the fundamental legal question unresolved at the federal level. Legal analysts have indicated the U.S. Supreme Court may ultimately need to resolve this regulatory conflict.

Both submitted proposals are currently under evaluation at the White House Office of Management and Budget. This administrative review typically precedes the public comment period for proposed regulations.

The interim final rule would become operative immediately upon publication. Despite immediate implementation, it would remain subject to public comment and potential modification.

The CFTC has not yet published complete regulatory language for either proposal. The agency’s submission documents indicate neither rule meets the threshold for “economically significant” designation.

CFTC Acting Chairman Mike Selig currently operates as the agency’s sole commissioner. President Trump has not yet put forward nominees to occupy the vacant commissioner positions.

This unusual circumstance means Selig exercises regulatory authority without collegial deliberation from fellow commissioners. The commission’s standard operational structure includes five members.

Beyond these two proposals, the CFTC has also filed a “prerule” document addressing cryptocurrency regulation. The agency has not disclosed substantive details regarding that preliminary regulatory framework.

The resolution of these regulatory proposals could significantly impact pending litigation between the CFTC and state governments. Should event contracts receive formal legal recognition as swaps rather than gambling instruments, it may undermine the legal foundation of state enforcement actions.