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CFTC Proposes Rules to Say Prediction Markets Are Not Gambling
America’s prediction markets regulator has submitted two rules for White House review as it battles states over industry oversight.
The Commodity Futures Trading Commission (CFTC) rules, the subject of a report Wednesday (Sept. 30) by CoinDesk, would connect event contracts to the regulatory definition of swaps, and establish that they’re not related to gambling.
As CoinDesk notes, the CFTC has “fully embraced” its role as prediction markets’ federal watchdog. The commission has launched a campaign to oversee companies like Kalshi while also fending off pushback from states that claim they have the authority to regulate event contracts as gambling.
A federal court decision last week found Kalshi’s sports-tied contracts are not swaps and are subject to state gambling laws, siding with the states of Ohio and Tennessee.
“The ruling strikes at both pillars of Kalshi’s legal strategy,” PYMNTS wrote earlier this week. “The court found that Kalshi’s sports contracts do not meet the Commodity Exchange Act’s definition of a swap and therefore do not fall within the CFTC’s exclusive jurisdiction. It also held that, even if the contracts qualified as swaps, the CEA does not expressly or implicitly preempt Ohio and Tennessee gambling laws.”
According to CoinDesk, the latest CFTC moves would argue against such rulings by creating a clearer definition for swaps, which are commission-regulated financial instruments where two parties agree to an exchange.
The proposed rule would extend the regulatory definition of swaps to include event contracts, traded on popular platforms including Kalshi, Polymarket, Crypto.com and Robinhood, CoinDesk said. The commission is also proposing an “interim final rule” that would remove “casino-style gambling products” from what can constitute a swap.
The report added that both rules were received this week by the White House’s Office of Management and Budget, where a review is typically the last step on the road to submitting rules for public comment.
Meanwhile, a report last week by Bloomberg News said bank regulators and federal lawmakers are worried about the appearance of contracts on prediction market Polymarket tied to the likelihood of bank failures.
The contracts have drawn scrutiny in Washington due to concerns that they could increase in volume and help lead to a bank run, that they could encourage bad actors to fuel a panic and that it could lead to insider trading on the platform.
Source: PYMNTS.com