The Commodity Futures Trading Commission (CFTC) has submitted two event contract rules to the White House for review, in a move that seeks to place prediction markets under federal authority rather than state gambling oversight.
The regulator sent both measures this week to the Office of Information and Regulatory Affairs (OIRA), the office within the White House Office of Management and Budget (OMB) that reviews federal rules before publication.
The CFTC classified both rules as not economically significant, and their full text has not yet been made public.
Rewriting the definition of a swap
The first measure, a proposed rule identified as RIN 3038-AF82, would amend the regulatory definition of a “swap” so that it explicitly covers event contracts, the yes-or-no products traded on prediction markets. The proposal will go to public comment before it can become final.
The second measure, an interim final rule designated RIN 3038-AF81, would exclude “casino-style gambling products” from the swap definition. Unlike the proposed rule, it could take effect once approved.
Interim final rules are an unusual tool for this kind of line-drawing, and agencies typically use them when they want a regulation to apply while public comments are still being collected, rather than after the full notice-and-comment process concludes.
The classification matters because swaps fall under the Commodity Exchange Act, the federal law the CFTC administers. If event contracts qualify as swaps, they come under the agency’s authority, which CFTC Chairman Michael Selig has argued is exclusive. Under that position, platforms that offer the contracts would sit outside the reach of state gambling regulators.
States take the fight to court
Several states dispute that claim. Ohio and Tennessee have argued that sports event contracts violate their state gambling laws and have taken the matter to litigation against the agency.
Multiple states have also sued prediction market operators over alleged illegal gambling, and the CFTC has filed countersuits to block that oversight.
New York sued Polymarket last week with the aim of banning the platform within its jurisdiction, in a move that echoes an earlier action against Kalshi.
New Jersey’s attorney general, meanwhile, has asked the US Supreme Courtc to review the jurisdictional question. Appeals courts have issued conflicting decisions on whether the contracts qualify, and that split has drawn the Supreme Court’s attention.
Mention markets come under watch
The rules follow other actions the commission has taken this year. In June, the CFTC issued a notice of proposed rulemaking that sought public comment on how to assess event contracts tied to specified activities, including gaming.
On September 22, the CFTC’s Division of Market Oversight published an advisory on so-called “mention markets,” which are contracts that settle based on whether a named person says certain words.
The advisory, which bears on the listing requirements for these contracts, flagged elevated manipulation risks and suggested that such contracts should be presumed readily susceptible to manipulation. Agency staff also warned that “mention” contracts tied to public statements invite manipulation.
The agency is also investigating former Rep. Adam Kinzinger over Kalshi bets tied to his own pardon.
The rulemaking forms part of a pattern in which the CFTC has moved forward with its own rules rather than waiting for Congress, a shift toward regulators setting crypto policy that followed the Clarity Act. The agency recently sent a separate crypto markets rulemaking to the White House as well.
Kalshi and Polymarket both operate as CFTC-registered designated contract markets (DCMs) for event contracts, which means they function as federally supervised exchanges. Crypto.com and Robinhood also offer similar products.
The filings represent statements of intent rather than final regulations. Both rules must first clear White House review, and the proposed rule will then go through its own process before it can become final.
Through the rulemaking, the CFTC seeks to settle in regulation a question that courts and states have contested on a case-by-case basis. A Supreme Court ruling on the jurisdictional question, however, could alter the legal landscape regardless of what the CFTC writes into its rules.