The Commodity Futures Trading Commission (CFTC) has taken a significant step in its ongoing effort to define the regulatory framework surrounding prediction markets, sending two proposed rule changes to the White House for review as disputes over federal and state authority continue to intensify.
The measures were submitted to the Office of Information and Regulatory Affairs (OIRA), a branch of the Office of Management and Budget responsible for reviewing federal regulations before publication. Together, the proposals seek to clarify how prediction market products fit within the legal definition of a swap, a classification that carries major implications for oversight of platforms such as Kalshi, Polymarket, Rothera, and Novig.
One proposal would formally expand the definition of a swap to explicitly include event contracts. These contracts, commonly traded on prediction markets, allow participants to speculate on the outcome of future events. The second measure, classified as an interim final rule, would revise the definition in the opposite direction by excluding casino-style gambling products.
According to Bloomberg, the CFTC has not yet released the full text of either proposal. Following White House review, the rules will be returned to the commission for consideration. The agency, currently led by Chairman Michael Selig as its sole member, would then need to vote before the measures are published for public comment.
Regulatory Definitions at the Center of Legal Battles
The classification of event contracts has become one of the most contested issues in the prediction market sector. The CFTC maintains that most prediction market offerings qualify as swaps under the Commodity Exchange Act, placing them under federal jurisdiction.
Traditionally, swaps have been used by institutional participants, including financial firms and agricultural or energy producers, for hedging and speculative purposes. Prediction markets, however, have broadened participation by allowing retail traders to take positions on a wide variety of outcomes.
Current CFTC-regulated platforms do not offer casino-style games such as blackjack or other pure games of chance. Instead, they facilitate trading on outcomes ranging from Federal Reserve policy decisions and celebrity-related events to election developments and sports contests.
The proposed rulemaking arrives amid growing disagreement over whether sports-related event contracts should be treated as financial products or gambling activity. Several states argue that prediction market operators are violating local gambling laws, avoiding state taxation requirements, and operating outside established sports betting frameworks. The CFTC and some regulated companies have responded by challenging state efforts to oversee these markets.
According to the regulator’s position, if event contracts qualify as swaps, oversight rests exclusively with the federal government. The proposed rules appear aimed at strengthening that interpretation by embedding it more firmly within regulatory definitions.
Court Decisions Push Jurisdictional Question Higher
Recent litigation has produced conflicting outcomes, creating uncertainty over the legal status of prediction market products.
Last week, Kalshi suffered a setback when a federal appeals court determined that Ohio and Tennessee could enforce their sports gambling laws against the platform. The court rejected Kalshi’s argument that federal law and CFTC oversight preempt state regulation of its sports-related contracts.
At the same time, broader litigation continues across multiple jurisdictions. Several states have pursued legal action against prediction market operators, while the CFTC has filed lawsuits of its own seeking to prevent state intervention.
New Jersey has also asked the U.S. Supreme Court to weigh in on the issue. In September, Attorney General Jennifer Davenport requested review of a case involving whether sports contracts offered through Kalshi should be classified as swaps and whether CFTC authority supersedes state gaming regulation. Legal observers have suggested the Supreme Court may be inclined to consider the matter because appellate courts have reached different conclusions.
New York has also moved against the sector. The state recently filed suit against Polymarket in an effort to prevent the platform from operating within its borders, following earlier action taken against Kalshi.
Immediate Impact Possible for Casino Product Rule
The proposed treatment of casino-style products has drawn particular attention because of its procedural status. OIRA records show that the measure has been submitted as an interim final rule.
Gaming and sports betting attorney Daniel Wallach noted that such a designation could allow the rule to take effect immediately upon publication.
“If the interim rule goes beyond the title’s suggestion (e.g., excluding casino-style products) and provides tacit authorization for sports-event contracts, it could prompt immediate APA litigation in federal court,” Wallach said in a post on X on Wednesday.
The Administrative Procedure Act typically requires agencies to follow notice-and-comment procedures before regulations become effective. Interim final rules are used less frequently and generally require agencies to justify bypassing the standard process.
The prediction market proposals are not the only regulatory initiatives currently moving through federal review. The CFTC recently submitted a separate crypto-related rulemaking package to the White House. The agency has also issued guidance concerning so-called “mention markets,” warning that contracts tied to whether a specific individual makes certain statements may be particularly vulnerable to manipulation.
For now, the two prediction market measures remain under White House review. While they do not immediately change the regulatory landscape, they represent the latest effort by the CFTC to establish clearer authority over a rapidly expanding sector that remains the subject of ongoing court battles between federal regulators, states, and market operators.