The U.S. Commodity Futures Trading Commission (CFTC) has issued two regulatory measures to clarify federal oversight of prediction markets, proposing to classify event contracts as swaps while excluding traditional casino-style gambling products from the definition.
The first proposed rule would expand the definition of “swap” to cover event contracts linked to cultural events, weather, politics, and sports. The agency said the proposal aims to resolve ambiguity surrounding the classification of these contracts under federal law.
“Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events,” CFTC Chairman Michael Selig said.
Selig said event contracts are commodity derivatives that fall within the agency’s regulatory remit under the Commodity Exchange Act and its exclusive jurisdiction.
The second measure, an interim final rule that takes effect upon publication in the Federal Register, confirms the agency’s longstanding position that casino-style gambling, including sportsbook wagers and casino games, does not qualify as swaps.
“Casino-style gambling products are not derivatives,” Selig said, 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.
The moves come as a legal dispute over prediction market regulation could reach the U.S. Supreme Court, with the CFTC asserting exclusive federal authority over event contracts while states argue that sports-related contracts fall under their jurisdiction.
The dispute has been intensified by differing positions in the Third and Ninth U.S. Circuit Courts of Appeals 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, a case concerning the authority to regulate prediction markets. 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.
“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,” lawyers for the NFL wrote.
The CFTC’s proposals seek to establish a clearer federal framework for event contracts as the broader legal battle continues over whether prediction markets should be regulated primarily at the federal or state level.