Key Moments:
- The Commodity Futures Trading Commission has submitted two significant rule proposals to the White House’s Office of Management and Budget for review
- One rule aims to carve out casino-style gambling from the definition of swaps, while the other would broaden the swap definition to cover prediction market event contracts
- Conflicting court rulings and state regulatory actions continue as the CFTC moves forward with its own approach to classify and oversee event contracts
Recent Regulatory Actions by the CFTC
The Commodity Futures Trading Commission (CFTC) has advanced two major rulemaking initiatives poised to impact the future of prediction markets and the agency’s power over sports-related event contracts. Earlier this week, both rules were submitted to the White House’s Office of Management and Budget for review, as reported by Bloomberg.
One measure, described as “interim final,” would swiftly revise the swap definition to exclude casino-style gambling products. This change would go into effect immediately upon publication in the Federal Register, using an expedited process rarely employed except when agencies can demonstrate urgent need.
In contrast, the second measure would broaden the swap definition, covering event contracts traded through platforms such as Kalshi, Polymarket, Rothera, and Novig.
Following OMB’s review, the proposals are expected to return to the CFTC. Chairman Michael Selig, currently the commission’s sole member, would then be responsible for voting on whether to proceed to a public comment period.
Defining ‘Swaps’ at the Heart of Jurisdictional Battles
The ongoing debate over whether event contracts qualify as swaps stands at the center of a larger struggle regarding regulatory control.
If these contracts are formally defined as swaps, they would fall exclusively under CFTC jurisdiction. Chairman Michael Selig has maintained that this authority is unique to the commission, a position that would place prediction market platforms outside the oversight of state gambling authorities. Several state regulators have already pursued litigation, alleging these platforms engage in illegal gambling.
Several appeals courts have reached differing decisions over this issue, attracting attention at the highest judicial levels, including the Supreme Court.
Despite legislative uncertainty, the CFTC has decided to move forward with its own regulatory process, reflecting a broader pattern in regulatory responses since the Clarity Act, especially regarding crypto and related markets.
Broadening Scrutiny and State Responses
The CFTC has expanded the focus of its investigations. Former Representative Adam Kinzinger is currently under scrutiny for bets placed on Kalshi linked to his own pardon. In addition, the agency has issued advisories warning against “mention markets,” or contracts that settle based on whether a specific individual utters certain words.
The CFTC has expressed concern that such markets could be susceptible to manipulation. Meanwhile, state agencies remain active; New York has recently initiated legal action against Polymarket, seeking its removal from the state, following previous efforts targeting Kalshi.
At this stage, the CFTC’s actions indicate regulatory intentions, rather than enforceable final rules. The Commission’s efforts to redefine swaps demonstrate an attempt to resolve, through rulemaking, disputes that have previously been fought in courts and through state-level enforcement on a case-by-case basis.
Regulatory Proposals at a Glance
| Proposal | Key Action | Impact |
|---|---|---|
| Interim Final Rule | Excludes casino-style gambling from the swap definition | Immediate effect upon publication in the Federal Register |
| Second Proposal | Expands swap definition to include event contracts | Covers platforms like Kalshi, Polymarket, Rothera, and Novig |
- Author
Daniel Williams
