The CFTC sent the White House two proposed rules Monday (Sept. 28) that could strengthen its hand in an escalating jurisdictional fight with state gambling regulators, Decrypt reported Wednesday (Sept. 30).
The two measures, submitted to the White House Office of Information and Regulatory Affairs, would reshape the regulatory definition of a “swap” around event contracts, the instruments traded on prediction market platforms including Kalshi and Polymarket. One would explicitly include event contracts within the definition of swaps, while the other would exclude “casino-style gambling products” from that definition, according to the report.
Together, the measures could provide the CFTC with a regulatory basis for arguing that prediction markets operating as federally regulated derivatives exchanges fall within its exclusive jurisdiction rather than state gambling laws.
That question has become the central fault line in a widening legal battle between the CFTC, prediction market operators and states seeking to regulate sports and other event contracts as gambling.
The first measure, proposed rule RIN 3038-AF82, would explicitly add event contracts to the definition of swaps and would be subject to public comment. The second, interim final rule RIN 3038-AF81, would exclude “casino-style gambling products” from the swap definition and could take effect upon approval while remaining open to subsequent comment and revision. The CFTC classified both as not economically significant, and their full text has not been released, per the Decrypt report.
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The distinction matters because swaps traded on designated contract markets fall within the CFTC’s regulatory domain. Chairman Michael Selig has maintained that the agency has exclusive jurisdiction over federally regulated prediction markets, while states have argued that sports-related event contracts amount to gambling subject to their traditional police powers.
The proposed rules arrive days after the Sixth Circuit Court of Appeals dealt the federal position a setback. In a Friday (Sept. 25) ruling involving challenges to enforcement by Ohio and Tennessee, the court held that Kalshi’s sports event contracts do not constitute swaps under the Commodity Exchange Act and therefore are outside the CFTC’s exclusive jurisdiction. It also held that the CEA does not preempt application of state gambling laws.
The court reached the preemption issue independently, holding that even if the contracts were swaps, the CEA neither expressly nor impliedly preempts state gambling regulation. That finding could complicate any CFTC attempt to resolve the jurisdictional conflict solely by redefining event contracts as swaps.
The Sixth Circuit decision deepened a split among federal appeals courts. The Eighth Circuit likewise ruled against federal preemption in a prediction market case, while the Third Circuit has reached the opposite conclusion by supporting federal jurisdiction. The circuit-split increases the prospect of eventual Supreme Court review.
Meanwhile, the state-federal conflict continues to expand. States have brought actions accusing prediction market operators of offering illegal gambling, while operators and the CFTC have sought to block state oversight. New York last week sued Polymarket, seeking to prevent it from operating in the state, per PYMNTS, while Polymarket responded with a federal challenge asserting CFTC jurisdiction, Reuters reported Thursday (Sept. 24).
The new rules could become yet another front in the ongoing legal battle rather than settle it.
If the CFTC succeeds in defining event contracts as swaps while distinguishing them from casino-style gambling products, prediction market operators would gain a stronger regulatory argument that their contracts belong inside the federal derivatives framework. But the Sixth Circuit held that the CFTC’s exclusive jurisdiction provision does not itself displace state gambling laws, even assuming the contracts do qualify as swaps.
For now, the White House submissions represent proposed regulatory positions rather than final law. But they signal that the CFTC is seeking to address through rulemaking the same question courts are being asked to decide. Are prediction markets federally regulated derivatives markets, state-regulated gambling or potentially both?
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