The US Commodity Futures Trading Commission has submitted a proposed rule to expand the definition of "swap" to explicitly include event contracts. This regulatory move is accompanied by an interim final rule designed to exclude casino-style gambling products from the swap classification. Both documents are currently under review by the Office of Information and Regulatory Affairs.
This clarification addresses an ongoing jurisdictional conflict between federal and state authorities regarding prediction markets. The CFTC maintains that federal law grants it exclusive authority over swaps traded on its regulated exchanges, such as those operated by Polymarket and Kalshi. Conversely, US state regulators have disputed this position, particularly concerning sports event contracts, arguing that these instruments fall under state gambling laws rather than federal commodity regulations.
The CFTC’s attempt to codify event contracts as swaps represents a strategic effort to consolidate federal oversight over the rapidly growing prediction market sector. By distinguishing these financial instruments from casino-style gambling through separate rules, the agency seeks to establish a clear legal boundary that supports its claim of exclusive jurisdiction. This regulatory clarity is essential for platforms like Polymarket and Kalshi, which operate in a gray area where their products could be interpreted as either commodities or gambling depending on the governing authority.
However, the effectiveness of this rulemaking hinges on how courts interpret the statutory definition of a swap versus traditional gambling activities. State regulators’ continued opposition suggests that the proposed definitions may face significant legal challenges, potentially delaying full implementation. The outcome will likely determine whether prediction markets remain subject to strict federal compliance standards or revert to fragmented state-level gambling regulations, impacting institutional adoption and operational risk for market participants.
