The Commodity Futures Trading Commission (CFTC) has stepped directly into the high-stakes battle over the future of prediction markets, issuing two significant regulatory proposals that attempt to draw a sharp line between federal derivatives oversight and state-level gambling enforcement.
Unveiled on Friday, the twin measures directly address the rapidly expanding market for event contracts—financial instruments tied to outcomes in politics, sports, culture, and weather—while establishing a 30-day public comment window for market participants, legal scholars, state regulators, and the public.
The first proposal formally clarifies the definition of a "swap" under federal law to explicitly encompass event contracts. By classifying these emerging financial instruments as swaps, the agency aims to resolve ongoing ambiguity surrounding their regulatory status. Under the proposal, contracts tied to real-world occurrences—ranging from election results and legislative outcomes to athletic competitions and macroeconomic indicators—would be legally recognized as commodity derivatives.
According to CFTC Chairman Michael Selig, these products are commodity derivatives that fall squarely within the agency’s regulatory remit under the Commodity Exchange Act, placing them firmly under exclusive federal jurisdiction. The move is designed to reinforce the commission’s authority over digital platforms that allow users to buy and sell contracts based on future outcomes.
Simultaneously, the agency released a second proposal structured as an interim final rule. This measure explicitly excludes traditional casino-style gambling products, including wagers placed on commercial sportsbooks and classic casino games, from the federal definition of a swap.
"Casino-style gambling products are not derivatives," Selig said, emphasizing the agency’s intent to draw a clean boundary between financial market regulation and state-sanctioned gaming. "Just as the CFTC has done with respect to other products historically regulated by the states, the Commission today provides clarity regarding the limits of its regulatory remit by codifying the exclusion of casino-style gambling products from the ‘swap’ definition."
Both measures have been published with concurrent 30-day comment windows, setting up an intense period of review that will likely attract heavy lobbying from both the financial technology sector and state regulatory bodies.
Both measures have 30-day comment windows
The release of these two regulatory proposals comes at a critical juncture, helping to set the stage for a potential landmark showdown before the United States Supreme Court regarding the division of power between federal regulators and state authorities.
Over the past year, the legal landscape surrounding prediction markets has fractured. Several states have initiated legal action against major prediction-market operators, including Kalshi and Polymarket, alleging that their event contracts constitute illegal gambling under local laws. In response, the CFTC has actively countersued and intervened to defend its exclusive federal jurisdiction over event contracts, maintaining that state-level regulators lack the legal authority to police financial derivatives governed by federal statute.
The jurisdictional friction has already generated conflicting rulings in the federal appeals courts, increasing the pressure for the nation’s highest court to step in and resolve the dispute once and for all.
In late September, prediction-market operator Kalshi suffered a major legal setback when a federal appeals court ruled that state authorities in Ohio and Tennessee possess the legal right to regulate sports-event contracts under their respective state gambling laws. A three-judge panel of the Sixth US Circuit Court of Appeals ruled unanimously against Kalshi, finding that the platform failed to demonstrate that its sports-event contracts legally qualified as "swaps" subject exclusively to the jurisdiction of the CFTC.
The Sixth Circuit’s decision sharply contrasted with a favorable ruling handed down earlier in the year by the Third Circuit Court of Appeals. In April, the Third Circuit allowed Kalshi to continue doing business in New Jersey while its broader legal appeals proceeded through the judicial system. The April ruling indicated that Kalshi was likely to succeed with its core legal argument that federal law preempts New Jersey’s state-level gambling regulations.
This deep division between the appellate courts has created a patchwork legal environment for prediction markets, where platforms face vastly different operating conditions depending on the federal circuit in which they operate.
Recognizing the national implications of the dispute, a group of state lawmakers recently filed an amicus brief with the US Supreme Court. The brief urges the high court to grant certiorari and weigh in on the ongoing legal battle between Kalshi and state gaming authorities. A definitive ruling from the Supreme Court would finally resolve the long-standing question of whether state gaming regulators or federal financial agencies hold ultimate jurisdiction over prediction market companies and their innovative financial products.
Crypto Regulation & Policy
Crypto Regulation & Policy
Crypto Regulation & Policy
