CFTC Proposes Defining Event Contracts as Swaps Amid Jurisdictional Clash With States

The Commodity Futures Trading Commission (CFTC) has escalated the high-stakes jurisdictional battle between federal regulators and state authorities by issuing two pivotal regulatory proposals. The newly unveiled measures aim to firmly establish federal oversight over prediction markets and event-contract operators, while simultaneously drawing a sharp legal boundary to exclude traditional, state-regulated casino gambling and sportsbooks from the agency’s domain.

The regulatory actions arrive as the legal landscape surrounding decentralized prediction platforms and event-contract exchanges becomes increasingly volatile. Several U.S. states have launched aggressive legal challenges against major prediction-market operators, including Kalshi and Polymarket, arguing that their offerings constitute unauthorized and illegal gambling under local laws. In response, the CFTC has actively intervened, countersuing to defend its federal jurisdiction and asserting that event contracts are financial derivatives that sit entirely beyond the purview of state regulators.

The first of the two proposals formally clarifies the legal definition of a "swap" under federal law to explicitly encompass event contracts. This includes contracts tied to a wide array of outcomes, such as sports competitions, political elections, cultural milestones, and weather patterns. By detailing the nature of these products, the proposal notes that these financial instruments are commonly recognized within financial trade markets as swaps and seeks to permanently resolve any ongoing ambiguity regarding their regulatory status.

CFTC Chairman Michael Selig emphasized the agency’s firm stance on the matter, noting that these products fall squarely within the commission’s authority. "These products are commodity derivatives squarely within the CFTC’s regulatory remit under the Commodity Exchange Act and are within the agency’s exclusive jurisdiction," Selig stated.

Both Measures Have 30-Day Comment Windows

To balance the regulatory update, the second proposal codifies the CFTC’s longstanding view that traditional casino-style gambling products—including wagers placed through commercial sportsbooks and classic casino table games—are entirely excluded from the legal definition of a swap. This distinction is designed to reassure state gaming commissions that the federal agency has no intention of encroaching upon traditional forms of physical or online state-regulated gambling.

"Casino-style gambling products are not derivatives," Selig said, explaining the agency’s measured approach to the jurisdictional boundaries. "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 regulatory measures, formally filed on Friday, carry standard 30-day public comment windows, giving industry stakeholders, legal experts, and state regulators an opportunity to weigh in before the rules move toward final adoption.

The simultaneous release of these two rules helps set the stage for a potential landmark showdown at the United States Supreme Court regarding the division of power between federal agencies and state governments. The ongoing turf war has already produced conflicting federal appellate court decisions, driving the dispute closer to the nation’s highest court.

Late in September, prediction market Kalshi suffered a significant legal setback on appeal when a court ruled that the states of Ohio and Tennessee possess the legal authority to regulate sports-event contracts under their respective state gambling statutes. A three-judge panel of the 6th U.S. Circuit Court of Appeals ruled unanimously against Kalshi, finding that the platform had failed to adequately demonstrate that its sports-event contracts qualify as "swaps" exclusively governed by the CFTC under federal law.

That ruling stood in stark contrast to an earlier decision handed down in April by the 3rd Circuit Court of Appeals, which had delivered a major win for Kalshi by allowing the platform to continue conducting business in New Jersey while its broader legal appeal proceeded. The April ruling asserted that Kalshi was highly likely to succeed in its core legal argument that federal commodities law preempts New Jersey’s state-level regulations. These sharply conflicting appellate decisions have effectively paved the way for a definitive Supreme Court case to resolve the constitutional and statutory questions at hand.

Further highlighting the intense national interest in the dispute, a collective of state lawmakers previously filed an amicus brief with the Supreme Court. The brief urgently petitioned the justices to take up the case between Kalshi and state gaming authorities to settle the broader question of whether state gaming regulators or federal financial agencies hold ultimate authority over modern prediction-market companies.