The U.S. Commodity Futures Trading Commission moved on Oct. 9 to fold event contracts — the sports, politics, cultural and weather markets traded on platforms such as Kalshi and Polymarket — into the legal definition of a swap, a step aimed at keeping prediction markets under the agency’s exclusive federal jurisdiction. The regulator published a notice of proposed rulemaking to make that inclusion explicit, alongside an interim final rule that took effect immediately and carves casino-style gambling out of the swap definition. The pairing targets a running legal fight with several states that argue sports prediction markets are gambling, not derivatives.
“Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events,” Chairman Michael S. Selig said in the proposal. “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.”
Two Rules, One Regulatory Strategy
The CFTC issued two documents with different legal weight. The proposed rule would amend the definition of swap to expressly include event contracts based on sports, politics, cultural and weather-related events — contracts the agency says are already commonly known to the trade as swaps. That change is not final: it enters a 30-day comment period once published in the Federal Register. The interim final rule, by contrast, codifies the CFTC’s longstanding view that casino-style gambling products, including sportsbook wagers and casino games, are not derivatives and sit outside the swap definition. It becomes effective immediately upon Federal Register publication.
Why the Swap Label Matters
Under the Commodity Exchange Act, swaps fall within the CFTC’s exclusive federal jurisdiction, while gambling is left to the states. By classifying event contracts as swaps, the agency would preempt state gaming regulators and make itself the sole federal overseer of prediction markets. The carve-out for casino-style gambling is the companion move: it signals that sportsbooks and casino games remain state business, answering the states’ argument that the CFTC’s reading would federalize all wagering. The agency is effectively drawing a line between what it regulates and what it does not.
What Changes for Polymarket and Kalshi
The stakes are clearest for the platforms that list these contracts. Polymarket, which began rolling out a new ERC-1155 market architecture earlier in October, and Kalshi both want the CFTC to be their sole regulator rather than a patchwork of state gaming authorities. If the proposal is finalized, event contracts would sit inside a federal derivatives framework. The carve-out answers the states’ counter-argument — a Sixth Circuit ruling in September held that states can regulate Kalshi’s sports prediction markets, and that split in the courts is precisely what the CFTC is trying to resolve.
What Is Still Unsettled
The swap inclusion remains only a proposal, and its final text could change after the 30-day comment period. The litigation is far from over: recent federal appellate rulings have split, with at least one decision opposing the states and two supporting them, and the question has been put to the Supreme Court. Selig is currently the lone commissioner on what is meant to be a five-member body, which leaves the rulemaking vulnerable to a future shift in the commission’s makeup. For now the agency has put part of its interpretation into force — but where prediction markets ultimately land depends on the final rule and the courts.
