CFTC Seeks to Define Event Contracts as Swaps Amid Prediction Market Dispute
The US Commodity Futures Trading Commission (CFTC) is moving to expand the legal definition of “swap” to incorporate event contracts amid a jurisdictional dispute with state gambling regulators over prediction markets. The agency has also proposed excluding casino-style gambling products from regulation. These measures aim to assert CFTC's authority over certain financial products, notably those offered by platforms like Polymarket and Kalshi, while state regulators argue that sports event contracts should be governed by state gambling laws.
CFTC's Proposal to Redefine Swaps
The US Commodity Futures Trading Commission has submitted a proposed rule to broaden the definition of “swap” to explicitly include event contracts — financial instruments linked to the outcomes of specific events. Simultaneously, it proposed an interim final rule that would carve out casino-style gambling products from this regulatory scope. Both proposals are currently under review by the Office of Information and Regulatory Affairs.
Jurisdictional Dispute Between CFTC and State Regulators
Defining event contracts as swaps is critical because the CFTC claims exclusive federal authority over swaps traded on its regulated exchanges, which cover platforms such as Polymarket and Kalshi. Meanwhile, state regulators contest this stance, particularly regarding sports event contracts, maintaining that these should fall under state gambling laws. This regulatory disagreement highlights ongoing tensions between federal oversight and state control over emerging financial products at the intersection of derivatives and betting.
Why it matters
This development marks a significant moment in regulating emerging financial instruments that straddle derivatives and gambling. The CFTC’s move to redefine swaps signals an effort to consolidate oversight over prediction markets and clarify jurisdictional boundaries. Meanwhile, state opposition underscores ongoing tensions over federal versus local regulatory authority, a dynamic that will shape the legal landscape and future growth of these products in the United States.
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