CFTC Seeks to Classify Prediction Market Event Contracts as Swaps

The U.S. Commodity Futures Trading Commission is pushing to solidify its authority over prediction markets by submitting two new rules to the White House Office of Management and Budget for review. The agency aims to formally categorize event contracts as swaps while simultaneously declaring that these products are not gambling.

These binary yes-or-no contracts, which cover outcomes for events like elections and sports, are currently traded on platforms including Kalshi, Polymarket, Crypto.com, and Robinhood. By defining these instruments as swaps, the CFTC intends to assert its role as the primary federal regulator, potentially undermining state-level claims that these platforms operate as illegal gambling sites.

The regulatory move comes as the CFTC faces a complex legal landscape. While some federal courts have ruled that contracts on platforms like Kalshi are not swaps and fall under state gambling jurisdiction, other rulings have supported the CFTC's authority. The Sixth and Eighth Circuit Courts of Appeals recently ruled against the agency's position, while the Third Circuit previously affirmed the CFTC's jurisdiction, creating a split that may eventually require a Supreme Court decision.

The agency is pursuing an interim final rule that would explicitly exclude casino-style gambling products from the definition of a swap. If finalized, this would be immediately effective while remaining open for public comment and revision. The CFTC has labeled both submitted rules as not economically significant.

The CFTC is currently led by Chairman Mike Selig, who has been acting unilaterally as the sole member of the five-person commission. In addition to the event contract rules, the agency recently submitted a prerule to the White House regarding crypto regulations, though specific details on that effort remain undisclosed.