CFTC Wants to Classify Event Contracts as Swaps
The regulator wants to legally bring prediction markets under swap rules, which could intensify the fight with U.S. states and platforms like Kalshi and Polymarket.
Key Takeaways
- The CFTC has sent two new rules to the White House to further tighten the legal status of prediction markets.
- The regulator wants to bring event contracts under the definition of swaps and separate casino-style gambling products from that category.
- The proposals could weaken the position of U.S. states in ongoing lawsuits and matter for crypto platforms like Kalshi and Polymarket.
The U.S. regulator CFTC has sent two new rules to the White House that are meant to further tighten the legal status of prediction markets. The proposals are about event contracts. The regulator wants to bring them under the definition of swaps while separating them from gambling products. In doing so, the CFTC is pushing its fight with U.S. states over oversight of these markets further.
Fight Over Oversight
Prediction markets are platforms where users bet yes or no on measurable outcomes, such as elections or sports games. The CFTC has long viewed these contracts as part of its own turf and has overseen prediction markets since 2004 through the swap rules under the Commodity Exchange Act. In practice, this is a growing legal battle over whether these contracts are financial instruments or instead fall under state gambling rules.
That debate became even sharper in recent weeks because of conflicting court rulings. A recent decision from the federal appeals court in the Sixth Circuit said sports contracts on Kalshi are not swaps and can therefore fall under state gambling rules. Earlier, another federal judge reached the opposite conclusion and said event contracts do fall under the swaps definition.
New Rules on the Table
The CFTC now wants to propose a new rule that explicitly brings event contracts under the swap definition. In addition, the regulator is working on an interim final rule that removes so-called casino-style gambling products from the swap definition. Both proposals were received this week by the Office of Management and Budget, a step that usually comes right before a public consultation.
According to the regulator, the proposals are not economically significant. If event contracts are eventually seen as swaps and at the same time not treated as gambling products, that could weaken states' position in ongoing lawsuits. Those cases often target platforms like Kalshi, but also other names such as Polymarket, Crypto.com, and Robinhood.
Why This Matters
For European crypto readers, this is mainly relevant because prediction markets are increasingly overlapping with crypto infrastructure and trading platforms. If U.S. rules are tightened further, that could also affect how major crypto event contracts and related platforms offer or restrict these kinds of products. The outcome is also important for the broader question of how much room regulators get to bring new market products under existing rules.
The CFTC itself is in an unusual position right now. President Donald Trump has not yet nominated any other commissioners, so Chair Mike Selig is making decisions alone for now. At the same time, the regulator has also submitted a separate pre-rule process for new crypto rules to the White House, although it is still not known exactly what is in it.
