- Published on
CFTC proposals aimed at separating prediction markets from casino gambling
- Authors
- Name
- DeepHorus
The Commodity Futures Trading Commission (CFTC) on Friday issued two proposals aimed at separating prediction markets from casino gambling, setting up a potential Supreme Court fight over federal and state jurisdiction. The first proposal would define event contracts as 'swaps' under federal law, while the second would explicitly exclude traditional casino gambling from that definition. Both measures carry 30-day comment windows. CFTC Chairman Michael Selig said the products at issue are commodity derivatives squarely within the agency's regulatory remit under the Commodity Exchange Act.
The proposals arrive amid escalating legal battles between states and prediction-market operators such as Kalshi and Polymarket. Several states have sued those platforms, alleging illegal gambling, and the CFTC has countersued to defend its federal jurisdiction over event contracts. The agency claims those contracts are beyond the purview of state regulators. The dispute has become a broader test of whether federal commodities law preempts state gambling laws.
Under the first proposal, event contracts tied to sports, politics, cultural events and weather would be classified as swaps. The CFTC said these are financial instruments commonly known to the trade as swaps and proposed to resolve any ambiguity regarding them. '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 said. The measure would reinforce the CFTC's position that event contracts belong under its oversight.
The second proposal codifies the CFTC's view that casino-style gambling products, including wagers placed on sportsbooks and casino games, are excluded from the 'swap' definition. Selig said casino-style gambling products are not derivatives. He added that the Commission is providing clarity regarding the limits of its regulatory remit by codifying the exclusion, just as it has done for other products historically regulated by the states. Together, the two measures attempt to draw a clear line between financial derivatives and gambling.
The legal backdrop is mixed. In late September, Cointelegraph reported that Kalshi lost on appeal when a court ruled that Ohio and Tennessee can regulate sports-event contracts under their state gambling laws. The 6th US Circuit Court of Appeals sided unanimously with those states, finding that Kalshi failed to demonstrate its sports-event contracts are 'swaps' under CFTC jurisdiction. Still, an April decision by the 3rd Circuit Court of Appeals allowed Kalshi to do business in New Jersey as its appeal proceeds.
The April ruling said Kalshi was likely to succeed with its argument that federal law preempts New Jersey's regulations. That split among appellate courts has set up a potential Supreme Court case. A group of state lawmakers has filed an amicus brief with the Supreme Court, urging it to weigh in on the case between Kalshi and state gaming authorities. The NFL has also backed New Jersey authorities in a SCOTUS petition over Kalshi, underscoring the high stakes for sports leagues and states.
If finalized, the CFTC proposals could strengthen the agency's exclusive jurisdiction over event contracts, but they are likely to face challenges from states that view prediction markets as gambling. The 30-day comment windows will allow industry participants, state regulators and other stakeholders to weigh in. The ultimate outcome may depend on the Supreme Court, which could resolve whether state authorities or federal agencies have jurisdiction over prediction market companies. For now, the CFTC's two proposals set the stage for that broader legal confrontation.
