CFTC Draws Hard Line on Swaps
On October 9, the Commodity Futures Trading Commission (CFTC) introduced two major actions to clarify how prediction markets are regulated in the United States. The first proposal would expand the definition of “swap”—a type of financial derivative—to explicitly include event contracts based on sports, politics, cultural events, and weather. This move aims to put such contracts under the CFTC’s exclusive jurisdiction, as outlined in the Commodity Exchange Act. The agency’s interim final rule, which took effect immediately upon publication in the Federal Register, simultaneously codified that traditional casino gambling products—like sportsbook wagers and casino games—are excluded from this definition.
Both measures come with a 30-day window for public comment, giving market participants until early November to weigh in on the future of event-based derivatives.
The CFTC’s proposals arrive amid a flurry of legal battles: several states have sued prediction-market operators such as Kalshi and Polymarket, alleging they are running illegal gambling operations. The CFTC has responded by countersuing to defend its fedeal jurisdiction over these event contracts. This tension reflects a deeper conflict between state-level gambling rules and federal oversight of financial markets—a conflict now being tested in federal courts and potentially headed for the Supreme Court.
Casino Bets, Event Contracts Split Officially
The regulatory split is not just theoretical; it has immediate practical effects. As of Friday’s publication date, casino-style gambling products are officially excluded from swap regulation, meaning that wagers placed at sportsbooks or on casino games will remain under state gambling laws rather than federal derivatives rules. In contrast, prediction markets offering event contracts related to sports outcomes or election results may now be classified as swaps and fall squarely within the CFTC’s purview.
This distinction is crucial for platforms like Kalshi and Polymarket, which have been at the center of lawsuits from both state authorities and federal regulators.
A recent September 25 ruling by the Sixth Circuit complicates matters further: it found that Kalshi had not demonstrated its sports-event contracts met the statutory swap definition under current law, and also concluded that federal law does not preempt Ohio’s or Tennessee’s gambling statutes. This micro-contrast—federal agencies seeking broader oversight while courts question their reach—highlights just how unsettled the regulatory landscape remains.
See Also
Blockchain.com Eyes Futures Exchange Role
While regulators draw boundaries, industry players are pushing forward with new business models. Blockchain.com has reportedly filed for two licenses with the CFTC: one as a designated contract market (DCM), which would allow it to operate a futures exchange for event contracts; and another as a futures commission merchant (FCM), enabling it to broker derivatives trades. According to cointelegraph.com, Blockchain.com revealed plans in July to integrate prediction markets into its app through a partnership with Polymarket—a move that could give millions of users access to regulated event-based trading if federal approval is granted.
The company is also said to be considering an initial public offering valued at up to $6 billion, aiming to raise $500 million—underscoring both its ambitions and the high stakes involved in securing regulatory clarity.
Yet even as Blockchain.com seeks official status from Washington regulators, state-level lawsuits against similar platforms continue. In June, New Jersey officials petitioned the U.S. Supreme Court regarding their dispute with Kalshi—a sign that legal uncertainty persists at multiple levels of government.
Comment Period Opens Amid Legal Patchwork
With both proposals now open for 30 days of public comment via Regulations.gov, industry participants have until early November to make their voices heard. The CFTC’s sole commissioner and chair is Michael Selig; notably, all four other seats at the agency remain vacant as of Friday, raising questions about capacity for enforcement during this critical period.
The patchwork of court rulings and ongoing lawsuits means that even after these rules are finalized, prediction market operators may still face challenges from state authorities. The legal status of event contracts as federally regulated swaps is actively being contested in court—and with cases like Kalshi’s drawing attention from the Supreme Court, definitive answers may be months or even years away.
For now, what counts as gambling—and who gets to regulate it—remains an open question at the intersection of finance and law.
Near-term focus
Both of the CFTC’s proposals—one expanding the “swap” definition to include event contracts and the other excluding casino-style gambling—entered 30-day public comment periods upon their filing on October 9, so if significant opposition or support emerges in these comments, it could immediately influence how platforms like Kalshi and Polymarket are treated under federal law; however, whether event contracts will ultimately be classified as federally regulated swaps remains unclear due to ongoing court challenges and pending Supreme Court attention.
