The U.S. Commodity Futures Trading Commission (CFTC) is moving to formalize its claim over prediction markets by introducing a new definition and proposing regulatory changes that would classify certain event contracts as “swaps.” The effort aims to establish these contracts under federal oversight while limiting the authority of state gambling regulators.
On Friday, the CFTC introduced an interim final rule and a separate proposed rule to strengthen its legal position on prediction markets. The agency argues that event contracts fall within the legal definition of swaps, which are financial agreements under its jurisdiction, rather than gambling products regulated by individual states.
The regulator is also seeking to distinguish sports-related contracts that qualify as swaps from traditional betting transactions. Under the interim final rule, casino-style gambling would remain outside the definition of swaps. In a separate proposal, the agency seeks to explicitly include event contracts tied to sports, politics, cultural developments and weather within the existing federal swaps regulatory framework.
The interim final rule takes effect immediately but remains open to public feedback during implementation. The second measure is still at the proposal stage and includes a relatively short 30-day period for public comments.
The CFTC’s position has faced opposition from several states and former federal officials who helped establish the relevant laws. These critics submitted their arguments to the U.S. Supreme Court this week as the court was asked to resolve the dispute over regulatory authority.
If the issue reaches the Supreme Court, the agency will be able to point to its ongoing efforts to implement Chairman Mike Selig’s approach to prediction market regulation.
Several states are already involved in lawsuits against the CFTC, arguing that they retain authority over sports betting conducted through platforms such as Kalshi and Polymarket. State officials have accused some of these platforms of operating illegal gambling businesses. Recent court rulings have been divided, with one federal appeals court siding against the states and two other appellate decisions supporting their position.
Jaret Seiberg, a policy analyst at TD Cowen, said in a Friday client note that the interim final rule appears intended to strengthen the CFTC’s position in court. States have argued that the agency’s broad definition of swaps could potentially make wagers placed at state-regulated or tribal casinos and sportsbooks illegal under federal law. Seiberg cautioned that whether the new rule resolves this concern remains uncertain.
The measures were submitted for White House review less than two weeks before their release, reflecting a particularly rapid regulatory process. The CFTC has strong incentives to address legal challenges to its claim that prediction markets fall exclusively under federal oversight. Clarifying that traditional casino gambling is outside its remit is one way to counter criticism of its approach.
Prediction market operators, including Kalshi, support the CFTC’s position because they are seeking to operate under a single federal regulator rather than face separate state gambling requirements.
Chairman Mike Selig currently serves as the only commissioner on a body designed to have five members, allowing him to make decisions on the agency’s policies without other commissioners. President Donald Trump has not yet appointed additional members to the CFTC.
A similar situation exists at the Securities and Exchange Commission, which currently has only two members on its five-seat commission. The Trump administration has also pursued efforts to remove or reduce Democratic representation at federal regulatory agencies.
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