The U.S. Commodity Futures Trading Commission (CFTC) is taking steps to strengthen its authority over prediction markets by changing how federal rules define event contracts. The agency has issued an interim final rule to clarify which sports-related transactions fall outside the definition of swaps and proposed another rule that would bring more event contracts under its oversight.
The move comes as the CFTC faces legal challenges from several states over whether platforms such as Kalshi and Polymarket should fall under federal derivatives rules or state gambling laws.
The CFTC published a notice of proposed rulemaking on Friday seeking to expressly include event contracts in the legal definition of swaps. The proposal covers contracts tied to sports, politics, cultural events, and weather-related outcomes.
The agency said these contracts are financial instruments commonly known in the market as swaps. By clarifying the definition, the CFTC aims to address questions about whether existing federal law gives it authority over these products.
Chairman Michael S. Selig said Americans use event contracts to manage risks, speculate, and obtain information about future events.
"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 proposed rule would place eligible event contracts traded on platforms such as Kalshi and Polymarket within the existing federal regulation of swaps. However, the proposal is not yet final. The agency will accept written public comments for 30 days after its publication in the Federal Register.
Alongside the proposal, the CFTC issued an interim final rule that addresses which types of sports wagering do not qualify as swaps. The rule excludes casino-style gambling from the swap definition, according to the agency's announcement.
The distinction forms part of the regulator's effort to address concerns that its interpretation could extend federal derivatives rules to wagers made at state-regulated casinos and sportsbooks. The interim final rule takes effect immediately while remaining open to public input.
Jaret Seiberg, a policy analyst at TD Cowen, said the measure could help the agency respond to arguments raised in court by states challenging its authority.
"We view this interim final rule as designed to improve the agency's position in court as the states are arguing that the CFTC's definition of a swap would make federally illegal any wager made at a state or tribal casino or sportsbook," Seiberg wrote in a note to clients.
He also questioned whether the approach would achieve its intended purpose, writing, "Whether this actually works is a different question."
Several states have filed lawsuits arguing that they can regulate sports-related contracts offered through prediction market platforms. The states have accused some platforms of operating illegal gambling businesses, while the CFTC maintains that qualifying event contracts fall under its exclusive federal authority.
Court decisions have produced mixed results. One federal appellate decision opposed the states, while two other federal appellate rulings supported them. The dispute has also reached the U.S. Supreme Court, where states and former federal officials have submitted arguments about the regulator's interpretation of the law.
The CFTC's latest actions could give the agency additional crypto regulatory steps to point to as the legal dispute develops. However, the new rules do not end the ongoing court cases or guarantee that judges will accept the regulator's position.
The rulemaking process also comes as Selig leads the CFTC as its sole commissioner, despite the agency being designed to have five members. The Trump administration has not yet appointed additional commissioners, leaving Selig to make policy decisions without the full commission.
The proposed rule and interim final rule therefore address both the scope of federal oversight and the distinction between derivatives trading and state-regulated gambling. The outcome of the public comment process and the ongoing lawsuits will help determine how the CFTC's approach is applied.
ALSO READ: US Stock Market: Futures Climb as SpaceX Shares Gain and Telecom Stocks Decline