CFTC Issues Dual Proposals on Event Contracts and Casino Gambling as State-Federal Showdown Looms

The Commodity Futures Trading Commission (CFTC) has formally issued two high-stakes regulatory proposals that aim to reshape the legal landscape for prediction markets and financial derivatives. The first proposal seeks to explicitly define event contracts as “swaps” under federal law, while the second proposal acts as an interim final rule to explicitly exclude traditional casino gambling from that same definition. These concurrent actions arrive amid an escalating jurisdictional turf war between federal financial regulators and state gaming authorities over how to classify modern prediction-market platforms.

Several states have initiated legal battles against prominent prediction-market operators, including Kalshi and Polymarket, alleging that their operations constitute illegal gambling under local laws. In response, the CFTC has actively countersued and intervened to defend its exclusive federal jurisdiction over event contracts. The agency maintains that these instruments are financial derivatives governed by federal statute, placing them entirely beyond the regulatory purview of state gaming commissions.

The first proposal put forward by the agency clarifies the legal definition of a “swap” to formally encompass event contracts. This includes contracts tied to a wide variety of outcomes, such as sports, politics, cultural events, and weather patterns. By explicitly categorizing these instruments, the proposal notes that they are financial derivatives commonly recognized within trade practices, thereby resolving any lingering statutory ambiguity regarding their status.

“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,” said CFTC Chairman Michael Selig, emphasizing the agency’s authority to oversee these burgeoning markets at the federal level.

Both Measures Have 30-Day Comment Windows

The second proposal, introduced as an interim final rule, codifies the CFTC’s official position that casino-style gambling products—including wagers placed on commercial sportsbooks and traditional casino table games—are completely excluded from the statutory definition of a “swap.” By drawing this bright line, the agency attempts to demarcate the exact boundaries of financial market regulation versus state-sanctioned gambling.

“Casino-style gambling products are not derivatives,” Chairman Selig stated. “Just as the CFTC has done with respect to other products historically regulated by the states, the Commission today provides clarity regarding the limits of its regulatory remit by codifying the exclusion of casino-style gambling products from the ‘swap’ definition.”

Both regulatory measures were officially filed on Friday, triggering standard 30-day public comment windows during which industry stakeholders, legal experts, state officials, and market participants can submit their feedback.

These regulatory steps help set the stage for a potential landmark battle before the United States Supreme Court regarding the division of power between federal oversight bodies and state regulators. The friction between federal and state authorities has intensified over the past year as prediction markets have gained mainstream traction, allowing everyday users to wager on real-world events ranging from elections to athletic competitions.

The unfolding drama builds upon a series of conflicting federal appellate court decisions. In late September, prediction market Kalshi suffered a major legal defeat on appeal when a court ruled that Ohio and Tennessee possess the legal authority to regulate sports-event contracts under their respective state gambling laws. A three-judge panel of the Sixth US Circuit Court of Appeals ruled unanimously against Kalshi, finding that the platform failed to adequately demonstrate that its sports-event contracts qualify as federal “swaps” under the exclusive purview of the CFTC.

Despite that setback, Kalshi secured a more favorable outcome earlier in the year. An April decision by the Third Circuit Court of Appeals allowed the prediction market to continue conducting business in New Jersey while its broader legal appeal process proceeds through the court system. That April ruling concluded that Kalshi was likely to succeed in its legal argument that federal commodity laws preempt New Jersey’s state-level regulations.

These contradictory rulings from different federal appellate circuits have created a fractured legal environment, heavily increasing the likelihood that the Supreme Court will ultimately have to step in to resolve the jurisdictional impasse. The pressure on the nation’s highest court has mounted further as outside groups weigh in on the controversy. A coalition of state lawmakers recently filed an amicus brief with the US Supreme Court, formally urging the justices to take up the case between Kalshi and state gaming authorities. A definitive ruling from the Supreme Court would finally settle whether state gaming regulators or federal financial agencies maintain ultimate jurisdiction over modern prediction-market companies.