The U.S. Commodity Futures Trading Commission (CFTC) is taking formal steps to strengthen its control over prediction markets by proposing regulatory changes that would classify certain event contracts as swaps. The move aims to place these products under federal supervision and limit the role of state gambling authorities.
On Friday, the agency introduced an interim final rule and a separate regulatory proposal to establish a clearer legal basis for its oversight of event contracts. The CFTC maintains that these agreements fall within the legal definition of swaps, giving the federal regulator authority over platforms offering them.
The agency is also working to distinguish financial contracts linked to sports outcomes from conventional sports betting. Under the interim final rule, casino-style gambling would remain excluded from the definition of swaps. A separate proposal would explicitly bring event contracts tied to sports, politics, cultural events and weather under the existing federal swaps regulatory framework.
The interim final rule takes effect immediately but remains open to public feedback as it is implemented. Meanwhile, the proposed rule has not yet been finalized and will undergo a 30-day public comment period.
The CFTC’s interpretation has drawn opposition from several states and former federal officials involved in developing the laws governing these markets. Critics submitted their arguments to the U.S. Supreme Court this week, seeking a resolution to the ongoing dispute over whether federal regulators or state authorities should control prediction markets.
If the case reaches the Supreme Court, the CFTC will be able to demonstrate that it has already begun implementing Chairman Mike Selig’s regulatory approach.
Several states are pursuing legal action against the agency, arguing that they have jurisdiction over sports wagering offered through platforms such as Kalshi and Polymarket. State authorities have accused these companies of conducting illegal gambling operations. Recent rulings have produced mixed outcomes, with one federal appeals court ruling against the states and two others supporting their arguments.
TD Cowen policy analyst Jaret Seiberg said the interim final rule appears intended to strengthen the CFTC’s position in court. In a Friday note to clients, he highlighted concerns 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. He added that it remains unclear whether the rule will successfully address those concerns.
The regulatory measures were submitted for White House review less than two weeks before their announcement, highlighting the speed of the process. The agency faces growing pressure to defend its claim that prediction markets fall within its exclusive jurisdiction. Excluding traditional casino-style gambling from the swaps definition is part of its effort to address legal challenges.
Prediction market companies, including Kalshi, support the CFTC’s position because federal oversight could allow them to operate under a single regulator rather than comply with varying state gambling laws.
Chairman Mike Selig currently serves as the sole commissioner on a commission designed to have five members, giving him the ability to determine agency policy without input from other commissioners. President Donald Trump has yet to nominate additional members to fill the vacant positions.
The Securities and Exchange Commission faces a similar staffing shortage, with only two commissioners currently serving on its five-member panel. The Trump administration has also pursued efforts to reduce Democratic representation across federal regulatory agencies.
