Meta description: CFTC proposes treating event contracts as swaps while excluding casino and sportsbook wagers, sharpening prediction-market litigation.
Tags: CFTC, Kalshi, Polymarket, Michael Selig, sports event contracts, Commodity Exchange Act
market_platform: none-if-cross-platform
category: Regulation
The Commodity Futures Trading Commission on October 9 moved on both sides of the prediction-market boundary. One proposal would define event contracts on sports, politics, culture and weather as swaps. A separate interim final rule would exclude casino-style gambling products, including sportsbook wagers and casino games, from the swap definition.
The two actions sharpen the legal line now being tested in state and federal courts: whether event contracts listed on federally registered markets are derivatives under the Commodity Exchange Act, or gambling products that states can regulate under their own gaming laws. The CFTC tied both public-comment periods to Federal Register publication, with comments due within 30 days of publication.
What did the CFTC issue on October 9?
The CFTC issued a notice of proposed rulemaking that would further define the term “swap” to include event contracts, including contracts based on sports, politics, cultural events and weather. The agency said the proposal is intended to resolve ambiguity over whether those products fall within the Commodity Exchange Act’s swap framework.
That proposal does not take legal effect on its own. It starts a rulemaking process, with written comments due through Regulations.gov within 30 days of the proposal’s publication in the Federal Register. A final rule would require the Commission to review the record and adopt final regulatory text.
The agency also issued an interim final rule saying casino-style gambling products are excluded from the swap definition. The CFTC identified sportsbook wagers and casino games as examples of products outside the definition. That rule becomes effective immediately upon Federal Register publication, with comments due within 30 days of that publication.
The structure matters. The event-contract proposal would pull prediction-market contracts more clearly into federal derivatives regulation. The gambling exclusion would tell courts, states and market participants that the CFTC is not claiming federal swaps jurisdiction over ordinary casino or sportsbook activity.
What did Chairman Michael Selig say?
CFTC Chairman Michael S. Selig framed the gambling rule as a limit on the agency’s jurisdiction, not an expansion of it. “Casino-style gambling products are not derivatives,” Selig said in the CFTC release on the interim final rule. He said the rule codifies an exclusion for products historically regulated by states.
On event contracts, Selig took the opposite position. In the CFTC release on the proposed rule, he said Americans use event contracts to hedge risks, speculate and provide information about future events. He described those products as commodity derivatives within the CFTC’s regulatory remit under the Commodity Exchange Act.
The CFTC’s current commission structure gives the move extra significance. The agency’s commissioner page lists Selig as chairman, while the five-seat commission has had four vacancies this year. Bloomberg Law reported in April that Selig told lawmakers he was prepared to continue rulemaking while serving as the only sitting commissioner.
Why does the casino-gambling exclusion matter?
The exclusion addresses a recurring argument in state litigation against prediction-market operators. States have argued that if a contract on a sporting event is a federally regulated swap, then a broad reading of the Commodity Exchange Act could also sweep in traditional sports wagers, unsettling the state gaming system Congress left in place after the Supreme Court’s 2018 sports-betting decision in Murphy v. NCAA.
The CFTC is drawing the line by product structure. Event contracts generally trade as yes-or-no positions with a fixed settlement amount and market prices that move before the outcome is known. Sportsbook wagers are placed against a house or bookmaker under state gaming regimes. The interim rule says the latter category is not a swap.
That distinction is now central to the litigation. States and gaming regulators say the underlying economic reality is still wagering when the contract depends on a game. The CFTC and prediction-market operators say contracts listed on registered derivatives markets are governed by the Commodity Exchange Act, including its federal jurisdiction provisions.
Where do the courts stand?
The courts remain split. On September 25, the U.S. Court of Appeals for the Sixth Circuit ruled against Kalshi in litigation involving Ohio and Tennessee. The court held that Kalshi’s sports-event contracts do not meet the statutory swap definition because the relevant events are not inherently associated with financial, economic or commercial consequences, according to the Sixth Circuit opinion.
The Ninth Circuit reached a similar result in Nevada litigation. In its August 28 opinion in KalshiEX LLC v. Assad, the court said Congress had not made the CFTC a national sports-gambling regulator and rejected Kalshi’s argument that its sports contracts were protected from state gaming enforcement through federal derivatives law.
Illinois moved the other way. On October 2, U.S. District Judge Martha M. Pacold of the Northern District of Illinois granted in part and continued in part preliminary-injunction motions brought by Coinbase, the United States, the CFTC and Kalshi. Her memorandum opinion and order found that Kalshi is a designated contract market, that its core sports-related contracts are likely swaps, and that much of Illinois law is likely preempted when it controls the sale of those swaps.
Pacold did not resolve every Illinois issue. She said further targeted briefing was needed on Illinois fees tied to prediction-market or exchange wagers, including whether those fees create a conflict with federal law. The order granted preliminary relief in part and left the fee question for more argument.
What is in front of the Supreme Court?
The Supreme Court has not resolved the prediction-market preemption fight. It has, however, received petitions and filings asking it to take up the dispute. In a September petition, Robinhood Derivatives asked the Court to review the conflict over whether sports event contracts are swaps and whether the Commodity Exchange Act preempts state gaming law, according to the petition filed with the Court.
The petition points to disagreement among courts, including the Third Circuit, Ninth Circuit and Sixth Circuit. It also cites the scale of the market, noting that CFTC-registered prediction markets recorded more than $25 billion in trading volume in 2025, a figure drawn from prior CFTC rulemaking material.
The CFTC’s October 9 proposal gives the agency a formal rulemaking vehicle while that litigation proceeds. Courts still must interpret the Commodity Exchange Act, including the statutory swap definition and the scope of federal preemption. Since the Supreme Court’s 2024 decision ending Chevron deference, agency interpretations do not automatically control a court’s reading of ambiguous statutes.
What happens next?
The next regulatory milestone is publication in the Federal Register. The CFTC releases state that comments on both the proposed event-contract rule and the interim final rule are due within 30 days of their respective Federal Register publication dates.
For prediction-market operators, state regulators and sportsbook incumbents, the practical question is whether the CFTC can make the federal line clearer before courts settle it case by case. The proposal would classify event contracts more expressly as swaps. The interim rule would keep casino games and sportsbook wagers outside that definition. The courts will decide how much those lines matter under the Commodity Exchange Act.
