The U.S. Commodity Futures Trading Commission (CFTC) is advancing its effort to establish exclusive federal oversight of prediction markets by introducing a new definition and proposing regulatory changes that would bring certain event contracts under swaps regulations. The initiative is intended to strengthen the agency’s legal position and restrict state gambling regulators from overseeing these products.
On Friday, the CFTC issued an interim final rule and introduced a separate proposal aimed at clarifying the regulatory status of event contracts. The agency argues that these contracts qualify as swaps under federal law, placing them within its jurisdiction rather than under state gambling rules.
The regulator is seeking to distinguish event-based financial contracts from conventional sports betting. Its interim final rule excludes casino-style gambling from the definition of swaps, while the accompanying proposal would explicitly include contracts linked to sports, politics, cultural events and weather within the existing federal swaps framework.
The interim final rule takes effect immediately, although the public can provide feedback as it is implemented. The separate proposal remains under consideration and allows a 30-day period for public comments.
The CFTC’s approach has drawn criticism from several states and former federal officials involved in establishing the relevant legal framework. Opponents submitted arguments to the U.S. Supreme Court this week, asking the justices to resolve the dispute over whether prediction markets should fall under federal supervision or state gambling laws.
If the dispute reaches the Supreme Court, the agency will be able to point to its ongoing implementation of Chairman Mike Selig’s regulatory strategy for prediction markets.
Several states are already challenging the CFTC in court, arguing that they have the authority to regulate sports-related wagering on platforms such as Kalshi and Polymarket. State officials have accused these businesses of offering illegal gambling services. Recent federal appellate decisions have been divided, with one ruling against the states and two others backing their position.
TD Cowen policy analyst Jaret Seiberg said the interim final rule appears designed to improve the CFTC’s position in these legal battles. In a Friday note to clients, he explained that states argue the agency’s interpretation of swaps could make wagers at state-regulated and tribal casinos or sportsbooks illegal under federal law. He cautioned, however, that the effectiveness of the new rule remains uncertain.
The measures were submitted for White House review less than two weeks before their announcement, indicating an unusually rapid regulatory process. The CFTC faces mounting pressure to defend its claim that prediction markets fall exclusively within its authority. Clarifying that traditional casino gambling is excluded from the swaps definition is one way the agency hopes to address its critics.
Prediction market operators, including Kalshi, support the CFTC’s position because they want to operate under a single federal regulator instead of facing different gambling requirements in individual states.
Chairman Mike Selig is currently the only serving commissioner on an agency designed to have five members, allowing him to shape CFTC policy without the participation of other commissioners. President Donald Trump has not yet nominated additional members to fill the vacancies.
The Securities and Exchange Commission is facing a similar situation, with only two commissioners serving on its five-member panel. The Trump administration has also pursued efforts to reduce Democratic representation at federal regulatory agencies.
