CFTC Unveils Proposals to Distinguish Prediction Markets from Traditional Gambling Operations
The pair of regulatory measures seeks to establish groundwork for what could become a pivotal Supreme Court confrontation regarding state versus federal authority.
The Commodity Futures Trading Commission (CFTC) has put forward a pair of proposals, with one establishing event contracts as "swaps" within the framework of federal legislation and a companion measure that carves out conventional casino gambling activities from such classification.
Multiple state governments have initiated legal proceedings against prediction-market platforms, among them Kalshi and Polymarket, claiming violations of gambling statutes, while the CFTC has launched counteractions to uphold its federal authority over event contracts, maintaining these fall outside state regulatory oversight.
The initial proposal provides clarity on the "swap" definition to encompass event contracts, incorporating those linked to sporting events, political outcomes, cultural happenings and meteorological conditions.
The proposal observes that these contracts function as financial instruments commonly recognized within the industry as swaps and seeks to eliminate any uncertainty surrounding their classification.
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
Chairman Michael Selig
Both measures have 30-day comment windows
The companion proposal formalizes the CFTC's position that gambling products typical of casinos, encompassing bets made through sportsbooks and traditional casino gaming, fall outside the "swap" classification.
Casino-style gambling products are not derivatives. 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.
Chairman Michael Selig
The two measures, submitted on Friday, both include 30-day comment windows.
These pair of regulatory measures contribute to establishing the foundation for what could develop into a Supreme Court confrontation concerning state and federal jurisdictional authority.
Cointelegraph reported in late September that prediction market Kalshi lost on appeal when a court ruled that Ohio and Tennessee can regulate sports-event contracts under their state gambling laws.
The 6th US Circuit Court of Appeals issued a ruling against Kalshi after a panel of three judges unanimously supported Ohio and Tennessee, determining that the prediction market did not successfully prove its sports-event contracts qualify as "swaps" falling under CFTC jurisdiction.
Still, an April decision by the 3rd Circuit Court of Appeals allowed Kalshi to do business in New Jersey as its appeal process proceeds.
The ruling in April indicated that Kalshi had a strong likelihood of prevailing with its contention that federal legislation supersedes New Jersey's regulatory framework, which collectively has established the foundation for the potential Supreme Court case.
Cointelegraph also reported that a group of state lawmakers had filed an amicus brief with the Supreme Court, urging it to weigh in on the case between Kalshi and state gaming authorities, potentially resolving whether state authorities or federal agencies have jurisdiction over prediction market companies.