U.S. CFTC seeks event contract swap definitions amid state gambling disputes

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CFTC seeks event contract definitions

Highlights

CFTC has submitted two measures to the White House OMB to define event contracts as swaps and exclude casino-style gambling products, with interim rules taking immediate effect.
If event contracts become swaps under CFTC oversight, this could undermine ongoing state litigation against prediction market operators like Kalshi over illegal gambling claims.
Federal circuit courts are split on Kalshi event contract classifications, and CFTC Chairman Mike Selig is making unilateral decisions as the agency advances broader prediction market regulation.

White House review centers on swap classification

As first reported by CoinDesk, the CFTC has sent two regulatory measures to the White House Office of Management and Budget that aim to define event contracts more clearly within federal derivatives law. One proposal would bring event contracts into the regulatory definition of swaps, while another interim final rule would seek to exclude casino-style gambling products from what can qualify as a swap.

The agency is pressing ahead as it increasingly treats prediction markets as falling under its sole federal remit. Event contracts, often structured as binary yes-or-no positions tied to outcomes such as elections or sporting events, have become a central point of conflict between federal regulators and states.

Both measures are received by OMB this week, a step that typically comes shortly before proposed rules are released for public comment. In the case of the interim final rule, the change would take effect immediately while still allowing later input and revisions.

Litigation clash deepens across states and courts

If event contracts are classified as swaps and those swaps are separated from gambling definitions, the CFTC's position could weaken state lawsuits accusing prediction market operators, especially Kalshi, of running illegal gambling platforms. The agency is already actively involved in litigation as it argues that states do not have authority over these contracts.

Recent federal appellate rulings are split. The U.S. Sixth Circuit Court of Appeals rules last week that sports-related contracts on Kalshi are not swaps, and the Eighth Circuit reaches a similar conclusion, while the Third Circuit has previously found that the CFTC has proper jurisdiction over prediction markets.

The White House filings, dated September 28, do not include the text of the proposed rules, but the CFTC labels both as not economically significant. OMB disclosures also show the agency has recently submitted a separate prerule focused on crypto regulation, without detailing its scope.

The regulatory push is also notable because Chairman Mike Selig is acting as the commission's only member after President Donald Trump declines to nominate additional commissioners. That leaves Selig making regulatory and policy decisions unilaterally as the agency pursues a broader role in overseeing prediction markets.

Our earlier coverage of Cboe’s planned KPI-based binary contracts explained how the exchange aims to expand prediction-market style products through SEC-regulated instruments tied to company performance metrics. We noted that Robinhood is expected to be the first retail broker to offer these contracts at launch, with the rollout dependent on regulatory approval and supported by Cboe’s push to expand clearing capabilities via Cboe Clear U.S., LLC.

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