The Commodity Futures Trading Commission has issued two proposals in a direct attempt to establish federal control over prediction markets and shut down state-level challenges to their legality. According to reporting by CoinTelegraph, the CFTC is positioning event contracts—wagers on elections, sports outcomes, and weather events—as financial derivatives squarely within its regulatory authority, not as gambling subject to state control.
The move reflects an escalating jurisdictional clash. Several states, including Ohio and Tennessee, have sued prediction-market operators like Kalshi and Polymarket for operating illegal gambling operations. The CFTC has countersued to assert exclusive federal jurisdiction, and the two new proposals are ammunition in that fight.
Defining Event Contracts as Federal Swaps
The first CFTC proposal clarifies that event contracts are “swaps” under the Commodity Exchange Act. This language matters legally. If the CFTC can establish that these products are derivatives, they fall squarely under federal oversight. The contracts in question cover sports, politics, cultural events, and weather.
“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,” CFTC Chairman Michael Selig said in the proposal. The move aims to resolve what the agency sees as ambiguity that states have exploited to challenge prediction-market operators.
Both proposals carry 30-day comment windows, allowing public input before finalization.
Explicitly Excluding Casino Gambling
The second proposal does something equally important: it codifies what the CFTC is not claiming authority over. Casino-style gambling products—sportsbooks, table games, slot machines—remain outside the CFTC’s “swap” definition and therefore stay within state jurisdiction.
“Casino-style gambling products are not derivatives,” Selig said. “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.”
This distinction is crucial. The CFTC is attempting to draw a bright line: event contracts tied to real-world outcomes are financial instruments; wagers on casino outcomes are not. The argument hinges on whether a contract’s underlying asset is tradeable and deterministic.
A Supreme Court Battle Takes Shape
These proposals arrive as multiple appellate courts have split on the question. In September, the 6th US Circuit Court of Appeals ruled unanimously that Ohio and Tennessee can regulate sports-event contracts under state law, finding that Kalshi failed to prove its products qualify as federal swaps. That decision dealt a blow to prediction-market operators nationwide.
But an April ruling from the 3rd Circuit allowed Kalshi to operate in New Jersey, suggesting the federal government’s case is stronger in other jurisdictions. The split creates conditions ripe for Supreme Court intervention.
State lawmakers have already filed amicus briefs urging the Court to resolve the jurisdictional question once and for all. The outcome will determine whether prediction markets operate under federal oversight or face a patchwork of state regulations that effectively ban them in many places.
The CFTC’s new proposals are a regulatory prelude to what may become a defining constitutional question about the limits of federal versus state power over financial innovation.