CFTC Moves to Define Prediction Markets as Swaps Amid Jurisdiction Battle

AI summary of the source article

The Commodity Futures Trading Commission submitted two rules to the White House Office of Information and Regulatory Affairs to alter the regulatory definition of a swap. One rule explicitly incorporates event contracts used by platforms like Kalshi and Polymarket into the swap definition, while the other excludes casino-style gambling products. The move follows a Sixth Circuit Court of Appeals ruling that Kalshi's sports event contracts are not swaps and that the Commodity Exchange Act does not preempt state gambling laws. This decision widened a circuit split with the Third and Eighth Circuits, increasing the likelihood of Supreme Court review as states continue legal actions against prediction markets.

Why it matters

The rules could give prediction market operators a stronger basis to argue they belong under federal derivatives oversight rather than state gambling laws, though recent court rulings question whether federal rules can preempt state enforcement.

Key facts

• The CFTC sent proposed rule RIN 3038-AF82 and interim final rule RIN 3038-AF81 to the White House to define event contracts as swaps and exclude casino-style gambling.
• The Sixth Circuit Court of Appeals ruled that Kalshi's sports event contracts are not swaps and that the Commodity Exchange Act does not preempt state gambling laws.
• A federal circuit split exists over preemption, with the Third Circuit supporting federal jurisdiction while the Sixth and Eighth Circuits ruled against federal preemption.