CFTC Defines Event Contracts as Swaps, Excludes Gambling Products

Commodity Futures Trading Commission Defines Event Contracts as Swaps

The U.S. Commodity Futures Trading Commission (CFTC) established a direct regulatory boundary for prediction markets on October 9, explicitly classifying event contracts based on sports, politics, culture, and weather as swaps. The federal agency released two concurrent measures: a proposed rule adding event contracts to the statutory definition of a swap, and an interim final rule excluding casino-style gambling products from that same definition.

The regulatory action arrives amid conflicting federal appellate court rulings regarding whether prediction markets fall under federal oversight or state and tribal gambling laws. Comments on the proposed event contracts rule remain open until November 18, 2026, while the interim final rule took effect upon publication.

Conflicting Federal Circuit Court Rulings Drive Regulatory Action

The CFTC issued its new rules following split decisions across multiple federal appeals courts regarding prediction market platforms. The U.S. Third Circuit Court of Appeals ruled in KalshiEX v. Flaherty that sports event contracts traded on a designated contract market (DCM) constitute swaps. Conversely, the Ninth Circuit Court of Appeals ruled on August 28 in KalshiEX v. Assad that such contracts likely do not qualify as swaps. The Sixth Circuit Court of Appeals reached a similar conclusion on September 25 in KalshiEX v. Schuler, finding that sports event contracts were not swaps.

State-level enforcement actions have compounded the jurisdictional friction for prediction market operators. State regulators and courts have pursued various restrictions, including criminal penalties for prediction markets in Minnesota, a criminal indictment targeting a designated contract market in Arizona, and geofencing injunctions issued by courts in Michigan, Washington, and Nevada. At least seven designated contract markets offered sports event contracts as of September 1, with total event contract trading volume reaching roughly $1.5 billion in August—approximately $1.2 billion of which involved sports-related contracts.

Interim Final Rule Excludes Casino-Style Gambling From Federal Swaps

The interim final rule carves out casino-style gambling products from the federal definition of a swap, separating peer-to-peer trading structures from house-run gambling. Under the rule, event contracts operate on registered exchanges through central order books where market participants establish prices via matching bids and offers with central clearing. Gambling products, by contrast, typically involve a one-to-one transaction between a customer and a house that sets the price without central clearing.

The narrow exception covers licensed sports betting offered by licensed sportsbooks, alongside casino games, bingo, pool betting, lotteries, and other licensed games of chance. To qualify for the exclusion, a product must satisfy both a “provider test” and a “product test.” Contracts executed on a designated contract market or swap execution facility fail the product test. Eligible products must be offered by an entity licensed under state or tribal law within the scope of that license, regulated as gambling under that law, and must not trade on an exchange, swap execution facility, or other multilateral or negotiated trading platform.

Proposed Rule Aims to Codify Exclusive CFTC Jurisdiction Over Event Contracts

The proposed rule amends 17 CFR § 1.3 by adding a specific entry to the swap definition for event contracts, covering events related to sports, politics, culture, and weather. The CFTC maintains that it possesses statutory authority under the Dodd-Frank Act to further define swaps, asserting that event contracts already fall under multiple prongs of the statutory definition.

The agency stated that the proposed rule does not alter market participants’ existing legal rights or obligations because the commission has already treated event contracts as swaps. The primary intended effect is to cement the CFTC's exclusive jurisdiction over event contracts, reducing the time and resources participants spend complying with overlapping regulatory frameworks. The rule excludes event contracts designed as futures or products regulated by the Securities and Exchange Commission (SEC).

CFTC Rule Faces Supreme Court Petition and Public Comments

The interim final rule bypassed standard advance notice and comment procedures, with the CFTC citing good cause based on ongoing state enforcement actions in Arizona, Minnesota, and New York. Meanwhile, the legal battle continues. A petition for a writ of certiorari in Flaherty v. KalshiEX was filed with the U.S. Supreme Court on September 2, with a response deadline set for November 9.

The public comment period for the proposed swap definition rule runs through November 18. Affected parties including traders, designated contract markets, futures commission merchants, introducing brokers, and state and tribal gambling regulators await the final rulemaking process following the review of submitted comments.