CFTC Moves to Classify Prediction Markets as Swaps While Excluding Casino Gambling

On October 9, 2026, the agency proposed explicitly including event contracts tied to sports, politics, cultural events and weather within the federal definition of a swap. It also issued a separate interim final rule excluding traditional casino-style gambling, including sportsbook wagers and casino games, from that definition.

The distinction is central to an increasingly contentious dispute over regulatory authority. Prediction-market operators argue that their event contracts are financial derivatives governed by federal law, while state gambling regulators maintain that certain sports-related contracts amount to wagering that requires state licenses.

The measures arrive as conflicting federal appeals-court decisions increase pressure on the US Supreme Court to determine where federal derivatives oversight ends and state gambling regulation begins.

CFTC Proposes Defining Event Contracts as Financial Swaps

The CFTC’s first measure, published as a notice of proposed rulemaking, would clarify that certain event contracts qualify as swaps under the Commodity Exchange Act.

The CFTC’s October 9 proposal covers contracts based on sporting outcomes, political developments, cultural events and weather-related conditions.

Chairman Michael Selig said these instruments serve legitimate financial purposes, including risk management, speculation and price discovery.

“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,” Selig said.

The proposal seeks to eliminate uncertainty over whether event contracts satisfy the statutory definition of a swap, an issue that has become central to several lawsuits involving prediction-market operators.

Under the CFTC’s interpretation, contracts traded on federally registered derivatives exchanges may qualify for federal oversight even when their payouts depend on nonfinancial events.

For investors unfamiliar with the products, prediction markets allow traders to buy and sell contracts whose value depends on whether a defined future event occurs. A standard binary contract may settle at $1 if the predicted outcome happens and zero otherwise.

Casino Gambling Excluded Under Separate Interim Final Rule

The second measure establishes an explicit exclusion for traditional casino-style gambling products, including wagers offered by sportsbooks and casino games.

Unlike the broader event-contract proposal, this measure was issued as an interim final rule. The CFTC said it would take effect upon publication in the Federal Register while remaining open to public comments.

“Casino-style gambling products are not derivatives,” Selig said, explaining that the exclusion preserves the distinction between federal financial regulation and gambling activities historically overseen by states.

The agency is effectively attempting to establish two regulatory categories: qualifying event contracts traded as derivatives and traditional gambling products that remain outside the federal swap definition.

Both measures provide 30-day public comment periods beginning with their respective publication dates in the Federal Register.

However, classifying these products through regulation does not automatically resolve the underlying legal dispute. Courts may still determine whether the CFTC’s interpretations are consistent with the Commodity Exchange Act and whether federal jurisdiction prevents states from enforcing their gambling laws.

Kalshi Court Defeat in Ohio and Tennessee Complicates Federal Oversight

The regulatory proposals follow a significant legal setback for Kalshi on September 25, when the US Court of Appeals for the Sixth Circuit ruled against the prediction-market operator in cases involving Ohio and Tennessee.

A three-judge panel concluded that Kalshi had not demonstrated that its sports-event contracts qualified as swaps under federal law.

The court also determined that, even if those contracts were swaps, the Commodity Exchange Act would not necessarily prevent states from applying their gambling regulations.

The decision affirmed the denial of preliminary relief in Ohio and overturned an injunction protecting Kalshi from enforcement in Tennessee.

That outcome conflicts with an April 6 decision by the Third Circuit Court of Appeals, which upheld a preliminary injunction preventing New Jersey authorities from enforcing state gambling restrictions against Kalshi while litigation continues.

The Third Circuit found that Kalshi was likely to succeed in arguing that federal law preempts New Jersey’s gambling rules as applied to its contracts.

The conflicting decisions have created uncertainty over whether federally regulated prediction-market platforms can offer the same sports contracts nationwide.

Supreme Court Faces Growing Pressure to Resolve Prediction-Market Dispute

New Jersey has petitioned the Supreme Court to review the jurisdictional dispute, with support from state lawmakers, gaming authorities and professional sports organizations.

On October 8, the National Football League filed a brief supporting Supreme Court review, arguing that sports prediction markets raise concerns about game integrity, consumer protection and regulatory enforcement.

The NFL questioned whether the CFTC has sufficient resources and safeguards to oversee the rapid growth of sports-related event trading.

Kalshi is expected to respond to New Jersey’s petition by November 9. The Supreme Court has not yet agreed to hear the case.

The CFTC has also taken legal action against states seeking to regulate federally registered prediction-market operators, while companies including Polymarket have initiated their own challenges.

In September, Polymarket sued New York over state gambling restrictions, arguing that federal derivatives law supersedes state requirements for its regulated US exchange.

The litigation has made federal preemption one of the most consequential unresolved questions facing the expanding prediction-market industry.

Why the CFTC’s Distinction Could Reshape Prediction-Market Competition

The CFTC is attempting something more ambitious than simply clarifying a technical definition. It is trying to establish a regulatory boundary that could determine who gets to operate in one of the fastest-growing segments of retail trading.

For Kalshi and Polymarket, the commercial advantage of federal derivatives regulation is obvious. A nationwide framework could allow platforms to offer standardized event contracts without obtaining a separate gambling license in every state.

That would reduce legal uncertainty, simplify expansion and potentially make their products more attractive to brokerage platforms looking to distribute event contracts to existing customers.

Traditional sportsbooks operate under a different model. They generally face state-by-state licensing requirements, taxes and restrictions on which customers can place wagers.

If prediction-market exchanges can offer economically similar sports outcomes under federal oversight, the competitive implications could be substantial.

The CFTC’s proposed distinction between exchange-traded contracts and conventional sportsbook wagers may therefore become more important commercially than the language used to market individual products.

Regulatory Clarity Does Not Eliminate Trading and Manipulation Risks

There is also a significant question about investor protection.

Calling a product a derivative does not automatically make it safer than a wager. A sports contract can still lose its entire purchase value, and thinly traded markets can expose participants to wide spreads, poor execution and unreliable prices.

Some event contracts introduce unusual manipulation risks because traders may possess information about the outcome or even influence the event itself.

The CFTC addressed similar concerns in September when it warned that certain prediction markets based on public statements or appearances could be vulnerable to manipulation.

Sports-related markets introduce additional questions about insider information, prohibited participants, suspicious trading and whether exchanges have adequate surveillance mechanisms.

These concerns help explain why state authorities and sports organizations remain resistant to a regulatory framework based exclusively on federal derivatives supervision.

For investors, the real issue is not whether prediction markets are described as gambling or trading. It is whether the governing rules provide effective market surveillance, transparent contract settlement and enforceable customer protections.

What Happens Next for Kalshi, Polymarket and Retail Traders?

The near-term uncertainty is unlikely to disappear simply because the CFTC has issued new regulatory language.

The agency’s position could strengthen the arguments of federally registered prediction exchanges, particularly in litigation focused on whether sports contracts qualify as swaps.

But the Sixth Circuit’s ruling presents a second obstacle: even if those contracts satisfy the swap definition, federal law may not automatically override applicable state gambling restrictions.

That means the jurisdictional dispute could continue regardless of how the CFTC finalizes its rules.

The outcome also matters for brokerage distribution. As examined in Dave Finances’ comparison of Polymarket, Kalshi and Robinhood, retail platforms operate through different exchange, clearing and customer-access arrangements. A change in the legal treatment of event contracts could affect where products are offered and which intermediaries can distribute them.

Three developments now deserve particular attention: the comments submitted on the CFTC’s new measures, the Supreme Court’s decision on whether to hear the New Jersey dispute, and how lower courts apply the agency’s interpretation in pending cases.

The central uncertainty is whether federal regulators can establish a consistent national market for event contracts without Congress explicitly resolving the overlap with state gambling laws.

Until that question is settled, prediction-market operators may continue expanding their businesses while facing different legal conditions depending on where their customers live.