CFTC aims to differentiate swaps from gambling

The Commodity Futures Trading Commission (CFTC) has issued two proposals, one that would define event contracts as “swaps” under federal law and another that excludes traditional casino gambling from that definition.

Several states have sued prediction-market operators, including Kalshi and Polymarket, alleging illegal gambling, and the CFTC has countersued to defend its federal jurisdiction over event contracts, which it claims are beyond the purview of state regulators.

The first proposal clarifies the definition of “swap” to include event contracts, including those tied to sports, politics, cultural events and weather.

It notes these contracts are financial instruments that are commonly known to the trade as swaps and proposes to resolve any ambiguity regarding them.

“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,” Chairman Michael Selig said.

Both measures have 30-day comment windows

 The second proposal codifies the CFTC’s view that casino-style gambling products, including wagers placed on sportsbooks and casino games, are excluded from the “swap” definition.

“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.”

 Both measures, filed on Friday, carry 30-day comment windows.

The two measures help set the stage for a potential Supreme Court battle over federal and state jurisdiction.

Related: NFL backs New Jersey authorities in SCOTUS petition over Kalshi

Cointelegraph reported in late September that prediction market Kalshi lost on appeal when a court ruled that Ohio and Tennessee can regulate sports-event contracts under their state gambling laws.

The 6th US Circuit Court of Appeals ruled against Kalshi when a three-judge panel sided unanimously with Ohio and Tennessee, finding that the prediction market failed to demonstrate its sports-event contracts are “swaps” under the jurisdiction of the CFTC.

Still, an April decision by the 3rd Circuit Court of Appeals allowed Kalshi to do business in New Jersey as its appeal process proceeds.

The April ruling said Kalshi was likely to succeed with its argument that federal law preempts New Jersey’s regulations, all of which has set up the potential Supreme Court case.

Cointelegraph also reported that a group of state lawmakers had filed an amicus brief with the Supreme Court, urging it to weigh in on the case between Kalshi and state gaming authorities, potentially resolving whether state authorities or federal agencies have jurisdiction over prediction market companies.

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