From CoinDesk · By Jesse Hamilton
The U.S. Commodity Futures Trading Commission has issued one rule and proposed another in an effort to solidify Chairman Mike Selig's view that prediction markets transactions are properly regulated by his agency alone.
This latest policy move to more explicitly define event contracts as "swaps" may bolster the agency's legal position in a dispute with several states that has already seen a couple of federal rulings go against the CFTC.
The U.S. Commodity Futures Trading Commission is making its pursuit of exclusive prediction markets authority a formal effort, putting a new definition in place on Friday and proposing other changes that collectively seek to secure the legal footing of events contracts as "swaps" — a transaction under the CFTC's authority and outside of state gambling regulators' reach.
The CFTC is trying to define the kind of sports wagering that are not swaps — contractual exchanges between parties that falls into the agency's federal jurisdiction — while maintaining that event contracts still fit the definition of swaps under the law, and as a result belong in CFTC oversight. Casino-style gambling will be held outside that swap definition, according to the interim final rule issued by the agency. And event contracts belong well within that swaps definition, the CFTC proposed in a related rule.
The "interim final" status of the one rule means it becomes immediate policy but will be open for public input as it's implemented. The other rule proposal explicitly folds "event contracts, including those based on sports, politics, cultural, and weather-related events" that are routinely traded on such firms as Kalshi and Polymarket into the existing U.S. regulation of swaps, but that rule effort is in the proposal stage, with a relatively brief 30-day comment period.
So far, many states and former federal government officials who had a hand in putting these laws in place have objected to the CFTC's interpretation, and they've already submitted their views this week to the U.S. Supreme Court, which has been asked to resolve the issue.
But if the CFTC is called to make its case there, the agency will now be able to show it has already begun implementing Chairman Mike Selig's regulatory view on prediction markets.
Several states are embroiled in lawsuits with the regulator as they insist they have authority over the kind of sports betting happening on the platforms, which many of the states have accused of running illegal gambling operations. In recent months, court decisions have gone both ways, including one federal appellate decision that opposed the states and two federal appellate rulings that supported them.
"We view this interim final rule as designed to improve the agency's position in court as the states are arguing that the CFTC's definition of a swap would make federally illegal any wager made at a state or tribal casino or sportsbook," wrote Jaret Seiberg, a policy analyst at TD Cowen, in a Friday note to clients. "Whether this actually works is a different question."