CFTC submits rules to define event contracts as swaps, defying states’ gambling claims

The Commodity Futures Trading Commission just drew a line in the regulatory sand. On September 29, the agency submitted two rule proposals to the White House that would formally classify event contracts as swaps under the Commodity Exchange Act, a move that directly challenges multiple states arguing these products are simply gambling in a fancier wrapper.

The proposals are designed to carve out a clear framework: legitimate event contracts get CFTC oversight, while what the agency calls “casino-style gambling products” get shown the door.

What the CFTC is actually proposing

The CFTC’s two proposals aim to establish a method for determining when these contracts qualify as swaps, which would place them squarely under federal jurisdiction. This isn’t the agency’s first move in the space this year. Back on June 10, the CFTC issued a notice of proposed rulemaking to amend Regulation 40.11, which governs how the commission reviews certain event contracts listed on exchanges. And on May 13, the agency granted no-action relief for swap data reporting on fully collateralized event contracts traded on designated contract markets, or DCMs.

By defining event contracts as swaps, the CFTC would bring them under a well-established regulatory regime that includes reporting requirements, exchange registration standards, and market surveillance obligations.

The state-level fight isn’t going away

The CFTC’s assertiveness hasn’t gone uncontested. Several states, including Arizona, Nevada, and Massachusetts, have mounted legal challenges arguing that event contracts are gambling products that fall under state gambling laws, not federal derivatives regulation.

The Commodity Exchange Act gives the CFTC authority over swaps and futures, but it also contains provisions that exclude certain types of event contracts, particularly those involving terrorism, war, and other activities the agency deems contrary to the public interest. States are effectively arguing that this exclusionary language should be read more broadly, encompassing what they view as thinly disguised gambling.

Why prediction markets are worth fighting over

Platforms like Polymarket and Kalshi have demonstrated that there’s genuine demand for contracts on everything from election outcomes to economic indicators, drawing both retail participants and increasingly sophisticated institutional players.

The fully collateralized event contracts that received no-action relief in May offer a clue about where the CFTC sees the boundary. Products where participants can’t lose more than their initial stake, and where the underlying event has genuine economic relevance, appear to be the agency’s sweet spot. Contracts that look more like pure entertainment wagering are likely the ones the CFTC intends to exclude.

The White House now holds two rule proposals that could reshape how Americans interact with prediction markets. The comment period and interagency review process will likely stretch into 2027, and the state-level litigation shows no signs of slowing.