CFTC Proposes Rule on Swaps to Assert Jurisdiction Over Prediction Markets

The Commodity Futures Trading Commission (CFTC) has proposed a rule to expand the definition of swaps to include event contracts, including sports-related ones. This is the agency’s latest move to assert exclusive jurisdiction over prediction markets and fend off regulatory pushback from state regulators.

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CFTC Proposes To Define Prediction Markets Event Contracts As Swaps

The agency has issued a notice of proposed rulemaking to define swaps to include event contracts based on sports, politics, cultural, and weather-related events. “The CFTC has historically recognized that many event contracts are covered by the Commodity Exchange Act’s swap definition,” the agency said in the proposal.

This move comes amid the regulatory battle between the CFTC and state regulators over prediction markets. State regulators argue that sports event contracts are sports bets and that they have jurisdiction over these markets.

However, the CFTC has continued to assert that these event contracts, including sports-related events, are swaps and fall under its exclusive jurisdiction. Courts have also addressed the issue, with two differing Court of Appeals opinions on these sports-related events.

On one hand, the Ninth Circuit Court of Appeals has ruled against prediction markets, stating that sports contracts are sports bets. The Sixth Circuit Court of Appeals also gave a similar ruling against these platforms. Meanwhile, the Third Circuit Court of Appeals ruled in favor of these platforms, stating that the CFTC has exclusive jurisdiction over them and that event contracts are swaps.

States have also continued their crackdown on prediction markets as they argue that these platforms are operating illegal gambling sites. As CoinGape reported, New York sued Polymarket for allegedly running an illegal gambling operation.

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CFTC Also Issues Interim Rule

The CFTC also issued an interim final rule that stipulates that casino-style gambling products, including wagers on sportsbooks and casino games, are not swaps and are excluded from the definition. “Casino-style gambling products are not derivatives,” CFTC Chair Mike Selig said.

However, key stakeholders argue that prediction markets mimic sports bets, suggesting platforms such as Polymarket and Kalshi are also gambling products. The NFL filed an amicus brief supporting New Jersey’s petition to the Supreme Court, seeking clarity on the regulatory framework for these platforms.

Robinhood has also filed a petition to the Supreme Court supporting the CFTC’s exclusive jurisdiction over prediction markets. However, data from the top crypto prediction market platform, Polymarket, shows only a 31% chance that the Supreme Court will hear a sports-event contract case by year-end.