CFTC Proposes Rules to Say Prediction Markets Are Not Gambling

The Commodity Futures Trading Commission (CFTC) has submitted two proposed rules for review by the White House, aiming to classify prediction markets as non-gambling instruments. These rules would connect event contracts to the regulatory definition of swaps, thereby preventing them from being associated with gambling activities.

The CFTC has taken a firm stance to oversee companies such as Kalshi, while facing resistance from states that claim jurisdiction over event contracts as gambling. A recent federal court decision supported the states of Ohio and Tennessee, ruling that Kalshi’s sports-related contracts do not qualify as swaps, and are therefore subject to state gambling laws.

This ruling undermines Kalshi's legal strategy, as the court determined that the contracts do not meet the Commodity Exchange Act's (CEA) definition of a swap, thus falling outside the CFTC's jurisdiction. However, the CFTC's new proposals seek to clarify the regulatory definition of swaps, including event contracts traded on platforms like Kalshi, Polymarket, Crypto.com, and Robinhood.

Additionally, the commission proposes an interim final rule to exclude "casino-style gambling products" from being considered swaps. The White House's Office of Management and Budget is currently reviewing these proposed rules. Meanwhile, Bloomberg News reported that bank regulators and federal lawmakers are concerned about prediction market Polymarket's contracts linked to bank failures, fearing they could trigger a bank run, attract malicious actors, and lead to insider trading on the platform.