CFTC Proposes Explicit Swap Classification for Sports and Event Contracts

CFTC moves to codify swap status for prediction market contracts

The Commodity Futures Trading Commission proposed on Oct. 9 that sports, political, cultural and weather event contracts should be expressly classified as swaps under federal law. The move is designed to reinforce the agency's claim to exclusive federal oversight of prediction markets across the United States.

The proposal would formally encode the CFTC's existing position into its regulations. The agency says it already treats these contracts as swaps and believes no changes are needed to the legal obligations of exchanges or traders under the Commodity Exchange Act. Many event contracts pay a fixed amount if a specified condition is met and nothing otherwise.

Key details of the proposal

• The CFTC proposes amending the swap definition in 17 CFR 1.3 to explicitly include event contracts.
• A companion interim final rule excludes qualifying casino-style gambling wagers from the swap definition.
• The exclusion covers products offered within a provider's state or tribal gambling authorization, provided they are not traded on an exchange or multilateral market.
• The distinction between exchanges and sportsbooks rests on trading structure: exchange contracts use market-set prices and central clearing, while sportsbooks offer customer bets against a house's terms.
• Contracts structured as futures or regulated by the Securities and Exchange Commission remain outside the proposal.
• At least seven CFTC-registered exchanges offered sports-related event contracts to U.S. customers as of Sept. 1.
• No new registration, clearing, margin, reporting or recordkeeping requirements are proposed.
• The SEC joined the proposal to satisfy a Dodd-Frank joint-rulemaking requirement.

What the CFTC proposal says

The proposed rule, released alongside a press announcement on Oct. 9, states that the statutory power to further define swaps provides an "independent legal basis" for classifying event contracts as swaps. The CFTC emphasizes that existing exchange and trader duties would remain intact and that the change does not create a new compliance regime.

The casino-style wager exclusion took effect upon Federal Register publication. However, the swap inclusion for event contracts remains only a proposal. Public comments under RIN 3038-AF82 are due 30 days after Federal Register publication and may be submitted through Regulations.gov or by mail.

Why the classification matters

The swap classification is significant because it determines whether prediction markets must also comply with state gambling regimes. In a recent case involving Kalshi in Nevada, the Ninth Circuit found on Aug. 28 that the platform's sports contracts were "likely not swaps" and upheld the dissolution of an injunction that had blocked state enforcement actions. The CFTC's new proposal directly counters that reasoning by asserting its authority to independently define such contracts as swaps under federal law.

What remains unclear

The proposal's list of covered event contracts — sports, political, cultural and weather — is described as non-exhaustive, leaving open what other types of events might eventually be included. It is also not yet clear how the proposal will fare in the comment period or whether it will survive legal challenges following the Ninth Circuit's ruling in Kalshi's favor.

What happens next

The public comment period for the swap inclusion proposal opens 30 days after Federal Register publication. No timeline has been announced for when the CFTC plans to finalize the rule.

Sources

• The Defiant

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