The Commodity Futures Trading Commission has sent the White House two rules that would redraw the legal definition of a swap around event contracts, the yes-or-no contracts traded on prediction markets, according to filings logged by the Office of Management and Budget.
OMB’s Office of Information and Regulatory Affairs received both on Sept. 28. The first, a proposed rule, would further define swaps to include event contracts. The second, an interim final rule, would further define the term to exclude casino-style gambling products.
A proposed rule goes out for public comment before it can take effect. An interim final rule generally takes effect when it is published, with comments collected afterward. Neither listing is marked economically significant, and the OMB listings carry no rule text or description of what the agency counts as a casino-style product.
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Why the Swap Label Matters
Swaps sit under the CFTC’s exclusive jurisdiction, and whether event contracts qualify has become a central question in the fight between prediction markets and states that want to regulate sports contracts as gambling.
On Sept. 25, a unanimous Sixth Circuit panel ruled that Kalshi had not shown its sports contracts were swaps, and that federal law would not preempt Ohio’s and Tennessee’s gambling laws even if they were. The Ninth Circuit sided with Nevada in August. In April, the Third Circuit had ruled the other way, backing Kalshi over New Jersey. New Jersey has asked the Supreme Court to settle the question, and the agency has taken at least nine states to court over limits on event contracts.
An Earlier Push on Definitions
The rules follow a June joint request for comment from the CFTC and the Securities and Exchange Commission on clarifying swap definitions, a step SEC Chairman Paul Atkins said in a statement was long overdue for issues “including event-based products.” CFTC Chairman Michael Selig said at the time that the request “presents an opportunity to address longstanding ambiguities within Title VII of Dodd-Frank that have stifled fair competition and responsible innovation.”
A third CFTC item is also pending at OMB: a prerule titled Regulation Crypto Asset Transactions and Regulation Crypto Asset Markets, received Sept. 17.
Once OMB completes its review, the CFTC can publish the rules in the Federal Register.
Related Listen: CME vs. Kalshi. Is Washington Picking a Winner in Prediction Markets?
