The Commodity Futures Trading Commission has submitted a proposal to broaden the legal definition of a "swap" to include event contracts traded on regulated prediction platforms. The move, detailed in a docket filed with the Office of Information and Regulatory Affairs, would grant the agency authority over markets that currently operate under a narrower interpretation of federal law.

Under the draft rule, contracts that settle on the outcome of future events — such as elections, sports results or commodity price movements — would be treated as swaps when offered on exchanges registered with the CFTC. The agency also released an interim final rule that would carve out traditional casino-style gambling products from the definition. Both measures are now undergoing internal review.

The agency argues that extending the swap definition is necessary to preserve its jurisdiction over platforms like Polymarket and Kalshi, which have offered event contracts that attract significant speculative volume. State gambling regulators have contested this view, asserting that such contracts fall under state jurisdiction and should be subject to local licensing and tax regimes.

Legal scholars note that the proposal could set the stage for a broader confrontation between federal and state authorities over the regulation of prediction markets. If adopted, the rule would likely prompt challenges in the courts, particularly as states seek to enforce their own gambling statutes against platforms that operate across state lines.

The development comes amid heightened scrutiny of prediction markets following recent controversies involving election‑related contracts and high‑profile betting on sports outcomes. Regulators on both sides say the clarification is intended to ensure consumer protection and market integrity while preserving the innovative aspects of these emerging financial instruments.