The Commodity Futures Trading Commission submitted two rule proposals to the White House on September 29 that would formally classify event contracts as swaps under the Commodity Exchange Act, directly challenging states that argue these products are gambling in a fancier wrapper.

The proposals aim to draw a clear regulatory line: legitimate event contracts fall under CFTC oversight, while what the agency calls "casino-style gambling products" get excluded from federal derivatives markets.

What does the CFTC's proposed framework do?

The two proposals establish a method for determining when event contracts qualify as swaps, which places them squarely under federal jurisdiction. That classification carries operational weight. It subjects the products to a well-established regime built for derivatives:

• Swap data reporting requirements
• Exchange registration standards
• Market surveillance obligations

This is not the agency's first move in the space this year. On June 10, the CFTC issued a notice of proposed rulemaking to amend Regulation 40.11, which governs how the commission reviews certain event contracts listed on exchanges. On May 13, it granted no-action relief for swap data reporting on fully collateralized event contracts traded on designated contract markets, or DCMs.

The May relief offers a clue about where the agency sees the boundary. Products where participants cannot lose more than their initial stake, and where the underlying event has genuine economic relevance, appear to sit in the CFTC's sweet spot. Contracts that resemble pure entertainment wagering are the likely candidates for exclusion.

Why are states pushing back?

The CFTC's assertiveness has not gone uncontested. Several states, including Arizona, Nevada and Massachusetts, have mounted legal challenges arguing that event contracts are gambling products governed by state gambling law, not federal derivatives regulation.

The Commodity Exchange Act gives the CFTC authority over swaps and futures, but it also contains provisions excluding certain event contracts, particularly those involving terrorism, war and other activities the agency deems contrary to the public interest. The states argue this exclusionary language should be read more broadly, encompassing what they view as thinly disguised gambling.

The outcome determines which regulator controls a fast-growing market. Platforms such as Polymarket and Kalshi have demonstrated genuine demand for contracts on everything from election outcomes to economic indicators, drawing both retail participants and increasingly sophisticated institutional players. For those operators, swap classification brings compliance costs and reporting infrastructure, but also federal preemption against state gambling regimes — the central prize in the litigation.

What comes next?

The White House now holds two rule proposals that could reshape how Americans interact with prediction markets. The comment period and interagency review process will likely stretch into 2027, and the state-level litigation shows no signs of slowing. Operators face a long window of dual-track legal exposure before the framework settles.