US derivatives regulator moves to claim prediction markets, leaving sportsbooks to the states

America's derivatives regulator, the Commodity Futures Trading Commission, made two moves on 9 October to settle who polices bets on sport, politics and the weather. The first is a proposal to write into its rules that these "event contracts" are swaps, a type of financial contract that only the federal regulator oversees. It is not a rule yet. The public gets 30 days to comment once it appears in the Federal Register. Both documents had gone to the White House for review on 28 September.

The second move takes effect the moment it is published. It says that a bet with a sportsbook is not a swap, and nor is a casino game, a lottery or bingo. The conditions are that state or tribal gambling law governs the bet and that it is not traded on an exchange. "Casino-style gambling products are not derivatives," said Michael Selig, the commission's chairman. The line is drawn by how a bet is made, not by what it is on. A bookmaker who sets the odds and takes the other side of a customer's bet stays with the states. A contract on the same game, bought and sold among many traders on a federally registered exchange, would belong to Washington.

The timing follows a split in the courts over Kalshi, a federally registered exchange that sells sports contracts. An appeals court in Philadelphia sided with Kalshi in April. Appeals courts covering the western states in August, and Ohio and Tennessee in September, went the other way. New Jersey has asked the Supreme Court to decide. The states' main argument is that if a sports contract is a swap, so is every sports bet. That, said 39 states and the District of Columbia in a brief filed on 7 October, would make the regulator "a national gambling czar". The commission's new rule quotes that brief, filed two days earlier, and is written to answer it.

The sums are growing fast. The commission estimates that event contracts on the exchanges it oversees averaged about $1.5bn of trading a month in August 2026. About $1.2bn of that was on sport, $11m on politics and $4m on weather. More than fifteen applications for new exchanges have been filed since 2025. Crypto firms run several of these markets. The proposal recalls the commission's penalty on Polymarket, which began as a blockchain-based market and now runs a regulated US exchange that New York is suing. It also notes that Nadex, one of the oldest such exchanges, moved to the Crypto.com platform in 2025.

The proposal concedes that fast outcomes, near misses and the urge to chase losses "can be associated with addictive potential", and that more trading could hurt ordinary customers. Much else is unsettled. Judges may still read the law for themselves whatever the regulator's rulebook says. The Supreme Court has not said whether it will take New Jersey's case. There is also a question about who signed. The 2010 Dodd-Frank Act says the commission and the Securities and Exchange Commission must define a swap jointly. Footnotes in both documents say the SEC joins them, but only the commission's secretary signs. Neither of the commission's announcements mentions the SEC, nor do the two news reports on them, and the SEC's own list of announcements carried nothing on either rule by 9 October.