Further Definition of “Swap”-Inclusions

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The CFTC is proposing to expand the regulatory definition of the term 'swap' under the Commodity Exchange Act to explicitly include event contracts. These are financial instruments whose payouts depend on the outcome of real-world events such as sporting competitions, political elections, cultural happenings, and weather conditions. By classifying these products as swaps, the CFTC would bring platforms that offer such contracts under the same regulatory framework that governs traditional financial derivatives. The legal basis for this proposal stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which granted the CFTC broad authority to define and regulate swaps. The agency argues that event contracts share the economic characteristics of swaps, including risk transfer and speculative elements, and therefore should be subject to the same oversight designed to promote market transparency and reduce systemic risk. The parties most directly affected include prediction market operators such as Kalshi, PredictIt, and other platforms that allow users to trade contracts based on event outcomes. Political prediction markets have grown significantly in recent years, and this rule would determine whether those platforms must register with the CFTC, comply with reporting requirements, and meet other regulatory standards. Individual traders and participants on these platforms could also face new restrictions or requirements depending on how the final rule is written. The proposal raises significant debate. Proponents argue that regulation would protect retail participants from fraud and manipulation, and bring accountability to a rapidly growing market. Opponents, including some prediction market operators and free-speech advocates, contend that political event contracts provide valuable forecasting information and that heavy regulation could effectively ban them. There are also First Amendment questions raised about restricting markets tied to political speech and expression. As a proposed rule, this action is currently in a public comment period before any final regulation takes effect. The CFTC will review feedback from the public, industry participants, and other stakeholders before issuing a final rule. The timeline for finalization is not yet established, and the outcome may depend on the broader political and regulatory environment, including Congressional activity and court challenges.

AS PUBLISHED

Consistent with its jurisdiction over swaps, the Commodity Futures Trading Commission ("Commission" or "CFTC") is proposing to further define the term "swap" to explicitly include event contracts, including those based on sports-, politics-, cultural-, and weather- related events (the "Proposal").

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