The U.S. Commodity Futures Trading Commission (CFTC) is moving to strengthen its authority over prediction markets through new regulatory measures designed to classify certain event contracts as swaps. The initiative seeks to reinforce federal oversight of these products and challenge the ability of state gambling regulators to control them.

On Friday, the agency issued an interim final rule and proposed additional changes to clarify how event contracts should be treated under federal law. The CFTC maintains that these contracts meet the legal definition of swaps, placing them under its jurisdiction rather than state gambling regulations.

The regulator is attempting to separate financial contracts tied to sports outcomes from traditional gambling activities. Under the interim final rule, casino-style wagering would remain outside the swaps classification. A separate proposal would bring event contracts linked to sports, politics, cultural developments and weather within the existing federal framework governing swaps.

The interim final rule takes effect immediately but remains open to public feedback during implementation. The accompanying proposal is still under consideration and includes a 30-day window for public comments.

The CFTC’s interpretation has faced resistance from multiple states and former federal officials who helped develop the relevant laws. Opponents submitted their arguments to the U.S. Supreme Court this week, seeking a definitive ruling on whether prediction markets should be regulated by federal authorities or state gambling agencies.

If the dispute reaches the Supreme Court, the CFTC will be able to demonstrate that it has already started implementing Chairman Mike Selig’s approach to regulating prediction markets.

Several states are engaged in legal battles with the agency, insisting they have the authority to oversee sports-related contracts offered through platforms such as Kalshi and Polymarket. State officials have alleged that these platforms operate illegal gambling businesses. Recent federal appeals court decisions have delivered mixed results, with one ruling opposing the states and two others supporting their arguments.

TD Cowen policy analyst Jaret Seiberg said the interim final rule appears intended to strengthen the CFTC’s position in court. In a Friday note to clients, he explained that states fear the agency’s broad interpretation of swaps could make wagers at state-regulated or tribal casinos and sportsbooks illegal under federal law. He added that it remains uncertain whether the new measure will resolve the dispute.

The proposals were submitted for White House review less than two weeks before being announced, reflecting an unusually fast regulatory process. The CFTC has been under pressure to defend its position that prediction markets fall exclusively within its authority. Excluding traditional casino-style gambling from the swaps definition is part of its effort to counter legal objections.

Prediction market companies, including Kalshi, support the agency’s position because federal oversight could allow them to avoid navigating different gambling regulations across individual states.

Chairman Mike Selig currently serves as the sole commissioner on a panel designed to have five members, giving him significant control over the agency’s policy decisions. President Donald Trump has not yet nominated additional commissioners to fill the vacant seats.

The Securities and Exchange Commission is experiencing a similar staffing shortage, with only two members currently serving on its five-person commission. The Trump administration has also pursued efforts to reduce Democratic representation across federal regulatory bodies.