CFTC Proposes Sweeping Rule to Regulate Event Contracts as Swaps Amid Kalshi Legal Battle

The U.S. derivatives regulator wants to fold certain event contracts traded on platforms like Kalshi into its swaps framework, a move that would require full oversight and registration as the courts weigh prediction markets' legal status.

The Commodity Futures Trading Commission has unveiled a formal proposal to classify certain event contracts — including those traded on platforms such as Kalshi — as swaps subject to comprehensive regulatory oversight. The rule would bring these contracts, which allow users to bet on real-world outcomes ranging from election results to economic data releases, under the same framework that governs traditional derivatives tied to interest rates, currencies, and commodities.

The move arrives as the CFTC wages a legal fight over its authority to police prediction markets. Federal courts are currently reviewing cases involving Kalshi and other platforms that have sought to offer contracts on political events, with judges split on whether such markets constitute illegal gaming or legitimate hedging instruments. By proposing a formal rule, the CFTC aims to assert regulatory control regardless of how those court battles resolve.

Under the proposed framework, platforms offering event contracts would need to register as swap execution facilities or designated contract markets, subjecting them to capital requirements, participant verification, and trade reporting obligations. For users, that could mean stricter know-your-customer checks, position limits, and reduced anonymity compared to the relatively light-touch environment many prediction markets enjoy today.

The rule targets contracts settled against the occurrence or non-occurrence of a specified event rather than a traditional financial benchmark. That language is broad enough to sweep in political forecasts, policy outcomes, and even cultural phenomena — any contract where the payout depends on whether something happens rather than on a price or rate.

Kalshi, which won a court ruling last year allowing it to list congressional control contracts, has argued that event markets serve a legitimate purpose by letting individuals and businesses hedge against political and regulatory risks. The platform has attracted hundreds of millions in trading volume on contracts tied to Federal Reserve decisions, legislation, and geopolitical developments, positioning itself as a tool for risk management rather than speculation.

Critics, including some lawmakers and anti-gambling advocates, contend that event contracts blur the line between derivatives and betting, potentially undermining election integrity and enabling manipulation. The CFTC's proposal does not ban such markets outright but would impose the same compliance burden borne by major swap dealers and futures brokers, a structure that could price out smaller platforms or force them offshore.

The rule is now open for public comment, with a final decision expected in early 2027. Industry observers note that the timeline could be influenced by ongoing litigation: if courts rule that the CFTC lacks authority over certain event contracts, the agency may need to revise or abandon parts of the proposal. For now, platforms operating in the space face the prospect of a regulatory overhaul that would fundamentally reshape how prediction markets function in the United States.