The new rules of the U.S. Commodity Futures Trading Commission define a boundary between speculative trading and gambling.

On Friday, the Commodity Futures Trading Commission preemptively issued two measures to regulate prediction markets. The first measure is a pending rule that expands the definition of "swap" to include event contracts; and the second is an interim final rule effective immediately upon publication that states casino-style betting products such as sportsbook wagers and casino games are not eligible for swaps.

Event signals are classified as commodity derivatives.

Michael Selig, chairman of the Commodity Futures Trading Commission noted that an event contract is a commodity derivative which falls within the scope of regulation by the commission under the Commercial Exchange Act and is subject to the exclusive jurisdiction of the agency.

The first measure would spell out the definition of a "swap", clearly covering event contracts, including those related to sports, politics, culture and weather. Myriad is one example mentioned in the document by asking who will win midterm elections.

Casino games are off the table.

The second measure set the dividing line in reverse, citing a long-held view of the Commission that casino gambling products including betting on sportsbooks and casino games were not covered by Selig's sweepstakes definition, stating that "casino gambling products are non-sectarian" and explaining that the measure helped clarify the regulatory scope for agencies.

Both measures have a 30-day public comment period, with the first open to pre-hearing comments and the second as an interim final rule effective immediately upon publication.

Background disability jurisdiction with state and court

The issuance of the two measures comes at a time when the commission is asserting its authority over prediction markets amid lawsuits by multiple states and flaws that courts are beginning to see. If event contracts were swapped, it would have regulatory powers, which Selig identified as exclusive jurisdiction, that would keep platforms like Kalshi and Polymarket out of the reach of state-level gambling regulators.

Several states have sued prediction market operators accusing the operation of illegal gambling, while boards have countersued to protect their regulatory jurisdictions.

A discount on the White House bid.

The two documents are the culmination of recommendations that the committee sent to the White House for review late last month, part of a broader effort by the agency to assert its authority rather than wait on Congress.

The Commission also implemented industry-wide guidance in both traditional financial and crypto markets, previously issuing no-action relief that allowed crypto apps to offer regulated derivatives products and took the process of regulating cryptocurrencies apart.

A tipping point where the courts could get involved.

The legal stakes of the prediction market are rising when there's a court dispute over whether or not sweepstakes contracts fall under federal regulation. A case involving NFL and other parties with Kalshi has drawn the attention of the appellate courts.

That means the questions that committees try to weave through regulation may ultimately be decided in an appellate court.