Former SEC Chairman Gensler strikes again! In a letter to the editor, he takes a hard hit at the CFTC: prediction markets are not derivatives, so they should be governed by each state’s gambling laws.

Less than a year after stepping down, former SEC Chair Gary Gensler is making another move. This regulatory veteran—who also served as Chair of the CFTC—submitted an amicus brief in June to the U.S. Court of Appeals for the Sixth Circuit, arguing that sports contracts on prediction markets are not federally regulated “swap” derivatives, but instead gambling activities governed by the states. Strikingly, the position of the current CFTC is completely the opposite of his.
(Background: Milestone! The CFTC approves Kalshi’s listing of the “U.S.’s first compliant Bitcoin perpetual contract”)
(Additional context: a16z analyzes the potential of prediction markets—not just betting, but a precise “probability sensing” tool)

Table of Contents

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• The dispute centers on whether sports contracts count as derivatives
• State governments, tribes, and casinos rarely take the same side
• The next stop could be the Supreme Court

Key Takeaways

• Former SEC Chair Gary Gensler submitted an amicus brief to the Sixth Circuit Court of Appeals, arguing that sports contracts on prediction markets do not fall under the federally regulated “swaps”
• The current CFTC Chair Mike Selig’s institutional position is the opposite: he argues that event contracts traded in regulated markets are all swaps
• The case stems from Kalshi suing Ohio; after losing the trial court in March, it may ultimately be appealed to the U.S. Supreme Court

“Former” SEC Chair Gary Gensler may have stepped away, but his “interest” in crypto and prediction markets hasn’t stopped. In his latest submission to the U.S. Court of Appeals for the Sixth Circuit (an amicus brief), he clearly stated that prediction markets should not be treated as financial derivatives that can bypass state gambling regulations. The filing targets the lawsuit between prediction market platform Kalshi and the state of Ohio.

Gary Gensler’s background is substantial. He not only served as SEC Chair (2021 to 2025), but earlier—between 2009 and 2014—he was Chair of the CFTC, precisely when the Dodd-Frank Act took shape and “swap” rules began to form. In other words, the person who is now arguing that “this is not a derivative” was the one who helped define what a derivative is back then.

Of course, we can understand that Gensler’s appearance this time is likely backed by quite a few industry players, especially those categorized as part of the gambling sector.

The dispute centers on whether sports contracts count as derivatives

Gensler’s argument is that sports event contracts—are they federally regulated “swap contracts” (a type of derivative financial product), or are they inherently state-level gambling products? Classification matters, because the former falls under the CFTC, while the latter is regulated by the states.

In his amicus brief, Gary Gensler argues that under the Dodd-Frank Act framework, Congress did not write sports betting into the legal definition of swaps. He points out that the key to whether a swap can exist is whether it can be used to hedge real commercial risks, but sports wagers “almost never” are made for hedging; therefore, the rationale for the CFTC to force these contracts to be treated as derivatives is “quite tenuous.”

Congress did not include sports betting contracts in the legal definition of swaps under the Dodd-Frank Act.

He also cites legislative history as supporting evidence, referencing Harry Reid, the former Senate Majority Leader from Nevada, saying it is “impossible” and “will not be tolerated” for a bill that hands gambling—an activity so critical to that state’s economy and politics—over to CFTC regulation.

State governments, tribes, and casinos rarely take the same side

On the side of state oversight, it isn’t just Gary Gensler. Multiple parties—including the American Gaming Association, the financial reform advocacy organization Better Markets, and the Indian Gaming Association—have all submitted supporting amicus briefs. The arguments from tribal organizations are especially direct. Under the Indian Gaming Regulatory Act, gambling interests on tribal lands must belong to the tribes, not a private company like Kalshi; otherwise, it would erode tribal sovereignty and entertainment tax revenues.

What is truly awkward is the current CFTC. While Gensler’s filing opposes Kalshi, the current CFTC—led by Chair Mike Selig—submitted an amicus brief supporting Kalshi instead, arguing that any event contract traded on markets regulated by the CFTC is considered a “swap.” On one side is the current agency; on the other is the former leader who wrote the rule set—an air duel between two factions within the CFTC.

The next stop could be the Supreme Court

The starting point of this fight was that Kalshi moved first, suing Ohio to block the state’s enforcement actions against the platform. This year in March, a federal judge ruled against Kalshi at the trial level. The problem is that different circuit courts have already issued conflicting decisions on “who should regulate prediction markets,” and this kind of split is almost certain to be litigated all the way to the U.S. Supreme Court.

The outcome affects more than just Kalshi. It will directly determine which direction prediction markets take in the United States—whether they are allowed to expand freely as financial derivatives markets, or whether they get folded into the state framework for entertainment gambling regulation. At minimum, we know that, from the federal government’s stance, it intends to clear all state legal obstacles so that prediction markets become true “financial products.”

Frequently Asked Questions

What is the dispute over “swap contracts” in prediction markets?

The dispute is whether sports event contracts on platforms such as Kalshi are “swaps” (financial derivatives) regulated by the CFTC, or gambling activities regulated by the states. Different classifications mean the former is governed federally while the latter is governed by state governments—so the entire regulatory path for the industry differs.

Why does Gary Gensler oppose prediction markets moving toward federal regulation?

He argues that Congress has never included sports betting in the swap definition under the Dodd-Frank Act. And because swaps hinge on hedging real business risks, sports betting “almost never” has any hedging function; therefore, the CFTC should not take over, and regulation should instead return to the states.