The Commodity Futures Trading Commission publishes two documents in Monday’s Federal Register that try to settle a question federal appeals courts have answered two different ways: when is a contract on a football game a derivative? A notice of proposed rulemaking (FR Doc. 2026-21377, RIN 3038-AF82, 91 FR 66022) would further define “swap” to explicitly include event contracts, “including those based on sports-, politics-, cultural-, and weather-related events.” A companion interim final rule (FR Doc. 2026-21376, RIN 3038-AF81, 91 FR 65969) takes effect the same day, Oct. 19, and codifies that casino-style gambling products, “including wagers placed on sportsbooks and casino games,” are not swaps.
The line decides who regulates. Contracts that are swaps traded on a CFTC-designated contract market (DCM) fall under the agency’s exclusive jurisdiction under CEA section 2(a)(1)(A), which is the hook for preempting state gaming law. States have pushed the other way. Minnesota made offering certain prediction markets a felony, Arizona filed a 20-count criminal information against a DCM, and state trial courts have ordered a DCM to geofence sports contracts in Michigan, Washington and Nevada. Comments on both documents close Nov. 18.
1. The statutory hooks
The proposal leans on four prongs of the swap definition in CEA section 1a(47)(A). Clause (i) covers options, which the CFTC says includes binary options paying “either a fixed amount or zero.” Clause (ii) covers payments dependent on “an event or contingency associated with a potential financial, economic, or commercial consequence.” Clause (iv) reaches anything “commonly known to the trade as a swap,” and clause (vi) sweeps in combinations of the others.
The agency also points to CEA section 1a(19)(iv), the “excluded commodity” definition, to argue that sports, political, cultural and weather events are themselves commodities. It then adds a separate legal basis: Dodd-Frank section 712(d), which directs the CFTC and SEC to “further define” swap. Citing Loper Bright, which recognizes that some statutes expressly delegate to an agency the authority to give meaning to a term, the proposal argues that this express authority is an independent basis for treating the contracts as swaps. The SEC, the text says, joins the rulemaking to satisfy the joint-action requirement in section 712(d)(1).
For prong (iv), the CFTC cites market practice. DCMs have self-certified “thousands of event contracts,” and CME has self-certified sports and election contracts as swaps. Cboe has told the agency that such contracts generally fall within the swap definition, and the agency has brought enforcement actions treating them as swaps.
2. The court split the rules are aimed at
| Court and case | Date | Holding on sports event contracts |
|---|---|---|
| Third Circuit, KalshiEX v. Flaherty | April 2026 | Swaps under CEA 1a(47)(A)(ii), divided panel |
| Ninth Circuit, KalshiEX v. Assad | Aug. 28, 2026 | “Likely not swaps”; rehearing petition filed Sept. 9 |
| Sixth Circuit, KalshiEX v. Schuler | Sept. 25, 2026 | Not swaps; event must be “inherently” tied to economic consequence |
Both courts that ruled against the CFTC’s reading worried about where a plain-text reading ends. The Ninth Circuit said that if Kalshi and Caesar’s Sportsbook are indistinguishable under the CEA, “every person placing a sports bet at Caesar’s Sportsbook (or anywhere else for that matter) is violating the CEA.” It also raised “bingo games and pingpong matches.” The Sixth Circuit warned of “attach[ing] criminal penalties to a breathtaking amount of commonplace gambling activity.”
The states make the same point as a matter of principle. Forty states and the District of Columbia told the CFTC that sports event contracts are “indistinguishable from traditional sports betting.” New Jersey told the Supreme Court in a Sept. 2 brief in Flaherty v. KalshiEX, No. 26-299, that “[n]othing in the [CEA] gives the CFTC unprecedented authority to become the sole regulator of sports gambling in this country.”
3. How a contract differs from a wager
The interim rule answers the slippery slope directly, and says it “implements the Third Circuit’s suggested approach.” Its model is the 2012 joint rule (77 FR 48208) that carved insurance and ordinary consumer contracts out of the swap definition. It offers five reasons gambling products are different:
- they are not traded;
- they are not cleared;
- Congress gave no sign of wanting them included;
- states and tribes have long regulated them;
- nobody in the derivatives trade calls them swaps.
The first carries the most weight.
Gambling products are typically conducted as bilateral transactions between a casino or bookkeeper (a “house”) and its customer rather than on an organized market. Prices are not set by market forces and are not subject to negotiation; rather, customers must accept the price set by the house.
EXCERPT · CFTC interim final rule, FR Doc. 2026-21376, Part II
The proposal supplies the mirror image. Market makers on prediction markets earn the bid-ask spread from peer-to-peer volume, “unlike traditional sports betting where centralized sportsbooks extract a static ‘vig’ from fixed odds.” The exclusion covers casino-style products offered under state or tribal law and is described as non-exclusive. A casual bet between friends or an illegal sportsbook may also fall outside the swap definition.
The same Super Bowl outcome can be a swap on an exchange and a wager at a sportsbook. The CFTC’s line runs through the venue, not the game.
That is both the design’s strength and its exposure. It gives courts a limiting principle without rewriting “event.” But it does not answer the states’ core claim, which is about substance, not market structure. Kentucky describes the CFTC’s position as “[t]ransferring every ounce of authority over sports wagering from the States to the CFTC.” That charge is aimed at exactly the contracts the proposal would include.
4. Why an interim rule first
The exclusion took effect without prior comment; the CFTC is taking comments after the fact, through Nov. 18. The release presents it not as new policy but as a codification of a “longstanding position,” intended “to remove regulatory ambiguity.” The inclusion, by contrast, goes through ordinary notice and comment.
The more likely reading is sequencing. The casino carve-out costs the states nothing and removes the main argument two circuits used against the CFTC. So it is in force while the harder rule is still a proposal and while litigation continues. Whether a court gives either rule weight is a separate question the documents do not resolve.
5. What happens next
- Oct. 19: both documents publish; the casino-style exclusion is effective.
- Nov. 18: comments due on both, via Regulations.gov or mail, citing RIN 3038-AF82 (inclusions) or RIN 3038-AF81 (exclusion).
- Pending: the Ninth Circuit petition for rehearing and rehearing en banc in Assad. Under Fed. R. App. P. 41(b), the mandate would not issue until seven days after any denial.
- Pending: Flaherty v. KalshiEX, No. 26-299, at the Supreme Court.
- No date set: a final inclusion rule, which the Commission decides after reviewing comments.
This is a separate track from the SEC’s approval of Cboe binary options on company KPIs, which sit under securities law. The CFTC proposal expressly leaves security-based swaps alone.
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