Key Takeaways
- The CFTC sent two rules to the White House on Sept. 28 to redraw the legal definition of a swap.
- One adds event contracts; the other excludes casino-style gambling and takes effect on publication.
Two Rules, No Text Yet
The White House’s Office of Information and Regulatory Affairs (OIRA) received both rules on Sept. 28, according to its regulatory review records. The first, a proposed rule titled “Further Definition of ‘Swap’ to Include Event Contracts,” would go out for public comment before taking effect.
The second, an interim final rule excluding “casino-style gambling products”, would take effect once published, with comments collected afterward. The CFTC marked neither as economically significant, and neither listing includes rule text or explains what counts as a casino-style product.
Federal law gives the CFTC exclusive jurisdiction over swaps traded on its registered exchanges – hence the importance of the label. Prediction markets such as Kalshi argue that their sports contracts are swaps, which would put them beyond the reach of state gambling regulators. The CFTC under Chairman Michael Selig has backed that position and sued at least nine states over efforts to block the contracts.
The courts have not settled the question. The Third Circuit sided with Kalshi against New Jersey in April. The Ninth Circuit ruled for Nevada in August. On Sept. 25, three days before the rules reached the White House, a unanimous Sixth Circuit panel held that Kalshi’s sports contracts are not swaps. The panel found that sporting events lack the inherent financial consequences the statute requires. New Jersey has asked the Supreme Court to settle the split.
A new definition may not end the fight on its own. In its opinion, the Sixth Circuit held in the alternative that “even assuming that Kalshi’s sports-event contracts are swaps,” federal law neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws.”
The casino carveout answers a worry raised in the same litigation. Ruling against Kalshi, the Sixth Circuit warned that reading the swap definition broadly “would likely encompass virtually every kind of wager that could exist, including classic casino games and charity raffles.”
There is also a procedural question: the Dodd-Frank Act directs the CFTC and the Securities and Exchange Commission (SEC) to further define “swap” jointly, in consultation with the Federal Reserve. Both OIRA listings name only the CFTC. In June, the two agencies issued a joint request for comment on derivatives definitions. At the time, SEC Chairman Paul Atkins said clarification was “long overdue on Title VII definitional issues, including event-based products.” Once OIRA finishes its review, the CFTC can publish the rules in the Federal Register.
