TLDR
- The CFTC sent two rules to the White House on Sept. 28 that would change the legal definition of a swap.
- One proposed rule would add event contracts, such as prediction market bets, to the swap definition.
- A second interim final rule would exclude casino-style gambling and take effect as soon as it is published.
- Federal appeals courts are split on whether Kalshi’s sports contracts are swaps, and New Jersey has asked the Supreme Court to decide.
- No rule text has been released, and the CFTC can publish the rules once the White House review ends.
The Commodity Futures Trading Commission (CFTC) has sent two rules to the White House that would change the legal definition of a swap. That definition sits at the center of a legal fight between prediction markets and state regulators.
One rule would bring event contracts inside the swap definition. The other would remove casino-style gambling products from it.
Two Rules Sent for Review
The White House’s Office of Information and Regulatory Affairs (OIRA) received both rules on Sept. 28, according to its regulatory review records. Neither listing includes the text of the rules.
The first is a proposed rule titled “Further Definition of ‘Swap’ to Include Event Contracts.” It would be open for public comment before it takes effect.
The second is an interim final rule that excludes “casino-style gambling products.” It would take effect once published, and comments would be collected afterward.
The CFTC did not mark either rule as having a major economic impact. The listings also do not explain what counts as a casino-style product.
Why the Swap Label Matters
Federal law gives the CFTC exclusive authority over swaps traded on its registered exchanges. That makes the label important for companies offering event contracts.
Prediction markets such as Kalshi argue that their sports contracts are swaps. If that view holds, state gambling regulators would not be able to oversee them.
The CFTC under Chairman Michael Selig has supported that position. The agency has sued at least nine states over efforts to block the contracts.
Federal appeals courts have reached different answers. The Third Circuit sided with Kalshi against New Jersey in April, while 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 ruled that Kalshi’s sports contracts are not swaps. The panel found that sporting events lack the built-in financial consequences the law requires.
The Sixth Circuit also said that even if the contracts were swaps, federal law does not override Ohio’s or Tennessee’s gambling laws. This means a new definition may not settle the dispute on its own.
The same court 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.” The casino carveout addresses that concern.
New Jersey has asked the Supreme Court to resolve the split between the appeals courts. The request follows conflicting rulings in three different federal circuits.
There is also a question of process. The Dodd-Frank Act directs the CFTC and the Securities and Exchange Commission (SEC) to 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.” His comments came as the agencies asked the public for input on how these products should be classified.
Once OIRA finishes its review, the CFTC can publish both rules in the Federal Register. The casino-style exclusion would take effect at that point, while the event contract rule would first go out for public comment.
