Why the CFTC wants event contracts classed as swaps

The US Commodity Futures Trading Commission has proposed writing event contracts, the products traded on prediction markets, into its legal definition of a swap. At the same time it issued a rule that keeps sportsbook bets and casino games outside that definition. This article explains why a single definition carries so much weight, and what it means for the long fight between the agency and the states.

What happened

On Oct. 9 the CFTC published two linked moves, Unchained reported. The first is a proposal to add a new paragraph to the swap definition found at 17 CFR 1.3. That paragraph would cover event contracts tied to sports, politics, culture and weather. Public comments close 30 days after the proposal appears in the Federal Register.

The second is an interim final rule. It says casino-style gambling, including sportsbook bets and casino games, is not a swap. That rule applies from the day of its Federal Register publication, and a 30-day comment window follows. The agency says this exclusion reflects a view it has held for a long time. CFTC Chairman Michael S. Selig put it simply: "Casino-style gambling products are not derivatives".

How this works: why the word swap matters

A derivative is a contract whose value depends on something else, such as a price, a rate or an outcome. A swap is one legal category of derivative under the Commodity Exchange Act, the law the CFTC enforces. Products that fall inside that category are overseen by the CFTC at the federal level. Products that fall outside it can be left to other authorities, including state gaming regulators.

So the label does most of the work. The chain looks like this:

• An event contract pays out depending on whether a future event happens, such as an election result or a game score.
• If the law treats that contract as a swap, it is a commodity derivative and sits under the CFTC.
• Selig argues these products fall under exclusive CFTC jurisdiction, which would limit how far states can step in.
• If a product is instead treated as gambling, state gaming law applies, with its own licences and bans.

Selig also described why people use these contracts: to hedge risk, to speculate, and to give the public information about how future events may turn out. The carve-out for sportsbooks is the other half of the design. It tries to show that the CFTC is not claiming every bet in the country.

The states and the courts

The rule text answers the agency's critics directly, according to Unchained. It cites a letter from 40 states plus the District of Columbia saying sports event contracts cannot be told apart from ordinary sports betting. It also addresses New Jersey's Supreme Court argument and the American Gaming Association's view that calling exchange sports bets swaps would pull all sports betting onto federal markets. The CFTC called that reasoning an erroneous premise and said its rule follows the approach suggested by the Third Circuit.

That reference matters because the federal courts are split. In April, a Third Circuit panel whose judges were split decided that Kalshi's sports event contracts meet the statutory definition of a swap. Two other appeals courts disagreed: first the Ninth Circuit, in August, and then the Sixth Circuit a month later, in September. The Sixth Circuit warned that this reading could send even a wager among friends onto federal markets. New Jersey then turned to the Supreme Court, also in September, and asked the justices to settle it.

States have also acted on their own. Minnesota made prediction markets a crime, though a federal judge has blocked that law. Arizona has brought criminal charges against an exchange. Courts in Michigan, Washington and Nevada, the proposal notes, have ordered sports contracts geofenced, meaning blocked for users located in those states. The agency has also been at odds with Michigan after a court there told Kalshi to cancel trades.

What changes, and for whom

For prediction market operators, a rule that names event contracts as swaps would give a clearer federal footing. For state regulators and the gaming industry, it raises the stakes, because their main argument is that these contracts are betting under another name.

For users, the practical effect depends on where they live and on how the legal fight ends. Access to sports contracts already differs from state to state because of geofencing orders. A federal rule alone does not erase those orders while court cases continue.

Open questions

The biggest one is timing. Vanessa Grellet, a co-founder of Arche Capital, told American Banker that markets should wait for the Supreme Court, since its ruling could supersede the rulemaking. If the court takes the case, its reading of the statute would sit above any agency definition.

Other questions remain open in the reports. It is not yet known what the comment periods will produce, how the line between an event contract and a casino-style product will be drawn in hard cases, or how pending state actions will respond. Anyone using these markets should keep in mind that their legal status is still contested, and that trading event contracts is speculation in which a person can lose money.

Sources

• Unchained, 12 Oct 2026

How this post was made: an AI model drafted it from the sources listed above, and software checks ran before it went live without a human edit. Every figure has to match a listed source and no sentence is copied. It explains how the mechanism works; it is not investment advice.