The CFTC proposes to define event contracts as swaps
On 9 October 2026, the US Commodity Futures Trading Commission (CFTC) proposed amending its definition of “swap” to state expressly that event contracts are swaps. The CFTC’s preliminary view is that the change would not alter anyone’s legal rights or obligations, and that its benefit would be added certainty. It issued an interim final rule on the same day excluding licensed casino-style gambling from the swap definition. Neither document resolves the appellate litigation that prompted them. For crypto asset service providers (CASPs), the proposal is relevant because crypto groups operate, or are applying to operate, the kinds of venues it covers. It refers to crypto firms only in passing.
What the CFTC has proposed
The notice of proposed rulemaking (RIN 3038-AF82, 40 pages) would add event contracts to the definition of “swap” in CFTC Regulation 1.3, naming contracts based on sports, politics, cultural and weather events as examples. The notice calls these “a non-exhaustive list”.
The notice states that “the Commission already treats event contracts as swaps under existing law”, and that it is the Commission’s “preliminary belief that the Proposal would not change the legal rights or obligations of market participants under the CEA”. It expects the rule to “facilitate uniform nationwide treatment of event contracts under the exclusive jurisdiction of the Commission”.
Comments are invited on “any aspect of the Proposal” and are due 30 days after publication in the Federal Register. As at 10 October 2026, the notice had not been published there, so the comment period has not started. Quotations in this article are from the CFTC’s pre-publication texts, which are “subject to pre-publication technical corrections”.
Background: court decisions and state actions
The notice responds to divided appellate authority and to state enforcement. Several of the cases it cites name KalshiEX, a designated contract market (DCM), in the caption.
In April 2026, a divided panel of the Third Circuit held that sports-related event contracts traded on a DCM fit within the statutory definition of “swap”.
On 28 August 2026, the Ninth Circuit concluded that the sports event contracts before it “are likely not swaps under the CEA”. The notice says the court did not address the other limbs of the swap definition. A petition for rehearing and rehearing en banc was filed on 9 September 2026.
On 25 September 2026, the Sixth Circuit also held that sports-related event contracts are not swaps, on different reasoning: it accepted that a sporting outcome can be an “event”, but held that the event must be “inherently” associated with a financial, economic or commercial consequence.
The notice also cites a Minnesota statute making it a crime to operate a “prediction market”, the subject of United States v. Minnesota (D. Minn., July 2026); a twenty-count criminal information filed in Arizona against a DCM; a New York application to bar a DCM from offering event contracts “within or from New York”, relief the CFTC says “threatens to prohibit it from offering event contracts nationwide” because the DCM is headquartered there; and state court orders requiring a DCM to geofence sports-related contracts in Michigan, Washington and Nevada. The CFTC concludes that “there is widespread confusion and disuniformity about the definition of swap”.
The legal basis
The notice says event contracts are implicated by four clauses of the statutory definition in section 1a(47)(A) of the Commodity Exchange Act, and it argues three of them in detail. These cover contracts “commonly known to the trade as a swap”; contracts dependent on an event “associated with a potential financial, economic, or commercial consequence”; and options. On the last, it notes that event contracts are structured as binary options and says they “may independently satisfy the first prong”. It treats its express authority under the Dodd-Frank Act to “further define” the term as “an independent legal basis”, citing Loper Bright on statutes that expressly delegate definitional authority to an agency.
The notice also addresses the Ninth Circuit’s reliance on CFTC Rule 40.11, which the court read as barring gaming-related contracts from listing on a DCM. “Even assuming that premise”, the CFTC says the rule “does not provide a basis to conclude that event contracts are not swaps or that event contracts could be subject to state gambling law”, and that once the proposal is adopted “there would no longer be a valid basis to interpret CFTC regulations to conclude that event contracts are not swaps”.
Section 712(d)(1) of the Dodd-Frank Act requires the CFTC and the Securities and Exchange Commission (SEC) to further define “swap” jointly, in consultation with the Federal Reserve Board. A footnote states that “The SEC joins in proposing this rule in satisfaction of the statutory requirement in Section 712(d)(1)”, and the interim final rule says the SEC “joins in adopting” it. The CFTC’s Secretary signs both documents. The SEC had published no release on either as at 10 October 2026.
Scope and limits of the proposal
As swaps, event contracts may be offered to retail participants in the United States only on a DCM. This follows from section 2(e) of the Commodity Exchange Act, which the notice restates.
Event contracts structured as futures, and those that are security-based swaps or otherwise within the SEC’s jurisdiction, are outside the proposal.
The CFTC “retains authority under the Special Rule to prohibit event contracts involving ‘gaming’ that are contrary to the public interest”.
In our view, adoption would not, of itself, reverse the Ninth and Sixth Circuit judgments. The CFTC’s position is that a final rule made under its express definitional power would remove any basis for reading its regulations otherwise, and the Ninth Circuit’s conclusion was expressed as “likely”. How courts treat a final rule in pending and later proceedings remains open.
The companion interim final rule
The interim final rule excludes casino-style gambling products from the swap definition. It covers sports wagers, casino games and other licensed games of chance, but only where two conditions are met. First, the operator must be licensed or authorised under state or tribal law and acting within that licence, and the product must be regulated as gaming under that law. Second, it must not be traded “on a board of trade, an organized exchange, a swap execution facility, or any other market in which trades are executed multilaterally or subject to individual negotiation”. The rule takes effect on publication in the Federal Register and has its own 30-day comment period.
The notice of proposed rulemaking states that the Sixth and Ninth Circuits’ reasoning “was substantially based on the concern that treating sports event contracts as swaps would also subject casino-style gambling to the CFTC’s jurisdiction”. In our view, the two documents are designed to be read together. The interim final rule addresses that concern directly and takes effect on publication. The proposal relies in part on limbs of the definition that the Ninth Circuit did not address (the “commonly known to the trade” limb and the option limb) and on the express definitional power. It also relies on the “consequence” limb, which the Sixth Circuit read against swap status.
The CFTC’s cost-benefit discussion
The CFTC’s preliminary belief is that “there should be negligible costs” from codifying the treatment. It states that in August 2026 “average monthly trading volume in event contracts was about $1.5 billion across all DCMs reporting to the Commission”, of which about $1.2 billion was in sports-related contracts. As of 1 September 2026, at least seven DCMs offered sports-related event contracts to US persons, and more than fifteen DCM applications filed since 2025 were pending.
The risks and indirect costs the CFTC identifies are these:
Retail participants. Certainty “could be perceived as a safety signal by retail participants”, and some event-contract characteristics “can be associated with addictive potential”.
Competition. Certainty “might favor incumbent DCMs with established infrastructure and customer bases”.
States. States “might receive less fee and other revenue”.
It also states that the benefit of added certainty “may be limited by the ongoing efforts of certain state regulators to assert their jurisdiction over certain event contracts”.
Relevance to crypto asset service providers
The notice refers to crypto firms only in passing. It notes that Nadex, a DCM that lists digital-asset contracts among other things, “transitioned to the Crypto.com platform” in 2025. It relies, in more than one footnote, on a 2 October 2026 Northern District of Illinois decision in Coinbase Financial Markets v. Raoul, a dispute between a Coinbase entity and Illinois. It also cites the CFTC’s 2022 order against Blockratize, Inc. (Polymarket), which found that Polymarket’s event contracts “constitute swaps under the CFTC’s jurisdiction”.
In our view, the proposal is relevant to CASPs in three ways. First, crypto groups that operate or are applying to operate DCMs would, if the rule is adopted, have a federal regulation to cite against state gaming claims, which could reduce the need for state-by-state geofencing. The CFTC itself expects state action to limit that benefit. Second, CASPs that give customers access to DCM-listed event contracts as intermediaries face the same state actions and would rely on the same federal classification. Third, the notice restates that, under existing law, retail participants in the United States may trade swaps only on a DCM. CASPs offering event contracts outside the United States may wish to check their US-person access controls against that position.
Pending steps
Federal Register publication (date not yet set): publication of the proposal starts its 30-day comment period begins. Publication of the interim final rule brings it into force and starts its own comment period.
9 November 2026: KalshiEX’s response is due to the petition filed by New Jersey’s gaming enforcement officials for US Supreme Court review of the Third Circuit decision (Flaherty v. KalshiEX, LLC, No. 26-299). Ohio, 38 other states and the District of Columbia filed an amicus brief supporting the petitioners on 7 October 2026. By 9 October 2026, at least ten other amicus briefs had been filed or submitted, including briefs from the American Gaming Association, the National Football League, and former CFTC Chairman Gary Gensler.
Ninth Circuit: the notice said the petition for rehearing and rehearing en banc filed on 9 September 2026 was pending.
Sources
This article is for information only and is not legal advice.
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