On Monday the Commodity Futures Trading Commission published two documents that answer, from opposite directions, the question that has divided courts and states for more than a year: when is a bet a swap? The first is an interim final rule, effective the same day, that excludes casino-style gambling products from the swap definition. The second is a proposed rule that explicitly includes event contracts, including sports, political, cultural and weather contracts, in that same definition. Read together, they draw a line that is not about what is being wagered. It is about where.
The pair matters because the debate over prediction markets has been stuck on a slippery slope. If a contract on the outcome of a football game is a swap, the argument went, then a wager on the same game at a sportsbook must be a swap too, and the federal commodities regulator would end up controlling every bet in America. Two circuit courts accepted that reasoning and read sports event contracts out of the statute. The Commission has now answered by separating the two markets instead of collapsing them.
Two documents and one line
The interim final rule amends the swap definition in 17 CFR 1.3, adding a new paragraph (7) for casino-style gambling products. It is effective October 19, 2026, and comments are due November 18. The Commission describes it as codifying a longstanding position: casino-style gambling products, including wagers placed through sportsbooks and casino games, are not swaps and are not subject to the Commodity Exchange Act.
The proposed rule adds a new paragraph (2)(i)(G) to the same definition. It lists event contracts as swaps, with a non-exhaustive list that covers sports, politics, culture and weather. The proposal is not final, and its comment period also closes November 18. Both documents were issued by the Commission on October 15 and published on October 19. Chairman Michael Selig voted in the affirmative on each, and no commissioner voted against either.
The procedural difference is the point. The exclusion is effective now, while comments are still open. The inclusion is only a proposal, so the Commission is not yet bound to treat event contracts as swaps by rule, though it says it already has jurisdiction over many of them under the statute as written.
The exclusion has two conditions
The new paragraph (7) does not exclude every bet. It excludes an agreement, contract or transaction that meets two conditions. First, it must be offered or entered into by a person licensed or otherwise authorized to offer gambling or gaming products, or to accept wagers, under state law or under the law of a federally recognized tribe acting under the Indian Gaming Regulatory Act. The person must be acting within the scope of that license, and the product must be regulated as gaming or gambling under the applicable state or tribal law.
Second, the product 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.
If both conditions are met, the rule lists three covered categories: sports wagers accepted by a licensed sportsbook or sports wagering operator, casino games offered by a licensed casino operator, and other licensed games of chance such as bingo, pool wagering, lotteries and raffles. The list is illustrative, not exhaustive. The test is the license plus the venue.
That structure is narrower than the headline. The rule does not say that anything resembling a bet is outside the swap definition. It says that a licensed operator's wager, offered under state or tribal gaming law and not traded on an exchange or a negotiated market, is outside it. A contract that looks like a wager but is listed on a federal exchange fails the second condition and stays inside the swap definition.
The venue condition is the whole argument
The venue condition is what makes the two documents fit together. An event contract traded on a designated contract market is, by definition, traded on a board of trade. It cannot satisfy paragraph (7)(i)(B). So the exclusion does not reach it, and the proposed rule says explicitly that event contracts, including sports contracts, are swaps.
The result is two markets for the same underlying event. A person can wager on a game through a state-licensed sportsbook, where the wager is governed by state gaming law and excluded from the swap definition. The same person can trade a contract on the same game through a federally regulated exchange, where the contract is a swap and the exchange is subject to CFTC oversight. The regulator follows the venue, not the subject.
That is a coherent allocation, and it is the one the Commission says it has always followed. It is also a direct response to the courts. The Sixth Circuit worried that treating sports event contracts as swaps would require every sports wager, including bets placed in a casino or between two friends at a bar, to move onto a federal market, and that betting off such a market would be a felony. The new rule removes that consequence by excluding the licensed wager, while keeping the exchange-traded contract inside the federal framework.
The proposal makes the same point from the other side. It says the event contracts at issue are those within the swap definition and subject to CFTC jurisdiction, not instruments that are futures or securities. It also says the proposed addition would not reach casino-style gambling products, which the separate rulemaking addresses. The two documents cross-reference each other, and they are meant to be read as a pair.
Why the courts forced the issue
The Commission did not act in a vacuum. In KalshiEX LLC v. Schuler, decided September 25, 2026, the Sixth Circuit viewed sports event contracts as legally indistinguishable from casino-style sports wagers. It reasoned that if those contracts are swaps, then every sports wager would have to take place on a federal market, and it declined to adopt an interpretation with that consequence. In KalshiEX, LLC v. Assad, decided August 28, the Ninth Circuit reached a similar conclusion, describing the substance of the contracts before it as sports gambling and worrying that bingo games and pingpong matches would fall under CFTC jurisdiction.
The Third Circuit went the other way. In KalshiEX, LLC v. Flaherty, it held that sports-related event contracts traded on a CFTC-licensed designated contract market depend on event outcomes associated with economic consequences and fit the statutory definition of swaps. It acknowledged the states' concern about bingo and pingpong, but observed that Congress gave the agencies express authority to further define the term, and it cited the 2012 rulemaking that excluded insurance contracts and consumer transactions as the model for handling far-fetched scenarios.
That suggestion is now the rule. The interim final rule follows the Third Circuit's approach, and it says so. A district court in Illinois reached a compatible conclusion in October, holding that the Commodity Exchange Act applies to event contracts that take the form of swaps while not federalizing all gambling.
The states were not bystanders. Forty states and the District of Columbia filed a comment in the Commission's earlier rulemaking arguing that sports event contracts are indistinguishable from traditional sports betting. New Jersey told the Supreme Court that nothing in the Commodity Exchange Act gives the CFTC authority to become the sole regulator of sports gambling. Kentucky argued that treating event contracts as swaps would transfer every ounce of authority over sports wagering from the states to the federal government. The American Gaming Association made a similar point in an amicus brief in the Sixth Circuit case.
What the rule does not settle
The rule draws a line, but it does not end the litigation. An interim final rule is effective on publication, yet it remains open to comment and can be revised by a final rule. The Commission chose that procedure to give the market certainty now, but the choice also means the text published this week is not necessarily the text that survives.
Courts are also not bound by an agency's reading of a statute. The proposal cites the express delegation in Dodd-Frank section 712 as an independent basis for the definition, which is a stronger position than deference to an interpretation. It also cites the Supreme Court's 2024 decision in Loper Bright, which ended judicial deference to agency interpretations but preserved the possibility that a statute expressly delegates discretion to an agency. Whether the delegation to further define swap is broad enough to support both the exclusion and the inclusion is a question a challenger can still bring.
The drafting has a soft spot. Condition (B) bars trading on an exchange or on "any other market in which trades are executed multilaterally or subject to individual negotiation." A market where trades are individually negotiated is a standard description of an over-the-counter market, and the phrase is meant to keep negotiated derivatives inside the swap definition. But read literally, it could also reach private wagering arrangements that are negotiated case by case. The Commission's intent is clear from the context, and a court would likely read the phrase with the list around it.
The rule also does not resolve the states' enforcement authority. It says the Commodity Exchange Act does not reach licensed casino-style gambling. It does not say states cannot regulate event contracts, and it does not stop a state from arguing that a particular product is gambling rather than a swap. What it does is remove the federal-law premise that made the states' argument look like a choice between two regulators. The states can still regulate their own licensed markets. They cannot use the swap definition to reach an exchange-traded contract.
The comment window
Both comment periods close November 18. The exclusion is operative while the comments run, so licensed sportsbooks and casinos can rely on it now. The inclusion is not operative, so event contracts on exchanges remain governed by the statute and by the cases until the Commission finalizes the proposal.
The useful questions for the comment file are specific. Does the final exclusion keep the venue condition, or does it broaden the licensing test? Does the final inclusion keep the non-exhaustive list, or does it name categories with more precision? Does the Supreme Court take up the New Jersey case, and if it does, does the rule arrive in time to shape the argument? Does any state sue over the exclusion on the theory that the Commission has given up jurisdiction it was bound to exercise?
The Commission has done the hard part of stating a theory. The line it chose is administrable, it matches the one the Third Circuit suggested, and it gives both markets a regulator they can identify. The next year will show whether the line holds when a product sits close to it. A contract on the number of wins in a season is not a single game. A wager on a player's stat line is not a team outcome. The rule's two conditions will be tested at those edges, and the answers will come from courts and from the comment file, not from the press release.
Primary sources
- Further Definition of "Swap" To Exclude Casino-Style Gambling Products, 91 Fed. Reg. 65969, interim final rule effective October 19, 2026, for the regulatory text, the two conditions, the covered categories, the effective date and the November 18 comment deadline.
- Further Definition of "Swap"-Inclusions, proposed rule, October 19, 2026, for the proposed paragraph (2)(i)(G), the non-exhaustive list of event contracts, and the statement that the proposal does not reach casino-style gambling products.
- The interim final rule's discussion of KalshiEX LLC v. Schuler, No. 26-3196 (6th Cir. Sept. 25, 2026), KalshiEX, LLC v. Assad, No. 25-7516 (9th Cir. Aug. 28, 2026), and KalshiEX, LLC v. Flaherty, 172 F.4th 220 (3d Cir. 2026), for the competing circuit holdings and the states' positions.
- The rule's citations to the 40-state comment letter, New Jersey's brief in Flaherty v. KalshiEX, No. 26-299, Kentucky's filing in United States v. Kentucky, No. 3:26-cv-49 (E.D. Ky.), and the American Gaming Association's amicus brief in Schuler, for the state and industry arguments.