CFTC sends OMB two rules defining event contracts as swaps

The Commodity Futures Trading Commission has sent the White House's Office of Management and Budget two rulemakings that would settle by definition a question three federal appellate courts have answered three different ways: whether an event contract is a swap.

One would extend the regulatory definition of a swap to cover event contracts of the kind traded on Kalshi, Polymarket, Crypto.com and Robinhood; the other, an interim final rule, would remove "casino-style gambling products" from what can make up a swap. Both arrived at OMB this week, the last stop before a rule goes out for public comment, except that an interim final rule takes effect immediately and stays open afterward for input and revision.

A proposed rule opens a docket and waits; an interim final rule binds first and invites argument later. Filing the two together lets the agency press its reading of event contracts into service while the ordinary comment path runs, and the pairing is hard to miss: one move pulls event contracts inside the swap definition, the other pushes gambling outside it, establishing the boundary between a financial instrument and a wager that the states' gambling claims deny.

The swap definition is what gives the agency authority over these markets, since the CFTC regulates swaps and a product that is a swap is agency business rather than state business. The second rule is drafted around what a swap cannot be: anything left in the casino-style gambling category stays with the states, while anything defined out of it moves toward federal ground.

The CFTC has taken on the role of federal regulator of prediction markets and the event contracts they trade, which the coverage describes as generally binary yes-or-no bets on the outcome of measurable situations, sporting events and elections among them. Chairman Mike Selig's position is that jurisdiction over those markets belongs to the agency alone, and the agency has argued that case in court rather than waiting on it, suing states even as suits against the platforms—Kalshi routinely among them—proceed.

The courts have not converged on the agency's view. The most recent federal decision held that Kalshi's sports-tied contracts are not swaps and are subject to state gambling regulation, though an earlier ruling had come to a different conclusion. Last week the Sixth Circuit ruled the same way, the Eighth Circuit agreed in its own similar ruling, and the Third Circuit went the other way, finding that the CFTC has proper jurisdiction over prediction markets. CoinDesk's account of the split suggests the Supreme Court could eventually be asked to decide the question; the coverage does not say whether any party has sought review.

The four venues the coverage names are the ones whose product lines turn on which way the definition lands, and Kalshi has drawn the most state suits of the group. For them, an immediately effective rule classifying their contracts as swaps would arrive as a federal answer to a question state regulators have been answering for themselves.

These are another two filings, not a pair standing alone. If event contracts are swaps, and swaps are not gambling products, the premise under which a state sues a prediction-market operator for running an illegal gambling platform gets weaker, and that is the practical weight both filings carry.

With the Senate's Clarity Act dead at 49-50, the market-structure definitions a statute would have fixed are now coming out of the agencies, a shift this publication described when the bill failed. The CFTC's route through OMB is by now familiar: a September 18 crypto rulemaking arrived there with its contents undisclosed. This week's pair arrives with more of its shape visible, and with an effective date attached to half of it.

An interim final rule changes the order in which objections matter: comments on a proposal can shape the text before it binds, while comments on an interim final rule arrive after it does. For states contesting the definition and for platforms relying on it, that suggests the argument moves from the comment docket toward the courthouse faster than a conventional rulemaking would allow—in a matter that is already there.

A rule classifying event contracts as swaps would not by itself overturn the Sixth and Eighth Circuit holdings. It would change the ground on which the next round of cases is argued, since the definition would then come from the agency's rulebook rather than from a panel's reading, sending the definitional question back to an appellate bench rather than settling it where it stands.

The interim final rule leaves its comment docket open after taking effect, and the proposed swap definition will take longer to move; the split among the circuits has no obvious resolution short of the Supreme Court. The filings do not say when the rule would take effect once OMB clears it.