CFTC Proposes Redefining the Term 'Swap' as Courts Diverge on Kalshi

The Commodity Futures Trading Commission sent two rules to the White House this week that seek to redefine the term "swap", a key concept in the jurisdictional dispute over prediction markets. The filings arrived at the Office of Information and Regulatory Affairs on September 28, 2026; one proposal would expand the definition to cover event contracts, while a final interim rule would exclude casino-style products. Neither of the documents is classified as economically significant, and the agency has not yet published the texts.

Why 'Swap' Definition Matters for Prediction Markets

The definition is central because swaps fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). Platforms like Kalshi have invoked that federal status to oppose state regulation over prediction markets. If a contract is deemed a swap, the CFTC has exclusive jurisdiction; if not, states like Ohio and Tennessee could enforce their gambling laws.

The CFTC's intervention seeks to provide regulatory clarity on which contracts fall under the federal umbrella and which do not. Dodd-Frank authorizes the agency to specify the notion of "swap", which will make the rule an additional regulatory argument in litigation, although it does not guarantee automatic judicial deference following the Supreme Court's ruling in Loper Bright (2024).

Legal Timeline and Court Divergence Pushing to the Supreme Court

The dates arise from recent litigation. On September 25, 2026, the Sixth Circuit Court of Appeals issued a unanimous decision stating that Kalshi did not demonstrate that its sports contracts were swaps, leaving the gambling laws of Ohio and Tennessee open for application. The Sixth Circuit found that those contracts do not depend on events with a financial, economic, or commercial consequence.

The Ninth Circuit reached a similar conclusion in August 2026 in a Nevada case. In contrast, the Third Circuit ruled in favor of Kalshi in April 2026, by a vote of 2-1. This divergence between circuits fuels the likelihood that the Supreme Court will have to resolve the issue regarding statutory interpretation.

What the CFTC Proposes: Events In, Casino Out

The two filings presented to the OIRA follow different but complementary paths: the rule proposal would expand the scope of the term "swap" to include event-based contracts, placing instruments such as sports markets and other event markets under federal jurisdiction. The final interim rule, on the other hand, would explicitly exclude "casino-style" products—contracts linked to pure luck games—from the scope of the definition.

The Commission, chaired by Michael Selig, had already suggested in June that contracts on pure luck games would likely "be found contrary to the public interest". An interim rule may take effect without prior public comment, so the exclusion of casino-style products could be applied before the expanded definition of events.

"Contracts on pure luck games would likely be found contrary to the public interest," the Commission wrote in its June proposal, according to the filing.

Practical Consequences for Platforms and State Policy

Read together, the filings chart a narrow federal track: sports contracts and other event contracts would fall within the definition of a swap, while markets tied to slots and table games would remain outside. This would limit gambling-related prediction markets to sports events and other information-valuable events, which is the position defended by the sector.

The organized industry has also influenced the framing. The Coalition for Prediction Markets, a group representing Kalshi and Crypto.com among others, has stated its support for banning markets linked to slot machines and roulette. This alignment reduces friction between the proposed federal regulatory stance and some platforms’ preferences to focus on event markets.

Politically, the exclusion of casino games likely seeks to mitigate legislative pushback. Eight states, including California and New York, currently enforce legal bans on double-coin sweepstakes casinos. Keeping prediction markets separate from slots and table games may help avoid similar state pushback.

Critiques and Points of Friction

Opponents will not be satisfied with a limited federal redefinition. The American Gaming Association argues that prediction markets represent a form of gambling that operates outside state and tribal regulatory frameworks. The Sixth Circuit wrote in its ruling that Kalshi's sports contracts, in practice, operate like sports bets.

A federal definition will reconfigure legal arguments, but the final say on whether a sports contract constitutes a swap will likely rest with the Supreme Court if the case progresses that far.

What Operators and Suppliers Should Watch

Operators, technology providers, and compliance officers must monitor the official publication of the texts that the CFTC has yet to release and follow the OIRA timeline. The difference between a proposed rule and a final interim rule is material: the interim can take effect immediately. Practically, the proposed rule regarding event contracts and the one excluding casino products will create a new compliance map for prediction markets.

For the sector, the central question remains operational and legal: which contracts fall under federal oversight and which will face state regulation. That decision will determine product design, licensing strategies, and the regulatory focus that platforms like Kalshi and other entities mentioned by the Coalition for Prediction Markets will face.

For related reading on regulatory implications for gambling and markets, see analysis in the regulation section and product topics in b2b.