New York asks judge to ignore CFTC proposed swaps rule in Kalshi fight

The State of New York asked a federal judge on 23 October 2026 to disregard a Commodity Futures Trading Commission (CFTC) proposal that would explicitly classify contracts on sporting events as swaps, arguing the rulemaking has no legal effect on the federal government’s suit to block state enforcement actions against prediction markets. The filing coincided with a panel discussion the same day at the NEXTPredict summit in New York.

New York argues the CFTC proposal should carry no weight

In a letter submitted on 23 October to U.S. District Judge Lorna Schofield, the New York Attorney General’s Office, led by Letitia James, said the CFTC’s proposed rule “should not be given any weight” in deciding the federal government’s request for a preliminary injunction. That injunction would temporarily stop the state from enforcing its gambling laws against exchanges the federal administration considers within CFTC jurisdiction.

The letter, shared by gaming lawyer Daniel Wallach on LinkedIn, called the proposal “irrelevant” and said it carries “no persuasive or evidentiary value.” New York argued that a notice of proposed rulemaking is “simply a proposal” that the agency may adopt, change, or withdraw; it pointed to the CFTC’s withdrawal earlier this year of a 2024 proposal that would have restricted certain event contracts, to show the agency’s positions can change.

Objections to CFTC authority and to the rulemaking process

The state went further than noting the rule is not yet final. It argued that even if the CFTC finalized the rule, the agency cannot expand the definition of swap beyond what the Commodity Exchange Act authorises. New York also challenged the interim final rule that took effect on 19 October 2026 and that excludes conventional sportsbook wagers and casino games from the definition of swaps. In a separate 23 October filing, the state said the distinction between traditional sports betting and exchange-traded event contracts lacks a basis in federal law.

The Attorney General’s Office also questioned the CFTC’s decision to adopt the interim rule without first seeking public comment, alleging the agency did not follow required rulemaking procedures.

Legal debate at NEXTPredict over the rule’s legal force

At the NEXTPredict panel on 23 October, Josh Sterling, a partner at Milbank and a former CFTC official who represents Kalshi in litigation against state regulators, said:

"I think that the proposed rule is pretty helpful," Sterling said, arguing that placing the agency’s interpretation directly into a federal regulation could strengthen its legal position.

Brigitte Weyls, general counsel at Gemini and also a former CFTC attorney, asked whether the agency actually has the power to define which transactions constitute gaming. "Does the CFTC actually have the authority to define gaming?" Weyls asked, adding that she expects litigation regardless of the outcome.

Sterling replied by citing Dodd-Frank provisions that task the CFTC and the Securities and Exchange Commission with more precisely defining swaps. Regarding the 19 October interim rule, he said the regulation is not merely an exercise of discretion but rests on authority Congress specifically granted.

Immediate impact on litigation and Kalshi’s responses

Daniel Wallach wrote on LinkedIn that the CFTC’s recent rulemaking “is emerging as an issue in prediction-market cases around the country,” as Kalshi and other exchanges seek to pause pending proceedings until rulemaking concludes or use the agency’s evolving definitions to support their jurisdictional arguments.

On 9 October 2026, the same day the CFTC announced its proposed swap definition, Kalshi asked the Sixth Circuit to reconsider a ruling that allowed Ohio and Tennessee to apply their sports-betting laws to the exchange. In that filing, Kalshi argued the CFTC’s new rules “substantially undercut the panel’s ruling on the meaning of ‘swap.’”

Kalshi invoked the rules again in a complaint filed on 23 October 2026 against Louisiana authorities, seeking to block state enforcement against its sports contracts. The complaint states verbatim: "Together, these rulemakings confirm that Kalshi's sports event contracts are swaps within the CFTC's exclusive jurisdiction." That sentence appears in the complaint.

Federal circuits split and actions centred in New York

The appellate courts are divided. The Third Circuit ruled for Kalshi in its dispute with New Jersey. The Sixth Circuit held its sports contracts are not swaps. The Ninth Circuit concluded they likely do not qualify as swaps. New Jersey asked the U.S. Supreme Court on 2 September 2026 to review the Third Circuit decision, so the issue could reach the high court.

Meanwhile New York has become a focal point of the disputes: the state maintains suits against Kalshi and Polymarket and, on 22 October 2026, the New York State Gaming Commission asked a state court to compel Kalshi to comply with investigatory subpoenas. The commission seeks records on the platform’s sports contracts, users under 21, advertising practices that describe its products as wagers or bets, and ownership and corporate structure. The commission alleges Kalshi refused to comply with some requests and provided insufficient responses to others.

On 23 October 2026 Daniel Wallach posted on Twitter (now X) that the commission had sued Kalshi in New York County Supreme Court to force compliance with the subpoenas.

The commission says it needs those records to decide whether to impose civil penalties on Kalshi and potentially others for violations of the state’s gambling laws. The central question remains how much weight judges will give the CFTC’s unfolding determinations, or whether they will accept New York’s position that the proposed rule deserves no consideration at all.