Proposed Rule2026-21377
Further Definition of “Swap”-Inclusions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 19, 2026
Issuing agencies
Commodity Futures Trading Commission
Abstract
Consistent with its jurisdiction over swaps, the Commodity Futures Trading Commission ("Commission" or "CFTC") is proposing to further define the term "swap" to explicitly include event contracts, including those based on sports-, politics-, cultural-, and weather- related events (the "Proposal").
Full Text
<html>
<head>
<title>Federal Register, Volume 91 Issue 200 (Monday, October 19, 2026)</title>
</head>
<body><pre>
[Federal Register Volume 91, Number 200 (Monday, October 19, 2026)]
[Proposed Rules]
[Pages 66022-66033]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-21377]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
RIN 3038-AF82
Further Definition of ``Swap''--Inclusions
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: Consistent with its jurisdiction over swaps, the Commodity
Futures Trading Commission (``Commission'' or ``CFTC'') is proposing to
further define the term ``swap'' to explicitly include event contracts,
including those based on sports-, politics-, cultural-, and weather-
related events (the ``Proposal'').
DATES: Comments must be received by November 18, 2026.
ADDRESSES: You may submit comments, specifically referencing ``Further
Definition of `Swap'--Inclusions'' and RIN 3038-AF82, by any of the
following methods:
<bullet> <a href="http://Regulations.gov">Regulations.gov</a>: Go to <a href="https://www.regulations.gov">https://www.regulations.gov</a> and
press the ``Search'' button, then proceed as follows:
1. Under Refine Documents Results--check the box to ``Only show
documents open for comment'';
2. Under Agency--select ``See More'' and check the box for
``Commodity Futures Trading Commission,'' then press the Apply button;
3. Identify this Proposal in the list of CFTC documents open for
comment, press the ``Comment'' button to open the submission form, and
follow the instructions on the form.
Alternatively, if you are viewing this Proposal on
<a href="http://www.federalregister.gov">www.federalregister.gov</a>, click the ``Submit A Public Comment'' button
at the top of the page to open the comment form. Follow the
instructions on the form to submit your comment to <a href="http://Regulations.gov">Regulations.gov</a>.
<bullet> Mail: Send to--Christopher Kirkpatrick, Secretary of the
[[Page 66023]]
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
<bullet> Hand Delivery/Courier: Address to--CFTC Comment
Submission, Attn: Christopher Kirkpatrick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW, Washington, DC 20581.
Please submit your comments using only one of these methods. To
avoid possible delays with mail or in-person deliveries, submissions
through <a href="http://Regulations.gov">Regulations.gov</a> are encouraged. As required by the
Administrative Procedure Act, a plain language summary of the rule is
also available at <a href="http://Regulations.gov">Regulations.gov</a>.\1\
---------------------------------------------------------------------------
\1\ 5 U.S.C. 553(b)(4).
---------------------------------------------------------------------------
All comments must be submitted in English or, if not, accompanied
by an English translation. Do not include in your comment text or
attachments any personal identifying information or business
information that you do not want published online. Comments (regardless
of submission method) will be published without review for, and without
removal of, any personal identifying information or information your
business may consider confidential.
If you wish to submit confidential information for the Commission's
consideration, please contact the CFTC personnel listed in this Notice
under FOR FURTHER INFORMATION CONTACT before making any submission.
Please also carefully review the Commission's procedures in 17 CFR
145.9 for requesting confidential treatment under the Freedom of
Information Act (FOIA) of information submitted to the Commission.
The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, or redact all or any part of your comment
submission. The CFTC also reserves the right, without further
notification, to refuse to publish or to remove from public view all or
any part of your submission to the extent it contains content
inappropriate for publication in a comment file, such as--without
limitation--obscene language, threats of violence, solicitations for
commercial sales or illegal activity, or obvious spam. If a submission
that is refused for or withdrawn from publication because of
inappropriate content also contains comments on the merits of this
Proposal, such submission will be retained in the record for the matter
and will be considered as required under the Administrative Procedure
Act and other applicable laws, and may be accessible under the FOIA.
FOR FURTHER INFORMATION CONTACT: Tyler S. Badgley, General Counsel;
Aaron M. Levine, Deputy General Counsel for Regulation,
<a href="/cdn-cgi/l/email-protection#394b4c555c54585250575e795a5f4d5a175e564f"><span class="__cf_email__" data-cfemail="deacabb2bbb3bfb5b7b0b99ebdb8aabdf0b9b1a8">[email protected]</span></a>, 202-418-5000, Office of the General Counsel,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'') established a comprehensive
regulatory framework for swaps.\2\ Section 712(d)(1) of the Dodd-Frank
Act provides that the Commission and the Securities and Exchange
Commission (``SEC''), in consultation with the Board of Governors of
the Federal Reserve System (the ``Federal Reserve Board''), shall
jointly further define, among other terms, the term ``swap.'' \3\
Pursuant to this requirement, in 2012, the Commission and the SEC, in
consultation with the Federal Reserve Board, issued a final rule
further defining the term ``swap'' and other terms.\4\
---------------------------------------------------------------------------
\2\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376, 1641 (2010). The text of
the Dodd-Frank Act is available at <a href="http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm">http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm</a>.
\3\ Dodd-Frank Act sec. 712(d)(1), 15 U.S.C. 8302(d)(1)
(directing the CFTC and SEC to undertake joint rulemaking on covered
topics). The CFTC shares jurisdiction over mixed swaps and security
futures with the SEC, and the SEC has sole jurisdiction over
security-based swaps. See Commodity Exchange Act (``CEA'') sec.
1a(44), 7 U.S.C. 1a(44), and secs. 3(a)(55) and 3(a)(68) of the
Securities Exchange Act of 1934 (``Exchange Act''), 15 U.S.C.
78c(a)(55) and 78c(a)(68). The Commission has consulted with the
Federal Reserve Board by sharing this Proposal.
\4\ Further Definition of ``Swap,'' ``Security-Based Swap,'' and
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping, 77 FR 48208 (Aug. 13, 2012) (``Further
Definition Release'').
---------------------------------------------------------------------------
This Proposal seeks to clarify that event contracts, including
those based on sports-, politics-, cultural-, and weather-related
events, are swaps within the CFTC's jurisdiction. The CFTC has
historically recognized that many event contracts are covered by the
Commodity Exchange Act's (the ``CEA'') swap definition.\5\ Under
section 1a(47)(A) of the CEA, the term swap is defined ``broadly.'' \6\
As discussed further in this section below, CEA section 1a(47)(A)(ii)
defines ``swap'' to include ``any agreement, contract, or transaction .
. . that provides for any purchase, sale, payment, or delivery (other
than a dividend on an equity security) that is dependent on the
occurrence, nonoccurrence, or the extent of the occurrence of an event
or contingency associated with a potential financial, economic, or
commercial consequence.'' \7\
---------------------------------------------------------------------------
\5\ Event contracts might be structured as other instruments
such as futures contracts, which are excluded from the statutory
definition of ``swap.'' CEA section 1a(47)(B), 7 U.S.C. 1a(47)(B)
(providing ``exclusions'' from the definition of ``swap'' under the
CEA, including futures, options on futures, securities such as
options on securities and indexes of securities, security-based
swaps, and debt securities). Certain event contracts may be
security-based swaps or other instruments subject to the SEC's
jurisdiction. See 7 U.S.C. 1a(47)(B) (providing ``exclusions'' from
the definition of ``swap'' under the CEA, including for securities
such as security based- swaps, certain options, and debt
securities); see also, e.g., 15 U.S.C. 78c(a)(68)(A) (defining
``security-based swap'' under the Securities Exchange Act of 1934).
This Proposal does not propose to further define the term
``security-based swap.''
\6\ United States v. Phillips, 155 F.4th 102, 113 (2d Cir.
2025).
\7\ 7 U.S.C. 1a(47)(A)(ii).
---------------------------------------------------------------------------
The broad nature of clause (ii) of the swap definition is in
keeping with the broad definition of the term ``commodity'' in the CEA.
The 1974 amendments to the CEA expanded the definition of the term
``commodity'' to encompass ``all services, rights, and interests in
which contracts for future delivery are presently or in the future
dealt in.'' \8\ In 2000, Congress reaffirmed the broad scope of the
commodity definition in adding the term ``excluded commodity'' to the
CEA--which, despite the name, is a commodity.\9\ This term includes,
among other indices and measures, any ``occurrence, extent of an
occurrence, or contingency'' of financial, commercial, or economic
consequence that is beyond the control of any party to the relevant
derivatives contract and is not based on a change in the price, rate,
value, or level of a physical commodity.\10\ Derivatives
[[Page 66024]]
contracts based on these `` excluded commodities'' are subject to the
Commission's jurisdiction just as derivatives based on other
commodities are.
---------------------------------------------------------------------------
\8\ See CEA sec. 1a(9), 7 U.S.C. 1a(9) (defining ``commodity'').
\9\ The definition of ``excluded commodity'' was adopted as part
of an amendment to the CEA to exclude certain contracts based on
financial commodities or commodities with an infinite supply from
the requirement that contracts for the sale of a commodity for
future delivery be traded on an exchange registered with the CFTC
(the ``exchange trading requirement''). See infra note 72 and
accompanying text. Still, the ``excluded commodities'' are within
the definition of ``commodity.'' See United States v. Wilkinson, 986
F.3d 740, 745 (7th Cir 2021) (futures based on ``excluded
commodities'' ``remain `commodities' under the Act as a whole'').
\10\ CEA sec. 1a(19), 7 U.S.C. 1a(19). Specifically, the statute
provides that the term ``excluded commodity'' includes ``an
occurrence, extent of an occurrence, or contingency (other than a
change in the price, rate, value, or level of a commodity not
described in clause (i)) that is--(I) beyond the control of the
parties to the relevant contract, agreement, or transaction; and
(II) associated with a financial, commercial, or economic
consequence,'' where ``clause (i)'' refers to the first clause of
the definition. CEA sec. 1a(19)(iv), 7 U.S.C. 1a(19)(iv).
---------------------------------------------------------------------------
The definition of ``excluded commodity'' makes clear that events
that fall within the definition, including those related to sports,
politics, culture, and weather, are themselves commodities.\11\ The
CFTC has a long history of regulating event contracts. ``Since 1992,
Commission-regulated exchanges have listed for trading a variety of
commodity futures and options contracts with payout terms based on''
events ``as diverse as regional insured property losses, the count of
bankruptcies, temperature volatilities, corporate mergers, and
corporate credit events,'' and in subsequent years, event contracts
encompassed ``the accomplishment of certain scientific advances, world
population levels, the adoption of particular pieces of legislation,''
and even ``the length of celebrity marriages.'' \12\ In 1993, the
Commission issued a no-action letter to Iowa Electronic Markets,
allowing the facility to list event contracts tied to U.S. and Canadian
elections.\13\ In 2004, the CFTC designated the first contract market
(``DCM'') dedicated to listing contracts based on events that are
excluded commodities.\14\ Initially, these contracts were structured as
commodity options known as ``binary options,'' the cash settlement of
which was based on whether a specified event had occurred.\15\
---------------------------------------------------------------------------
\11\ See CFTC, Statement of Commissioner Brian D. Quintenz on
ErisX RSBIX NFL Contracts and Certain Event Contracts (Mar. 25,
2021) (``When we think of commodities, we think of tangible things.
. . . But what about an event? An election? Whether the Summer
Olympics will occur in Japan? A . . . football game? Those, too, are
commodities!''), available at <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement032521">https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement032521</a>.
\12\ Concept Release on Appropriate Regulatory Treatment of
Event Contracts, 73 FR 25669, 25670-71 (May 7, 2008).
\13\ CFTC Staff Letter No. 93-66 (June 18, 1993), available at
<a href="https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/93-66.pdf">https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/93-66.pdf</a>.
\14\ See CFTC Release No. 4894-04, CFTC Designates HedgeStreet
as a Contract Market and as a Registered Clearing Organization (Feb.
20, 2004), and the related DCM Order of Designation for HedgeStreet,
Inc. (Feb. 18, 2004), available at <a href="https://www.cftc.gov/sites/default/files/opa/press04/opa4894-04.htm">https://www.cftc.gov/sites/default/files/opa/press04/opa4894-04.htm</a>. In 2009, HedgeStreet
changed its name to North American Derivatives Exchange, Inc., or
Nadex, and in 2025, Nadex transitioned to the <a href="http://Crypto.com">Crypto.com</a> platform.
See summary of registration, available at <a href="https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizations/34536">https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizations/34536</a>. It
continues to list contracts on foreign exchange, equity indices,
commodity prices, and digital assets.
\15\ See, e.g., Letter from HedgeStreet, Inc. to David Stawick,
Sec'y, CFTC, Re: Rule Certification: HedgeStreet's listing of new
Germany 30 Binary Hedgelet Contracts (Oct. 30, 2008), available at
<a href="https://www.cftc.gov/sites/default/files/stellent/groups/public/@rulesandproducts/documents/ifdocs/rul103008hedgestreet001.pdf">https://www.cftc.gov/sites/default/files/stellent/groups/public/@rulesandproducts/documents/ifdocs/rul103008hedgestreet001.pdf</a>.
---------------------------------------------------------------------------
Under the plain language of the CEA, event contracts are implicated
by four clauses of the ``swap'' definition.
First, CEA section 1a(47)(A)(ii) defines ``swap'' to include ``any
agreement, contract, or transaction . . . that provides for any
purchase, sale, payment, or delivery (other than a dividend on an
equity security) that is dependent on the occurrence, nonoccurrence, or
the extent of the occurrence of an event or contingency associated with
a potential financial, economic, or commercial consequence.'' \16\
---------------------------------------------------------------------------
\16\ 7 U.S.C. 1a(47)(A)(ii).
---------------------------------------------------------------------------
Second, CEA section 1a(47)(A)(i) includes binary options and other
commodity options in the ``swap'' definition by including ``any
agreement, contract, or transaction . . . that is a put, call, cap,
floor, collar, or similar option of any kind that is for the purchase
or sale, or based on the value, of 1 or more interest or other rates,
currencies, commodities, securities, instruments of indebtedness,
indices, quantitative measures, or other financial or economic
interests or property of any kind.'' \17\
---------------------------------------------------------------------------
\17\ 7 U.S.C. 1a(47)(A)(i). A binary option is thus a type of
swap which is an ``option whose payoff is either a fixed amount or
zero.'' See CFTC, Futures Glossary, available at <a href="https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CFTCGlossary/index.htm#B">https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CFTCGlossary/index.htm#B</a>.
---------------------------------------------------------------------------
Third, CEA section 1a(47)(A)(iv) includes in the ``swap''
definition ``an agreement, contract, or transaction that is, or in the
future becomes, commonly known to the trade as a swap.'' \18\
---------------------------------------------------------------------------
\18\ 7 U.S.C. 1a(47)(A)(iv).
---------------------------------------------------------------------------
Finally, CEA section 1a(47)(A)(vi) makes clear that the ``swap''
definition includes ``any combination or permutation of, or option on,
any agreement, contract, or transaction described in any of clauses (i)
through (v)'' of CEA section 1a(47)(A).\19\
---------------------------------------------------------------------------
\19\ 7 U.S.C. 1a(47)(A)(vi).
---------------------------------------------------------------------------
In addition to the ``swap'' definitions provided by the statute,
the Dodd-Frank Act included several provisions that give the Commission
authority to further define ``swap.'' First, Dodd-Frank Act section
712(d)(2), 15 U.S.C. 8302(d)(1), directs the CFTC and SEC, in
consultation with the Federal Reserve Board, to ``further define'' the
term ``swap.'' \20\ Second, Dodd-Frank Act section 721(b), 15 U.S.C.
8321(a)(2), permits the CFTC to define any term included in an
amendment to the CEA in Subtitle A of the Wall Street Transparency and
Accountability Act of 2010, which includes the term ``swap.'' Third,
Dodd-Frank Act section 721(b), 15 U.S.C. 8321(b), directs the CFTC to
further define ``swap'' to include transactions and entities that have
been structured to evade Subtitle A.
---------------------------------------------------------------------------
\20\ As mentioned, the CFTC and SEC, in consultation with the
Federal Reserve Board, first further defined ``swap'' in a 2012
joint rulemaking. Further Definition Release, 77 FR 48208. In that
rulemaking, the CFTC and SEC noted that, while ``[t]he statutory
definitions of the terms `swap' and `security-based swap' are
detailed and comprehensive, . . . the definitions could be read to
include certain types of agreements, contracts, and transactions
that previously have not been considered swaps or security-based
swaps, and nothing in the legislative history of the Dodd-Frank Act
appears to suggest that Congress intended such agreements,
contracts, or transactions to be regulated as swaps or security-
based swaps.'' The CFTC and SEC thus used their authority ``to
further clarify the treatment under the definitions of certain types
of agreements, contracts, and transactions.'' Id. at 48211.
---------------------------------------------------------------------------
In recent months, States have taken actions and courts have issued
rulings that undermine the CFTC's jurisdiction over event contracts.
The State of Minnesota enacted a criminal prohibition on the operation
or facilitation of a ``prediction market,'' which purports to make it a
felony to offer event contracts on athletic events, elections,
policymaking decisions, and a variety of other events.\21\ The State of
Arizona filed a ``twenty-count criminal information'' against a DCM in
Arizona Superior Court for offering event contracts on sports and
elections in the State.\22\ The State of New York sought a temporary
restraining order in State court that would prohibit a DCM from
offering event ``contracts relating to sports, culture, elections, and
other events'' ``within or from New York or to persons in New York.''
\23\ Because that DCM is headquartered in New York, that relief
threatens to prohibit it from offering event contracts nationwide. That
same DCM has also been ordered by State trial courts to geofence its
offering of sports-related event contracts in the States of Michigan,
Washington, and Nevada.\24\
---------------------------------------------------------------------------
\21\ United States v. Minnesota, Nos. 26-cv-2661, 26-cv-2778,
26-cv-2841, __F. Supp. 3d __, 2026 WL 2150211, at *4-5 (D. Minn.
July 27, 2026) (citing Minn. Stat. 609.7615, subd. 1(e)).
\22\ KalshiEX LLC v. Johnson, 832 F. Supp. 3d 954, 958 (D. Ariz.
2026).
\23\ People of the State of New York v. KalshiEX LLC, Index No.
453272/2026, Doc. 3 at 2 (N.Y. Sup. Ct. July 31, 2026); see People
of the State of New York v. KalshiEX LLC, No. 1:26-cv-06550, Dkt.
No. 1 (S.D.N.Y. July 31, 2026) (removed to Federal court).
\24\ Nessel v. KalshiEX LLC, No. 26-1087-CZ at 3-4 (30th Jud.
Dist. Circuit Ct. June 29, 2026); State of Washington v. KalshiEX,
LLC, No. 26-2-10264-3 SEA (King Cnty. Superior Ct. Aug. 12, 2026);
State of Nevada ex rel. Nevada Gaming Control Board v. KalshiEX,
LLC, No. 260000050-1B (1st Jud. Dist. Ct. Nev.).
---------------------------------------------------------------------------
[[Page 66025]]
To date, three Federal courts of appeals have issued rulings
concerning whether an event contract whose underlying is related to an
outcome of a sporting event is a swap under CEA section 1a(47)(A)(ii).
In April 2026, a divided panel of the United States Court of Appeals
for the Third Circuit held in KalshiEX, LLC v. Flaherty that because
``sports-related event contracts are traded on a CFTC-licensed DCM and
depend on event outcomes associated with economic consequences, they
fit within the Act's definition of `swaps' subject to the CFTC's
jurisdiction.'' \25\ The dissenting judge also agreed that a ``plain
reading of the Act's text suggests that [ ] sports-event contracts fit
comfortably within the statutory definition.'' \26\
---------------------------------------------------------------------------
\25\ ,172 F.4th 220, 228 (3d Cir. 2026) (citing 7 U.S.C.
2(a)(1)(A), 1a(47)(A)(ii)).
\26\ Id. at 223 (Roth, J., dissenting).
---------------------------------------------------------------------------
In August 2026, the United States Court of Appeals for the Ninth
Circuit adopted the opposite interpretation of CEA section
1a(47)(A)(ii).\27\ After acknowledging that ``the CEA expressly
preempts state law regulating swaps `traded or executed on' a DCM,''
the court rejected the ``dictionary definitions'' and ``plain-language
appeal'' of the Third Circuit's interpretation and concluded that, as
used in the CEA, ``event'' means something different from ``a thing
that happens or takes place.'' \28\ The court stated that the
``substance'' of the sports event contracts at issue was ``sports
gambling, regardless of whether [the DCM] calls them swaps'' (and, by
inference, regardless of whether the CFTC regulates them as swaps).\29\
It expressed concern that the plain-text interpretation of the
definition swap would subject bingo games and ping-pong matches to the
CFTC's jurisdiction.\30\ For these and other reasons involving the
court's understanding of the CEA's ``context'' and ``history,'' \31\
the court ultimately ``conclude[d] that these sports event contracts
are likely not swaps under the CEA.'' \32\ The Ninth Circuit did not
address whether sports event contracts could qualify as swaps under
other prongs of the CEA swap definition, including sections
1a(47)(A)(i) and (iv). A petition for rehearing and rehearing en banc
has been filed in that case.\33\
---------------------------------------------------------------------------
\27\ KalshiEX, LLC v. Assad, No. 25-7516, __F.4th __, 2026 WL
2543846, at *8-*15 (9th Cir. Aug. 28, 2026).
\28\ Id. at 8. The court did not offer a competing definition of
``event.''
\29\ Id. at 10.
\30\ Id. at 11 (quoting Flaherty, 172 F.4th at 228).
\31\ Id. at 9 (citation omitted).
\32\ Id. at 15.
\33\ KalshiEX LLC v. Assad, No. 25-7516, Dkt. No. 206.1 (9th
Cir. Sep. 9, 2026); Fed. R. App. P. 41(b) (mandate does not issue
until 7 days after entry of an order denying timely petition for
panel rehearing or rehearing en banc).
---------------------------------------------------------------------------
In September 2026, a panel of the United States Court of Appeals
for the Sixth Circuit also held that sports-related event contracts are
not ``swaps,'' albeit for somewhat different reasons than the Ninth
Circuit panel.\34\ Unlike the Ninth Circuit, the Sixth Circuit
acknowledged that ``[d]ictionaries commonly define an `event' to
include an `outcome,' '' and ``nothing in the statutory text provides a
clear indication that the event must be defined to exclude outcomes.''
\35\ Thus, ``it would be reasonable to describe the Giants winning the
Super Bowl'' as an ``event,'' even if it is also ``the outcome of the
game.'' \36\ However, the court held that sports events are not
``associated with a potential financial, economic, or commercial
consequence,'' explaining that the relevant event must be ``inherently
associated with a `financial, economic, or commercial consequence.' ''
\37\
---------------------------------------------------------------------------
\34\ KalshiEX LLC v. Schuler, Nos. 26-3196, 26-5235, __F.4th __,
2026 WL 2884087 (6th Cir. Sept. 25, 2026).
\35\ Id. at * 9.
\36\ Id.
\37\ Id. at *11 (emphasis added).
---------------------------------------------------------------------------
As the above discussion demonstrates, there is widespread confusion
and disuniformity about the definition of swap. The Commission
therefore proposes to exercise its statutory authority to ``further
define'' swap and expressly clarify that event contracts, including
those based on sports-, politics-, cultural-, and weather-related
events, are swaps.
Statutory Authority
Section 712(d)(1) of the Dodd-Frank Act provides that the
Commission and the SEC, in consultation with the Federal Reserve Board,
shall jointly further define, among other terms, the term ``swap.''
\38\ Section 712(d)(2)(A) further empowers the Commission and the SEC,
in consultation with the Federal Reserve Board, to ``jointly adopt such
other rules regarding such definitions as the [CFTC and SEC] determine
are necessary and appropriate, in the public interest, and for the
protection of investors.'' \39\
---------------------------------------------------------------------------
\38\ Dodd-Frank Act sec. 712(d)(1), 15 U.S.C. 8302(d)(1)
(directing the CFTC and SEC to undertake joint rulemaking on covered
topics). This release proposes a rule of the CFTC that addresses
matters within the exclusive jurisdiction of the CFTC. The SEC joins
in proposing this rule in satisfaction of the statutory requirement
in section 712(d)(1). The Proposal does not address or otherwise
relate to matters within the jurisdiction of the SEC.
\39\ Dodd-Frank Act sec. 712(d)(2)(A), 15 U.S.C. 8302(d)(2)(A).
---------------------------------------------------------------------------
II. Proposed Rule
The Commission is proposing to further define the term swap in the
context of event contracts. Specifically, the Commission proposes to
add new paragraph (2)(i)(G) to the definition of ``swap'' in Sec. 1.3
of the Commission's regulations.\40\ This proposed addition identifies
as swaps event contracts, including, in a non-exhaustive list, those
based on sports-, politics-, cultural-, and weather-related events.\41\
As discussed in more detail below, event contracts, including those
based on sports-, politics-, cultural-, and weather-related events, are
financial instruments that are commonly known to the trade as swaps,
structured as binary options, and/or structured to make payment
dependent on the occurrence, nonoccurrence, or the extent of the
occurrence of an event or contingency associated with a potential
financial, economic, or commercial consequence. It is the Commission's
view that the best reading of the statute is that event contracts based
on sports-, political-, cultural-, or weather-related events qualify as
swaps under each of these statutory prongs. In addition, the
Commission's exercise of its express statutory authority to ``further
define'' the term ``swap'' provides an independent legal basis to deem
these contracts as swaps.\42\
---------------------------------------------------------------------------
\40\ 17 CFR 1.3.
\41\ As described above in note 5, event contracts might be
structured as other instruments such as futures contracts, which are
excluded from the statutory definition of ``swap.'' Additionally,
certain event contracts may be security-based swaps or other
instruments subject to the SEC's jurisdiction. The event contracts
at issue in this Proposal are those that are within the definition
of ``swap'' subject to the CFTC's jurisdiction, and not those that
might be futures or SEC-regulated instruments. Furthermore, the
proposed addition would not reach casino-style gambling products,
which, as the Commission describes in a separate rulemaking, are not
swaps subject to the Commission's jurisdiction.
\42\ Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 395
(2024) (``In a case involving an agency, of course, the statute's
meaning may well be that the agency is authorized to exercise a
degree of discretion. . . . For example, some statutes `expressly
delegate[ ]' to an agency the authority to give meaning to a
particular statutory term.'' (quoting Batterton v. Francis, 432 U.S.
416, 425 (1977)); id. at 395 n.5 (citing examples).
---------------------------------------------------------------------------
First, the Commission believes that event contracts, including
those based on sports-, politics-, cultural-, and weather-related
events are ``commonly known to the trade as a swap'' within the meaning
of prong (iv) of the swap definition.\43\ The Commission
[[Page 66026]]
understands the phrase ``commonly known to the trade as a swap'' as a
residual, catch-all prong intended to cover instruments that, in the
market's view, are swaps.\44\ The Commission further understands ``the
trade'' in this context to mean those who participate in the
derivatives markets, including the CFTC, its registrants, and traders,
rather than some broader group, such as the general public.\45\
Furthermore, the Commission notes that this standard does not require
universal recognition--``commonly known'' is not the same as
``universally known.'' In this regard, the scope of prong (iv) should
be informed by the actual practice of market participants and the
longstanding regulatory treatment of instruments by the CFTC.
---------------------------------------------------------------------------
\43\ CEA sec. 1a(47)(A)(iv), 7 U.S.C. 1a(47)(A)(iv).
\44\ See Coinbase Fin. Mkts., Inc. v. Raoul, No. 1:25-cv-15406,
1:26-cv-03659, 1:26-cv-07363, 2026 WL 2969682, at * 7 (N.D. Ill.
Oct. 2, 2026) (the CEA's ``[s]tructure elsewhere,'' including the
prong (iv) ``clause includ[ing] contracts `known to the trade as a
swap,' '' ``reinforces [the statute's] breadth'').
\45\ The Commission and the SEC said as much when they further
defined the term ``swap'' to include non-deliverable forwards
(``NDFs''). See Further Definition Release, 77 FR at 48254-56. That
release noted that ``at least some market participants view NDFs as
swaps today, and thus NDFs also may fall within clause (A)(iv) of
the swap definition.'' Id.at 48255, n. 537(emphasis added).
---------------------------------------------------------------------------
For decades, the CFTC's position has been that event contracts are
derivatives subject to its jurisdiction, whether as ``swaps'' or as
``binary options'' (which are themselves swaps).\46\ The CFTC's 1993
no-action letter to Iowa Electronic Markets allowed the facility to
list event contracts tied to U.S. and Canadian elections.\47\ The CFTC
issued a concept release in 2008 acknowledging its regulatory-oversight
responsibility for event contracts.\48\ It approved event contracts on
box-office receipts in 2010.\49\ The Commission also issued an order
penalizing Blockratize, Inc. (d/b/a <a href="http://Polymarket.com">Polymarket.com</a>) for offering event
contracts on various economic, political, and sports events without
registering with the Commission, explaining that the event contracts
``constitute swaps under the CFTC's jurisdiction.'' \50\ Furthermore,
the CFTC has filed civil-enforcement actions and obtained civil
penalties against persons that engage in insider trading or
manipulative activity around event contracts.\51\ The United States has
also brought commodity-fraud charges for insider trading of event
contracts on the theory that event contracts are swaps under the
CEA.\52\
---------------------------------------------------------------------------
\46\ See supra notes 12-15 and accompanying text; Prediction
Markets; Public Interest Determinations, 91 FR 35806, 35813-17 (June
12, 2026) (recounting history).
\47\ CFTC Staff Letter No. 93-66 (June 18, 1993), available at
<a href="https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/93-66.pdf">https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/93-66.pdf</a>.
\48\ 73 FR at 25670-73.
\49\ Statement of the Commission approving certain MDEX
contracts (June 14, 2010) (MDEX Statement) at 1, available at
<a href="https://www.cftc.gov/idc/groups/public/@otherif/documents/ifdocs/mdexcommissionstatement061410.pdf">https://www.cftc.gov/idc/groups/public/@otherif/documents/ifdocs/mdexcommissionstatement061410.pdf</a>.
\50\ CFTC, Order Instituting Proceedings Pursuant to Section
6(c) and (d) of the Commodity Exchange Act, Making Findings, and
Imposing Remedial Sanctions (Jan. 3, 2022).
\51\ CFTC v. Van Dyke, No. 1:26-cv-3369 (S.D.N.Y.) (U.S.
servicemember who used sensitive nonpublic information to trade
event contracts related to the ouster of Venezuelan President
Nicol[aacute]s Maduro); CFTC v. Spagnuolo, No. 1:26-cv-4419
(S.D.N.Y.) (Google employee who used nonpublic information to trade
event contracts related to Google's Year in Search list); CFTC,
Order Instituting Proceedings Pursuant to Section 6(c) and (d) of
the Commodity Exchange Act, Making Findings, and Imposing Remedial
Sanctions, at 5 (July 31, 2026) (imposing penalties on former
Congressman George Santos for manipulative activity around State of
the Union event ``contract that is commonly known to the trade as a
swap''); CFTC, Order Instituting Proceedings Pursuant to Section
6(c) and (d) of the Commodity Exchange Act, Making Findings, and
Imposing Remedial Sanctions, at 5 (Aug. 28, 2026) (imposing
penalties on a former presidential teleprompter operator for insider
trading presidential speech event ``contracts that are commonly
known to the trade as swaps'').
\52\ United States v. Van Dyke, No. 1:26-cr-156 (S.D.N.Y.);
United States v. Spagnuolo, No. 1:26-mj-02020 (S.D.N.Y.).
---------------------------------------------------------------------------
Market participants have also overwhelmingly recognized that event
contracts are swaps by complying with the CFTC's swap regulatory regime
just as they do when listing, clearing, or trading other swaps. For
example, over the past several years, DCMs have self-certified
thousands of event contracts based on sports, politics, cultural
events, and weather to the Commission.\53\ This includes both new
entrants into the market and longstanding exchanges like CME Group
(``CME''), which has self-certified numerous event contracts based on
sports and elections as swaps.\54\ And in comments to the CFTC, CME has
recognized that ``event contracts and swaps are not new and have been
subject to the existing regulatory scheme for years without issue,''
and that the CEA's ``Core Principles[ ] provide[ ] the proper structure
to regulate these products.'' \55\ Cboe Global Markets has likewise
stated in comments that event contracts ``generally fall within the
CEA's broad definition of `swap,' '' absent a statutory exception.\56\
Consistent with this commonly held market view, such Commission
registrants have not sought to register at the State level or offer
products under State gambling laws. Instead, they offer event contracts
for multilateral trading on a national, competitive market, just like
other derivatives.
---------------------------------------------------------------------------
\53\ See CFTC, Designated Contract Market Products, available at
<a href="https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts">https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts</a>?.
\54\ Id.
\55\ Letter from Jonathan Marcus to Christopher Kirkpatrick
(Apr. 30, 2026) at 2.
\56\ Letter from Patrick Sexton to Christopher Kirkpatrick (May
5, 2026) at 3, available at <a href="https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=115665&SearchText=cboe">https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=115665&SearchText=cboe</a>.
---------------------------------------------------------------------------
Other market participants likewise treat event contracts as swaps
and trade them as they do other derivatives products. For example,
institutional traders act as market makers on prediction markets--
earning revenue by capturing the bid-ask spread directly from peer-to-
peer trading volume, unlike traditional sports betting where
centralized sportsbooks extract a static ``vig'' from fixed odds.
Similar to how such firms provide liquidity in other financial markets,
these participants support price discovery based on shifting supply and
demand rather than odds manually adjusted by a bookmaker.\57\ And a
wide array of market participants \58\ have looked to prediction
markets to hedge various risks, including those related to sports,
weather, and legislative outcomes.\59\ Together, the Commission
preliminarily concludes that this market practice provides compelling
evidence that such event contracts are, in fact, commonly known to the
trade as swaps, satisfying prong (iv).\60\
---------------------------------------------------------------------------
\57\ Susquehanna Starts Trading Desk for Event Contracts on
Kalshi, Bloomberg Law (Apr. 3, 2024), available at <a href="https://news.bloomberglaw.com/crypto/susquehanna-starts-trading-desk-for-event-contracts-on-kalshi">https://news.bloomberglaw.com/crypto/susquehanna-starts-trading-desk-for-event-contracts-on-kalshi</a>; Citadel Securities Looks at Prediction
Markets as Trading Scales, Bloomberg (Apr. 16, 2026), <a href="https://www.bloomberg.com/news/articles/2026-04-16/citadel-securities-looks-at-prediction-markets-as-trading-scales">https://www.bloomberg.com/news/articles/2026-04-16/citadel-securities-looks-at-prediction-markets-as-trading-scales</a>.
\58\ E.g., Prediction Markets Take a Swing at Hedging for US
Small Business, Reuters (Aug. 28, 2026), available at <a href="https://www.reuters.com/business/prediction-markets-take-swing-hedging-us-small-businesses-2026-08-28/">https://www.reuters.com/business/prediction-markets-take-swing-hedging-us-small-businesses-2026-08-28/</a>.
\59\ Goat herding hedge: How Susquehanna and Kalshi are helping
this company offset a change in California law, CNBC (Aug. 13,
2026), available at <a href="https://www.cnbc.com/2026/08/13/how-a-california-goat-herding-company-is-hedging-against-risk-of-higher-wages.html">https://www.cnbc.com/2026/08/13/how-a-california-goat-herding-company-is-hedging-against-risk-of-higher-wages.html</a>; Insurer Uses Kalshi to Hedge $3 Million LSU Coaching
Bonus, ProgramBusiness (Sept. 9, 2026), <a href="https://programbusiness.com/news/insurer-uses-kalshi-to-hedge-3-million-lsu-coaching-bonus/">https://programbusiness.com/news/insurer-uses-kalshi-to-hedge-3-million-lsu-coaching-bonus/</a>;
Kalshi and the Weather Co. join forces on climate trades, Wall
Street Journal (Aug. 27, 2026), available at <a href="https://www.wsj.com/finance/kalshi-and-the-weather-co-join-forces-on-climate-trades-76b7e307?msockid=0138621f0143697837f9753100d168d7">https://www.wsj.com/finance/kalshi-and-the-weather-co-join-forces-on-climate-trades-76b7e307?msockid=0138621f0143697837f9753100d168d7</a>.
\60\ This industry position is reinforced by experts in the
field, including scholars and financial trade publications, who
refer to event contracts as swaps. See, e.g., Aaron Klein, Sam Henry
Lazarus, & Siddharth Singh, Five highlights from Brookings'
prediction market events, The Brookings Institution (June 25, 2026),
available at <a href="https://www.brookings.edu/articles/five-highlights-from-brookings-prediction-market-events/">https://www.brookings.edu/articles/five-highlights-from-brookings-prediction-market-events/</a>. See also Justin Wolfers &
Eric Zitzewitz, Prediction Markets, 18 J. Econ. Persp. 107 (2004)
(examining event contracts as financial instruments that function as
contingent claims to aggregate information and forecast uncertain
events); Anthony M. Diercks, Jared D. Katz, & Jonathan H. Wright,
Kalshi and the Rise of Macro Markets, Fed. Rsrv. Bd., Fin. & Econ.
Discussion Series 2026-010 (Feb. 2026).
---------------------------------------------------------------------------
[[Page 66027]]
Second, the Commission believes that event contracts, including
those based on sports-, politics-, cultural-, and weather-related
events, fall within prong (ii) of the swap definition, which
encompasses any agreement, contract, or transaction whose underlying is
an occurrence or contingency ``associated with a potential financial,
economic, or commercial consequence.'' \61\ The Third Circuit's
Flaherty decision adopted this conclusion in the context of sports-
related event contracts, and the reasoning applies more generally as
well. Applying the plain text of the statute, the court held that
``[t]he outcome of a sports event certainly can be associated with a
potential financial, economic, or commercial consequence,'' and that
sports-related event contracts traded on a CFTC-licensed DCM ``fit
within the Act's definition of `swaps' subject to the CFTC's
jurisdiction.'' \62\ In reaching that conclusion, the court expressly
endorsed the district court's identification of the broad range of
economic stakeholders--including sponsors, advertisers, television
networks, sports franchises, and local and national communities--whose
financial interests are directly affected by sporting event outcomes,
finding that identification of such stakeholders was sufficient to
satisfy the ``associated with a potential financial, economic, or
commercial consequence'' standard.\63\ Even the dissent conceded that a
plain reading of the Act's text suggests that sports-related event
contracts fit comfortably within the statutory definition.\64\ And the
court confirmed that the Commission's statutory authority to further
define ``swap'' would be valuable in this area.
---------------------------------------------------------------------------
\61\ CEA sec. 1a(47)(A)(ii), 7 U.S.C. 1a(47)(A)(ii).
\62\ Flaherty, 172 F.4th at 227-228.
\63\ Id. at 227.
\64\ Id.
---------------------------------------------------------------------------
While the Sixth and Ninth Circuit panels took a different view of
section 1a(47)(A)(ii) of the CEA, their 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.\65\ As the Commission explains in a separate Interim
Final Rule, the swap definition does not encompass casino-style
gambling wagers, sports or otherwise.\66\ Additionally, the Ninth
Circuit relied on CFTC Rule 40.11 to conclude that ``gaming-related
contracts'' are ``bar[red]'' from ``being listed on a DCM.'' \67\ Even
assuming that premise, the Commission notes that CFTC Rule 40.11 does
not provide a basis to conclude that event contracts are not swaps or
that event contracts could be subject to State gambling law. Indeed, as
the concurrence and other courts have recognized, the statutory
provision that undergirds CFTC Rule 40.11 affirmatively contemplates
that event contracts are swaps subject to the CFTC's exclusive
jurisdiction.\68\ Regardless, to the extent that the Ninth Circuit
panel's reasoning was based on a CFTC regulation, this Proposal would
serve to clarify by federal regulation that event contracts are swaps.
Accordingly, there would no longer be a valid basis to interpret CFTC
regulations to conclude that event contracts are not swaps.
---------------------------------------------------------------------------
\65\ Assad, 2026 WL 2543846, at 11-12; Schuler, 2026 WL 2884087,
at * 14-15.
\66\ See Further Definition of ``Swap'' to Exclude Casino-Style
Gambling Products (Oct. 9, 2026), available at <a href="https://www.cftc.gov/media/14726/IFREventContractsSwapExclusion100926/download">https://www.cftc.gov/media/14726/IFREventContractsSwapExclusion100926/download</a>.
\67\ Schuler, 2026 WL 2884087, at *13; see 17 CFR 40.11.
\68\ Assad, 2026 WL 2543846, at *19 (Lee, J., concurring); see 7
U.S.C. 7a-2(c)(5)(C).
---------------------------------------------------------------------------
Third, the Commission believes that event contracts may
independently satisfy the first prong of the swap definition. The
Commission's preliminary reasoning is based on a plain reading of
section 1a(47)(A)(i) of the CEA. Section 1a(47)(A)(i) explicitly
defines a swap to include any agreement, contract, or transaction that
is a ``put, call, cap, floor, collar, or similar option of any kind''
that is ``based on the value[ ] of 1 or more . . . commodities . . . or
other financial or economic interests or property of any kind.'' \69\
In this regard, the Commission notes that many event contracts are
structured as binary options, meaning that the contract's payout is a
predetermined fixed amount (typically, one dollar) if the underlying
condition is satisfied, and zero if it is not. Courts \70\ and the CFTC
\71\ have repeatedly affirmed that binary option event contracts are a
type of swap subject to the Commission's jurisdiction. Because, as
described above, an event (such as a sports-, politics-, cultural-, or
weather-related event) is an excluded commodity, a binary option event
contract referencing such an event is a swap within the Commission's
jurisdiction.
---------------------------------------------------------------------------
\69\ 7 U.S.C. 1a(47)(A)(i).
\70\ See, e.g., CFTC v. Banc de Binary, No. 2:13-cv-00992, Dkt.
No. 169-1 at 18 ] 65 (D. Nev. Feb 26, 2016) (Consent Order for
Permanent Injunction) (noting that ``Dodd-Frank defined an option as
a swap'' and that ``[t]he binary options offered by Banc de Binary
are `commodity options.' ''); CFTC v. Trade Exchange Network Ltd.,
117 F. Supp. 3d 29, 36 (D.D.C. 2015) (noting that ``limited risk
contracts based on a simple yes/no market proposition like will the
markets go up by the end of the trading week . . . possess all the
characteristics of contracts that are known to the trade as `binary
options.' '').
\71\ See, e.g., In re Blockratize, Inc., CFTC Dkt. No. 22-08, at
4 (Jan. 3, 2022) (Order Instituting Proceedings) (noting that
``[s]uch event contracts, each of which is composed of a pair of
binary options, constitute swaps under the CFTC's jurisdiction''),
available at <a href="https://www.cftc.gov/media/6891/enfblockratizeorder010322/download">https://www.cftc.gov/media/6891/enfblockratizeorder010322/download</a>; see also CFTC Staff Letter No.
25-23 (July 22, 2025) (granting CME no-action relief from certain
swap data reporting requirements for certain binary options),
available at <a href="https://www.cftc.gov/PressRoom/PressReleases/9099-25">https://www.cftc.gov/PressRoom/PressReleases/9099-25</a>.
---------------------------------------------------------------------------
The term ``excluded commodity,'' including ``an occurrence, extent
of an occurrence, or contingency . . . that is--(I) beyond the control
of the parties to the relevant contract, agreement, or transaction; and
(II) associated with a financial, commercial, or economic
consequence,'' has long been interpreted broadly. This definition was
added to the CEA by the Commodity Futures Modernization Act of 2000
(``CFMA'').\72\ The CFMA provided for a near-complete exemption from
the exchange trading requirement for swaps in an ``excluded commodity''
between institutional traders.\73\ In other words, these commodities
are defined as ``excluded'' because the CFMA exempted swaps involving
them from the exchange trading requirement.
---------------------------------------------------------------------------
\72\ Public Law 106-554, app. E, 114 Stat. 2763A-365 (2000). The
definition of ``excluded commodity,'' CEA sec. 1a(19), 7 U.S.C.
1a(19), has remained unchanged since enactment.
\73\ 7 U.S.C. 2(d) (2000 Main Ed.).
---------------------------------------------------------------------------
However, swaps in excluded commodities remained within the
jurisdiction of the CFTC. The CEA, as amended by the CFMA in 2000,
provided that off-exchange swaps in ``excluded commodities'' between
institutional traders would remain subject to CEA sections 5b and
12(e)(2).\74\ Notably, CEA section 12(e)(2) provided at that time that
the CEA ``shall supersede and preempt the application of any State or
local law that prohibits or regulates gaming or the operation of bucket
shops (other than antifraud provisions of general applicability) in the
case of . . . (B) an agreement, contract, or transaction that is
excluded from this chapter under section . . . 2(d) . . . of this title
. . . (regardless of whether any such agreement, contract, or
transaction is otherwise subject to this chapter).'' \75\ Thus, in
2000, Congress clarified that the CFTC's exclusive jurisdiction
[[Page 66028]]
preempted State law--even as to off-exchange transactions--by
explicitly providing that State gaming laws would not apply to off-
exchange swaps in excluded commodities between institutional traders.
---------------------------------------------------------------------------
\74\ 7 U.S.C. 2(d)(1) (2000 Main Ed.) (referring to 7 U.S.C. 7a-
1 and 7 U.S.C. 16(e)(2)(B)).
\75\ 7 U.S.C. 16(e)(2)(B) (2000 Main Ed.). The term ``this
chapter'' refers to Chapter I of Title 7 of the U.S. Code, where the
CEA is codified.
---------------------------------------------------------------------------
The CFMA was driven by the November 1999 report of the President's
Working Group on Financial Markets, which was composed of the Secretary
of the Treasury, and the Chairs of the CFTC, the SEC, and the Federal
Reserve Board (``PWG Report'').\76\ The PWG Report concluded, among
other things, that off-exchange swaps between institutional traders
should be excluded from the CEA, unless the swap involves a non-
financial commodity with a finite supply.\77\ The ``excluded
commodity'' definition enacted in the CFMA was therefore intended to
encompass all types of swaps except for those based on non-financial
commodities with a finite supply.
---------------------------------------------------------------------------
\76\ Report of The President's Working Group on Financial
Markets, Over-the-Counter Derivatives Markets and the Commodity
Exchange Act, 17 (Nov. 1999), available at <a href="https://home.treasury.gov/system/files/236/Over-the-Counter-Derivatives-Market-Commodity-Exchange-Act.pdf">https://home.treasury.gov/system/files/236/Over-the-Counter-Derivatives-Market-Commodity-Exchange-Act.pdf</a>.
\77\ Id. at 1.
---------------------------------------------------------------------------
In 2010, the Dodd-Frank Act created a framework within the CEA for
the on-exchange execution, clearing and reporting of the previously
over-the-counter (``OTC'') swap markets. Among other things, the Dodd-
Frank Act repealed the exclusion that had been added by the CFMA to CEA
section 2(d),\78\ and required retail swap transactions (i.e.,
transactions not between eligible contract participants (``ECPs'')) to
be entered into on a DCM.\79\
---------------------------------------------------------------------------
\78\ Dodd-Frank Act sec. 723(a)(1), 7 U.S.C. 2 (striking and
replacing CEA sec. 2(d)).
\79\ CEA sec. 2(e), 7 U.S.C. 2(e). The term ``eligible contract
participant'' is defined in CEA sec. 1a(18), 7 U.S.C. 1a(18).
---------------------------------------------------------------------------
Finally, the Special Rule added by Dodd-Frank to the CEA clarifies
that the CFTC has jurisdiction over ``[e]vent contracts,'' including
event contracts based on non-financial commodities. The Special Rule
provides that ``[i]n connection with the listing of agreements,
contracts, transactions, or swaps in excluded commodities that are
based upon the occurrence, extent of an occurrence, or contingency
(other than a change in the price, rate, value, or levels of a
commodity described in section 1a(2)(i) of this title), by a designated
contract market or swap execution facility, the Commission may
determine that such agreements, contracts, or transactions are contrary
to the public interest if the agreements, contracts, or transactions
involve--(I) activity that is unlawful under any Federal or State law;
(II) terrorism; (III) assassination; (IV) war; (V) gaming; or (VI)
other similar activity determined by the Commission, by rule or
regulation, to be contrary to the public interest.\80\ This rule
confirms that the term ``excluded commodities'' includes
``occurrence[s]'' that ``involve'' various non-financial events,
including but not limited to terrorism, assassination, war, and gaming.
It also confirms that ``swaps'' can be ``based upon'' such non-
financial activities. Thus, the notion that the ``event'' referred to
in the second prong of the ``swap'' definition must ``be one inherently
associated with a financial, economic, or commercial consequence'' is
incompatible with the text of the Special Rule.\81\
---------------------------------------------------------------------------
\80\ 7 U.S.C. 7a-2(c)(5)(C)(i) (emphases added).
\81\ Schuler, 2026 WL 2884087, at * 11.
---------------------------------------------------------------------------
The Special Rule has particular significance for sports-related
event contracts. Applying the plain text of the statute, sports are a
type of ``gam[e].'' \82\ Accordingly, sports-related event contracts
are ``based upon'' an ``occurrence, extent of an occurrence, or
contingency'' that ``involve[s]'' ``gaming.'' Far from exempting
sports-related contracts from the CFTC's jurisdiction, this provision
confirms that such instruments can be ``swaps'' in ``excluded
commodities'' and that they are within the CFTC's jurisdiction.\83\
---------------------------------------------------------------------------
\82\ KalshiEX LLC v. CFTC, No. 23-cv-3257, 2024 WL 4164694, at *
12 (D.D.C. Sept. 12, 2024).
\83\ Flaherty, 172 F.4th at 231 (``Congress gave the CFTC
exclusive jurisdiction over trades on DCMs, provided for continued
tate regulation of trades conducted off DCMs, and recognized that
while event contracts could involve gaming, the CFTC has
discretionary power to review and prohibit those contracts.'');
Minnesota, 2026 WL 2150211, at * 13 (``In combination with the
congressional decision to give the CFTC exclusive jurisdiction over
swaps, allowing the CFTC to either permit event contracts in these
categories or declare them contrary to the public interest suggests,
at least preliminarily, that Congress intended DCM-based
transactions over these prediction markets to be governed by the
CFTC.''); KalshiEX LLC v. Johnson, 832 F. Supp. 3d 954, 965 (D.
Ariz. 2026) (``By directing the CFTC to review event contracts and
prohibit those contrary to the public interest, Congress placed
event contracts under the CFTC's exclusive authority.''); Raoul,
2026 WL 2969682, at * 10 (The Special Rule ``belies that the
Commodity Exchange Act has nothing to do with'' sports event
contracts.).
---------------------------------------------------------------------------
Some courts and States have expressed the view that some, but not
all, event contracts are swaps on the theory that certain underlying
sports, political, cultural, or weather events are not associated with
a potential financial, economic, or commercial consequence.\84\ This
argument would at most affect the applicability of the first and second
prongs of the ``swap'' definition, but it would not affect the fourth
prong, i.e., that the contracts are commonly known to the trade as a
``swap.'' Furthermore, to the extent there is uncertainty about whether
particular underlying sports, political, cultural, or weather events
have potential financial consequences, the Commission's exercise of its
power to further define ``swap'' confers on the Commission the
authority to determine which contracts qualify as ``swaps.''
---------------------------------------------------------------------------
\84\ E.g., Minnesota, 2026 WL 2150211, at * 15.
---------------------------------------------------------------------------
The Commission also notes that it retains authority under the
Special Rule to prohibit event contracts involving ``gaming'' that are
contrary to the public interest, and that the Commission has proposed
to consider whether a contract has utility for price discovery,
hedging, and economic decisions in making public-interest
determinations.\85\ Indeed, that proposal distinguishes between sports
event contracts ``depend[ing] on the aggregate performance over an
extended period of play''--which ``may serve price discovery functions
and provide meaningful information''--from ``event contracts settling
on the type of a specific play called for or executed by a specific
player or team, the type or outcome of a specific pitch thrown by a
specific pitcher, the outcome of a specific shot taken by a specific
player, or whether a specific player or team commits a specific foul or
penalty''--which, among other things, ``do not provide meaningful
information.'' \86\
---------------------------------------------------------------------------
\85\ 91 FR at 35829-30.
\86\ Id. at 35835-37.
---------------------------------------------------------------------------
The Commission also preliminarily believes there typically are
potential financial, economic, or commercial consequences associated
with underlying sports, political, cultural, and weather events that
are the subject of event contracts. Importantly, the statute uses the
word ``potential,'' which is broad.\87\ So even if the financial
consequences of a particular event are not felt right away--indeed,
even if they never actually occur--an event contract remains a swap so
long as there is potential for commercial ramifications.\88\ For
example, it may be difficult to empirically verify that there are
financial consequences associated with a particular city reaching a
temperature of 97 to 98 degrees on a given day, as opposed to 95 to 96
degrees. By inserting the word ``potential'' into the swap definition,
Congress signaled that it did not wish
[[Page 66029]]
for the Commission to engage in this exercise. Temperature has the
potential to cause financial consequences for agriculture, energy
usage, participation in outdoor activity, and more--event contracts
based on temperature therefore satisfy the ``potential financial,
economic, or commercial consequence'' requirement.
---------------------------------------------------------------------------
\87\ Alabama Power Co. v. Costle, 636 F.2d 323, 353 (D.C. Cir.
1979) (recognizing that ``potential . . . will always and inherently
exceed actual'').
\88\ Minnesota, 2026 WL 2150211, at * 12 (``The occurrence of
the event in question does not have to ultimately result in a
financial, economic, or commercial consequence to meet the
definition. It is enough that such consequences are foreseeable
future possibilities.'').
---------------------------------------------------------------------------
Sports events likewise can be associated with potential economic
consequences. Most obviously, when a team succeeds in the postseason,
that team is able to play more home games, which generates additional
ticketing revenue for the franchise and economic opportunity for nearby
businesses like restaurants and hotels.\89\ For example, the New York
Knicks' 2026 championship-winning postseason run generated around $380
million for New York City's economy.\90\ Similarly, after the Milwaukee
Bucks won the 2021 NBA Finals, the City of Milwaukee estimated that the
team's postseason performance generated $2.7 million in economic impact
to the city in the first round, $12.8 million in the second round,
$14.1 million in the third round, and $28 million in the final round--
thus, each time the Bucks won a round of the playoffs, there were
concrete economic consequences for Milwaukee.\91\ Postseason success
also affects a sports team's valuation. Madison Square Garden Sports,
the Knicks' parent company, doubled in market value over the course of
a year because of the team's championship-winning performance.\92\ At
least at some level of generality, it is inescapably true that sports
events are associated with potential economic consequences.
---------------------------------------------------------------------------
\89\ For example, as the Northern District of Illinois recently
recognized, ``[a]t a financial level, sports [event contracts] can
resemble credit default swaps'' in their potential financial,
economic, or commercial consequences. Raoul, 2026 WL 2969682, at *
11. ``Broadcasters depend on the total number of games played in a
best-of-seven matchup like the NBA Finals and the World Series,''
with a ``difference in advertising revenue between a four-game
series and a seven-game series . . . cost[ing] NBC between $25
million and $35 million,'' and affecting ``[a]rena and concession
companies,'' who ``often get paid a percentage of sales during
games, meaning their revenue correlates with the number of games,
too. Meanwhile, sponsors' returns on endorsements depend on players
performing well.'' Id.
\90\ CNBC, Knicks' postseason run brought $380m in economic
activity, says NYCEDC's Jeanny Pak (June 18, 2026), available at
<a href="https://www.cnbc.com/video/2026/06/18/knicks-postseason-run-brought-380m-in-economic-activity-says-nycedcs-jeanny-pak.html">https://www.cnbc.com/video/2026/06/18/knicks-postseason-run-brought-380m-in-economic-activity-says-nycedcs-jeanny-pak.html</a>.
\91\ Visit Milwaukee, Economic Impact Data for Milwaukee Bucks
Championship (Dec. 9, 2021), available at <a href="https://www.visitmilwaukee.org/press-releases/post/2885682-economic-impact-data-for-milwaukee-bucks-championship/">https://www.visitmilwaukee.org/press-releases/post/2885682-economic-impact-data-for-milwaukee-bucks-championship/</a>.
\92\ Jack Pitcher & Andrew Beaton, The Only Thing Hotter Than
the Knicks Is Their Stock Price, Wall Street Journal (June 8, 2026),
available at <a href="https://www.wsj.com/sports/basketball/knicks-nba-finals-msg-stock-b0f2dd31">https://www.wsj.com/sports/basketball/knicks-nba-finals-msg-stock-b0f2dd31</a>.
---------------------------------------------------------------------------
The result of single regular-season games are associated with
potential economic consequences, too. Studies have verified that a
single win in a college football game can result in millions of dollars
in additional revenue to the program.\93\ And when a team wins a game,
that has direct commercial consequences for businesses around the
stadium, as fans are more likely to spend money at those establishments
in celebration.
---------------------------------------------------------------------------
\93\ Doug J. Chung, How Much is a Win Worth? An Application to
Intercollegiate Athletics, Management Science 63, no. 2, at 548-565
(February 2017).
---------------------------------------------------------------------------
In-game events and contingencies are also associated with potential
economic consequences. For example, a close game is more likely to have
higher television viewership than a blowout, and thus, the spread of a
game is associated with potential economic consequences.\94\ Player
contracts often have bonuses associated with specific statistical
results, like the number of touchdowns scored or receptions made, so
player performance within a game has potential economic
consequences.\95\
---------------------------------------------------------------------------
\94\ Austin Karp, CFP First Round viewership falls 7% in second
year amid blowouts, NFL doubleheader gains, Sports Business Journal
(Dec. 24, 2025), available at <a href="https://www.sportsbusinessjournal.com/Articles/2025/12/24/cfp-first-round-viewership-falls-7-in-second-year-amid-blowouts-nfl-doubleheader-gains/">https://www.sportsbusinessjournal.com/Articles/2025/12/24/cfp-first-round-viewership-falls-7-in-second-year-amid-blowouts-nfl-doubleheader-gains/</a>; NFL's wild-card ratings
tumble amid blowouts, Reuters (Jan. 15, 2025) <a href="https://www.reuters.com/sports/nfls-wild-card-ratings-tumble-amid-blowouts-flm-2025-01-16/">https://www.reuters.com/sports/nfls-wild-card-ratings-tumble-amid-blowouts-flm-2025-01-16/</a>.
\95\ Zach Kruse, How Packers WR Christian Watson can make
another $15M in contract incentives, Packers Wire (June 19, 2026),
available at <a href="https://packerswire.usatoday.com/story/sports/nfl/packers/2026/06/19/christian-watson-contract-packers-incentives-catches-yards-touchdowns-pro-bowl/90619346007/">https://packerswire.usatoday.com/story/sports/nfl/packers/2026/06/19/christian-watson-contract-packers-incentives-catches-yards-touchdowns-pro-bowl/90619346007/</a>.
---------------------------------------------------------------------------
Business promotions can amplify these economic consequences. For
example, a furniture store in Houston, Texas, runs a regular promotion
in which customers who spend a minimum amount will get their purchases
refunded if the Houston Astros win the World Series, creating a direct
link between the outcome of the World Series and financial consequences
for numerous furniture purchasers in Houston.\96\ Similarly, a New York
bar promised free drinks to patrons if the Knicks won the first NBA
Finals game, which also linked the outcome of the game to an economic
consequence.\97\ Businesses also structure promotions around whether
particular events occur within a game. For example, when the Cincinnati
Reds hit a home run in the 4th inning, ticketholders get a reward from
Chick-fil-A,\98\ when the Minnesota Vikings intercept a pass, Caribou
Coffee offers a buy-one-get-one drink deal,\99\ and Delta Air Lines'
loyalty program customers earn one mile for each Seattle Seahawks
passing yard in a season.\100\
---------------------------------------------------------------------------
\96\ Chad Washington, `Mattress Mack' uses a prediction market
to wager on the Astros' postseason hopes, KTSM 9 News, available at
<a href="https://www.ktsm.com/news/state-news/mattress-mack-uses-a-prediction-market-to-wager-on-the-astros-postseason-hopes/amp/">https://www.ktsm.com/news/state-news/mattress-mack-uses-a-prediction-market-to-wager-on-the-astros-postseason-hopes/amp/</a>.
\97\ Catherina Gioino, This NYC bar just covered everyone's tabs
because the Knicks won, and used Kalshi to hedge their bets, Fortune
(June 3, 2026), available at <a href="https://fortune.com/2026/06/03/nyc-bar-knicks-kalshi-win-prediction-market/">https://fortune.com/2026/06/03/nyc-bar-knicks-kalshi-win-prediction-market/</a>.
\98\ Chick-fil-A Free Chicken Promotion, available at <a href="https://www.mlb.com/reds/tickets/specials/chick-fil-a-runs">https://www.mlb.com/reds/tickets/specials/chick-fil-a-runs</a> (last visited
Oct. 14, 2026).
\99\ BOGO Ball Presented by Caribou Coffee, available at <a href="https://www.vikings.com/fans/promos/caribou-coffee-promo">https://www.vikings.com/fans/promos/caribou-coffee-promo</a> (last visited Oct.
14, 2026).
\100\ First and 10: 12Status program kicks off a decade of
awarding Seattle Seahawks fans, Delta News Hub (Aug. 28, 2026),
available at <a href="https://news.delta.com/first-and-10-12status-program-kicks-decade-awarding-seattle-seahawks-fans">https://news.delta.com/first-and-10-12status-program-kicks-decade-awarding-seattle-seahawks-fans</a>.
---------------------------------------------------------------------------
The list of examples could extend indefinitely. The salient point
is that many sports-, politics-, cultural, and weather-related events
are associated with potential economic consequences, and thus event
contracts that are predicated on those events are swaps subject to the
Commission's exclusive jurisdiction. To the extent a sports-, politics-
, cultural-, or weather-related event is not associated with a
potential economic consequence and does not satisfy any other prong of
the swap definition, the Commission retains authority to stay the
listing of that contract.\101\
---------------------------------------------------------------------------
\101\ See 17 CFR 40.2(c).
---------------------------------------------------------------------------
For these reasons, the Commission is proposing to amend the
``swap'' definition to explicitly identify event contracts, including
those based on sports-, politics-, cultural-, and weather-related
events, as swaps within the Commission's jurisdiction. Specifically,
the Commission proposes to add paragraph (2)(i)(G) to Sec. 1.3's
definition of ``swap'' \102\ to provide that the term swap includes
``[e]vent contracts, including those based o\n sports-, politics-,
cultural-, and weather-related events.'' And, as set forth in a
separate Interim Final Rule,\103\ the Commission does not intrude upon
existing regulation of in-person and online casino-style gambling by
doing so. Rather, the Commission proposes, consistent with its clear
statutory mandate, to regulate only event contracts, including those
based on
[[Page 66030]]
sports-, politics-, cultural-, and weather-related events.
---------------------------------------------------------------------------
\102\ 17 CFR 1.3.
\103\ See supra note 66.
---------------------------------------------------------------------------
The classifications proposed here are for purposes of the Commodity
Exchange Act. Federal tax treatment and associated information
reporting, withholding, registration, and payment obligations are
determined under the Internal Revenue Code and applicable Treasury
regulations and Internal Revenue Service guidance.
III. Request for Comment
The Commission welcomes public comments from all interested persons
regarding any aspect of the Proposal.
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act \104\ (``RFA'') requires Federal
agencies, in proposing rules, to consider the impact of those rules on
small entities, and to provide a regulatory flexibility analysis with
respect to such impact.\105\ The regulations proposed herein would
directly affect DCMs, swap execution facilities (``SEFs''), swap
dealers, major swap participants, and ECPs. The Commission has
previously determined that that DCMs are not considered ``small
entities'' for purposes of the RFA.\106\ Similarly, the Commission
previously concluded that SEFs are not small entities for the purpose
of the RFA.\107\ The Commission has also previously stated its belief
in the context of relevant rulemakings that SEFs' market participants,
which are all required to be ECPs \108\ as defined in section 1a(18) of
the CEA,\109\ are not small entities for purposes of the RFA.\110\
Likewise, the Commission has previously concluded that Swap Dealers and
Major Swap Participants are not small entities for purposes of the RFA,
due in part to the minimum capital and margin requirements applicable
to such entities.\111\
---------------------------------------------------------------------------
\104\ 5 U.S.C. 601 et seq.
\105\ See 5 U.S.C. 603. The RFA applies to rules subject to
notice-and-comment rulemakings issued pursuant to the Administrative
Procedure Act, 5 U.S.C. 553(b), or any other law. Id.
\106\ See Policy Statement and Final Establishment of
Definitions, 47 FR 18618 (Apr. 30, 1982).
\107\ SEF Core Principles Final Rule, 78 FR 33476, 33548 (June
4, 2013) (citing 47 FR at 18621) (discussing DCMs); A New Regulatory
Framework for Clearing Organizations, 66 FR 45604, 45609 (Aug. 29,
2001) (discussing registered DCOs).
\108\ 17 CFR 37.703.
\109\ 7 U.S.C. 1(a)(18).
\110\ Opting Out of Segregation Final Rule, 66 FR 20740, 20743
(Apr. 25, 2001) (stating that ECPs by the nature of their definition
in the CEA should not be considered small entities).
\111\ Swap Dealer and Major Swap Participant Recordkeeping,
Reporting, and Duties Rules; Futures Commission Merchant and
Introducing Broker Conflicts of Interest Rules; and Chief Compliance
Officer Rules for Swap Dealers, Major Swap Participants, and Futures
Commission Merchants Final Rule, 77 FR 20128, 20194 (Apr. 3, 2012).
---------------------------------------------------------------------------
For these reasons, under section 3(a) of the RFA,\112\ the
Chairman, on behalf of the Commission, certifies that this Proposal
will not have a significant economic impact on a substantial number of
small entities. The Commission nonetheless invites comment on this
determination. This document serves as notification to the Small
Business Administration of the Commission's certification of no effect.
---------------------------------------------------------------------------
\112\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \113\ imposes certain
requirements on federal agencies, including the Commission, in
connection with conducting or sponsoring any ``collection of
information,'' as defined by the PRA. Under the PRA, an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number from the Office of Management and Budget (``OMB'').\114\ The PRA
is intended, in part, to minimize the paperwork burden created for
individuals, businesses, and other persons as a result of the
collection of information by Federal agencies, and to ensure the
greatest possible benefit and utility of information created,
collected, maintained, used, shared, and disseminated by or for the
Federal government.\115\ The PRA applies to all information, regardless
of form or format, whenever the Federal government is obtaining,
causing to be obtained, or soliciting information, and includes
required disclosure to third parties or the public, of facts or
opinions, when the information collection calls for answers to
identical questions posed to, or identical reporting or recordkeeping
requirements imposed on, ten or more persons.\116\
---------------------------------------------------------------------------
\113\ 44 U.S.C. 3501 et seq.
\114\ See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3).
\115\ See 44 U.S.C. 3501.
\116\ See 44 U.S.C. 3502(3).
---------------------------------------------------------------------------
This Proposal would not impose any new collection of information
requirements that require approval of OMB under 44 U.S.C. 3507(d), nor
would it amend or otherwise revise any existing collection of
information subject to the PRA. The Proposal clarifies the definition
of ``swaps'' to, consistent with its jurisdiction, explicitly include
event contracts, including those based on sports-, politics-, cultural-
, and weather-related events.
The Proposal does not establish any new reporting requirement under
the CEA or the Commissions' regulations applicable to any Commission
registrant or market participant; establish any new recordkeeping
requirement beyond those already imposed under the CEA and the
Commission's existing regulations, which are currently approved by OMB
under existing control numbers; impose any new third-party disclosure
obligation; or modify the substantive scope, frequency, form, or
content of any existing information collection of the Commission
currently approved by OMB.
The Proposal does not alter the burden associated with existing
collections currently approved by OMB. Any incremental activity that
may occur as an indirect consequence of registrants electing to conduct
business within the federal regulatory perimeter clarified by this
proposed rule reflects the application of existing, previously approved
information collections to a new class of underlying transactions and
does not itself constitute a new or revised collection of information
within the meaning of the PRA.
Accordingly, the requirements of the PRA do not apply to this
rulemaking. The Commission invites public comment on its determination
that no additional recordkeeping or information collection
requirements, or changes to existing collection requirements, would
result from the Proposal.
C. Consideration of Benefits and Costs
1. Introduction
The Commission is mindful of the economic effects, including the
benefits and costs, of the Proposal. Section 15(a) of the CEA requires
the Commission to consider the benefits and costs of its actions before
promulgating a regulation under the CEA or issuing certain orders.\117\
As required by section 15(a), the Commission evaluates these benefits
and costs evaluated in light of five broad areas of market and public
concern: (1) protection of market participants and the public; (2)
efficiency, competitiveness, and financial integrity of futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations.
---------------------------------------------------------------------------
\117\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
The Proposal further defines the term ``swap'' under CEA section
1a(47) to include event contracts, including those based on sports-,
politics-, cultural-, and weather-related events.\118\ It is the
[[Page 66031]]
Commission's preliminary belief that the Proposal would not change the
legal rights or obligations of market participants under the CEA
because the Commission already treats event contracts as swaps under
existing law. Instead, the Commission preliminarily believes that the
Proposal will reduce interpretive uncertainty and facilitate uniform
nationwide treatment of event contracts under the exclusive
jurisdiction of the Commission.
---------------------------------------------------------------------------
\118\ See 7 U.S.C. 1a(47).
---------------------------------------------------------------------------
The Commission qualitatively discusses the benefits and costs of
the Proposal below because it is not practicable to quantify the effect
of greater regulatory certainty on market participant behavior.
2. Baseline
The baseline against which the benefits and costs of the Proposal
are measured consists of the current regulatory framework and the
current state of the event contracts market.
a. Regulatory Baseline
The Commission has exclusive jurisdiction to regulate transactions
involving swaps (other than security-based swaps, which the SEC
regulates, and mixed swaps, over which it shares jurisdiction with the
SEC).\119\ The Commission preliminary believes that under the plain
language of the CEA, event contracts, including event contracts based
on sports-, politics-, cultural-, and weather-related events, are
swaps.\120\ For example, CEA section 1a(47)(A)(ii) defines ``swap'' to
include ``any agreement, contract, or transaction . . . that provides
for any purchase, sale, payment, or delivery (other than a dividend on
an equity security) that is dependent on the occurrence, nonoccurrence,
or the extent of the occurrence of an event or contingency associated
with a potential financial, economic, or commercial consequence.''
\121\ It is the Commission's preliminary belief that this comprehensive
definition captures many event contracts, which are a type of swap
where payment is triggered by ``the occurrence, nonoccurrence, or the
extent of the occurrence of an event or contingency associated with a
potential financial, economic, or commercial consequence,'' such as a
political election or a sporting event.\122\
---------------------------------------------------------------------------
\119\ See 7 U.S.C. 2(a)(1)(A).
\120\ See 7 U.S.C. 1a(47); supra section I; see also, e.g.,
Flaherty, 172 F.4th at 227 (holding that a ``plain reading of the
Act's text suggests that Kalshi's sports-event contracts fit
comfortably within the statutory definition''). But see Assad, 2026
WL 2543846.
\121\ 7 U.S.C. 1a(47)(A)(ii); see supra note 15 and accompanying
text. Other clauses in the statutory definition of the term ``swap''
are also relevant. See supra notes 16-18.
\122\ As described above, such contracts may also be swaps under
other prongs of the definition.
---------------------------------------------------------------------------
Accordingly, it is the Commission's preliminary belief that event
contracts, including those based on sports-, politics-, cultural-, and
weather-related events, are subject to Federal law concerning swaps,
including that retail participants may only trade swaps on a DCM.\123\
DCMs listing event contracts must comply with the substantive and
procedural requirements that apply to a DCM's listing of derivative
contracts for trading.\124\ In particular, these requirements include
adherence to the Core Principles for DCMs, including listing only
contracts that are not readily susceptible to manipulation, preventing
market disruption, and protecting of markets and market
participants.\125\
---------------------------------------------------------------------------
\123\ See 7 U.S.C. 2(e) (requirement that persons other than
ECPs transact swaps on a DCM). The term ``eligible contract
participant'' is defined in CEA sec. 1a(18), 7 U.S.C. 1a(18), and
generally includes only institutional investors. In addition to
DCMs, an SEF may make any swap, including an [event contract] that
is a swap, available for trading. See CEA sec. 5h, 7 U.S.C. 7b-3.
However, swap trading on an SEF is not available to the general
public, but rather only to ECPs.
\124\ See generally CEA sec. 5, 7 U.S.C. 7. SEFs are subject to
similar requirements. See CEA sec. 5h, 7 U.S.C. 7b-3.
\125\ See 7 U.S.C. 7(d).
---------------------------------------------------------------------------
However, certain State regulators have asserted that certain event
contracts--particularly those based on sports-related events--are
subject to their laws regulating gaming and other matters. These other
legal regimes have various, sometimes conflicting, requirements that
states have purported to apply to event contracts.\126\
---------------------------------------------------------------------------
\126\ Compare Flaherty, 172 F.4th at 227, with Assad, 2026 WL
2543846.
---------------------------------------------------------------------------
b. Current Event Contract Markets
The number of DCMs listing event contracts and the volume of
trading in such contracts have increased significantly in recent years.
For example, as of September 1, 2026, at least seven DCMs registered
with the CFTC offer contracts that include event contracts based on
sports-related events to U.S. persons. More than fifteen pending DCM
applications have been filed since 2025. Many of these newly designated
DCMs and platforms with pending applications have stated they intend to
offer contracts that could be considered event contracts. In August
2026, average monthly trading volume in event contracts was about $1.5
billion across all DCMs reporting to the Commission.\127\ Of that
volume, approximately $1.2 billion was in event contracts based on
sports-related events; approximately $11 million was in event contracts
based on politics-related events, including elections-related event
contracts; and approximately $4 million was in event contracts based on
weather-related events.\128\
---------------------------------------------------------------------------
\127\ Estimated based on nonpublic daily trade and reporting
data reported by DCMs under rule 16.02. See 17 CFR 16.02; see also
Kaitlyn Radde, Trading Volume on Prediction Markets Has Soared in
Recent Months, Pew Research Center (May 27, 2026), available at
<a href="https://www.pewresearch.org/?p=306935">https://www.pewresearch.org/?p=306935</a>.
\128\ Estimated based on nonpublic daily trade and reporting
data reported by DCMs under CFTC Rule 16.02, 17 CFR 16.02.
---------------------------------------------------------------------------
3. Benefits
Because the Commission does not expect the Proposal to change the
legal rights or obligations of market participants under the CEA, it is
the Commission's preliminary belief that the primary benefit of this
Proposal would be added certainty that event contracts, including those
based on sports-, politics-, cultural-, and weather-related events, are
swaps that are subject to the exclusive jurisdiction of the CFTC.
Although the extent of the benefit may be limited by the ongoing
efforts of certain state regulators to assert their jurisdiction over
certain event contracts, market participants--including DCMs listing
event contracts-- may benefit by spending less time and fewer resources
determining which regulatory regime applies and by saving the costs of
complying with various State regulatory regimes.
4. Costs
It is the Commission's preliminary belief that there should be
negligible costs from codifying that event contracts, including those
based on sports-, politics-, cultural-, and weather-related events, are
swaps subject to the Commission's exclusive jurisdiction, as there
would be no expected changes required of market participants under the
CEA or the Commission's regulations.
However, the Proposal may result in indirect costs to the extent
that market participants respond to the added certainty by shifting
activity toward the CFTC swaps framework. For example, States might
receive less fee and other revenue if entities choose to structure
their business operations as DCMs instead of structuring their
operations within State regulatory frameworks. It is also possible that
costs could also result from the potential transition, generating
short-term frictions. For example, market participants could incur
reconciling costs where Federal and State regulatory regimes overlap
during the transition, such as unwinding or
[[Page 66032]]
maintaining State licenses in parallel with CFTC-regulated obligations
during the transition.
5. Section 15(a) Factors
a. Protection of Market Participants and the Public
The Commission preliminarily believes that classification certainty
provided by the Proposal may allow market participants to more readily
operate within the Federal swaps framework and its attendant
protections. Insofar as this certainty leads to an increase in the
number of event contracts listed on DCMs, the protection of market
participants and the public may be advanced by application of the Core
Principles to the market. However, certainty provided by the Proposal
could be perceived as a safety signal by retail participants. This may
raise risk appetite for certain categories of event contracts as retail
market participants may update their beliefs about oversight of these
products and under-weigh their inherent risk and increase their
exposure to these products without parallel improvements in disclosure
or education that could improve comprehension of risks related to event
contracts based on sports-, politics-, cultural-, or weather-related
events.
b. Efficiency, Competitiveness, and Financial Integrity of Futures
Markets
The Commission preliminarily believes that the Proposal is unlikely
to affect the efficiency or financial integrity of the futures markets,
but there could be effects on the swaps market. To the extent that
firms restructure their operations from State regimes to the Federal
swaps regime, the Proposal could facilitate direct competition between
CFTC-regulated DCMs and State-regulated businesses. However, because
the Federal swaps regime requires infrastructure with fixed costs,
certainty provided by the Proposal might favor incumbent DCMs with
established infrastructure and customer bases. Furthermore, the
Commission preliminarily believes that clarifying that event contracts
are swaps may advantage exchanges already configured for Federal
compliance relative to state-licensed platforms, shifting costs
unevenly where new entrants may face higher fixed costs to reach swaps
compliance scale, potentially reducing competitive pressure on fees,
service quality, and innovation diversity at the margin.
c. Price Discovery
The Commission preliminarily believes that price discovery for
event contracts will not be materially affected because the Proposal
does not alter trading rules, exchange requirements, or information-
dissemination obligations for the contracts it covers, which the
Commission already expects to trade on DCMs subject to existing Core
Principles.
d. Sound Risk Management Practices
The Commission preliminarily believes that risk management
practices will not be materially affected because the Proposal does not
alter the application of Commission requirements regarding risk
management, including DCM risk-management Core Principles.
e. Other Public Interest Considerations
Codification of the Commission's understanding that event
contracts, including those based on sports-, politics-, cultural-, and
weather-related events, are swaps may improve legal predictability and
administrability, consistent with the CEA's purpose of encouraging
effective self-regulation of trading facilities, clearing systems, and
market participants. The Commission preliminarily believes that the
Proposal may reduce the resources market participants devote to
complying with various, sometimes-contradictory State regulatory
regimes.
But, insofar as the certainty provided by the Proposal increases
the volume of event contracts listed on DCMs, the Commission
preliminarily believes that retail market participants could be harmed
because some event contract trading characteristics (such as outcomes
occurring at unpredictable intervals, perception of skill-based
decision making, near-miss experiences, and potential for loss-chasing
behavior) can be associated with addictive potential. It is possible
that these characteristics can lead to financial harm to participants
who accumulate losses through high-frequency trading, allocate
disproportionate resources to trading activity, and have trouble
disengaging voluntarily.
6. Regulatory Alternatives
Given the Proposal seeks to articulate the Commission's existing
jurisdiction over swaps, the Commission has not identified any viable
regulatory alternatives.
D. Antitrust Laws
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of the CEA as well as the policies and purposes of the CEA,
in issuing any order or adopting any Commission rule or regulation
(including any exemption under section 4(c) or 4c(b)), or in requiring
or approving any bylaw, rule, or regulation of a contract market or
registered futures association established pursuant to section 17 of
the CEA.\129\
---------------------------------------------------------------------------
\129\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------
The Commission preliminarily believes that the public interest to
be protected by the antitrust laws is the promotion of competition. The
Commission has considered this Proposal to determine whether it is
anticompetitive and has identified no anticompetitive effects. Having
done so, it also has not identified any less anticompetitive means of
achieving the purposes of the CEA.
E. Executive Orders 12866, 13563, and 14192
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select those regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety, and other advantages; and distributive
impacts). Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as any regulatory action that is likely to result
in a rule that may: (1) have an annual effect on the economy of $100
million or more or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities; (2) create a serious inconsistency or
otherwise interfere with an action taken or planned by another agency;
(3) materially alter the budgetary impact of entitlements, grants, user
fees, or loan programs or the rights and obligations of recipients
thereof; or (4) raise novel legal or policy issues arising out of legal
mandates, or the President's priorities.
OMB has determined that this action is a significant regulatory
action as defined under section 3(f) of Executive Order 12866 and
therefore this action has been reviewed by OMB, consistent with
Executive Order 14215.
This Proposal, if finalized as proposed, is not expected to be an
Executive Order 14192 regulatory action, because it imposes no more
than de minimis net costs.
List of Subjects in 17 CFR Part 1
Swaps.
For the reasons set forth in the preamble, the Commodity Futures
[[Page 66033]]
Trading Commission proposes to amend 17 CFR part 1 as follows:
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
0
1. The authority citation for part 1 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g,
6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8,
9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24
(2012).
0
2. In Sec. 1.3, in the definition of the term, Swap, revise paragraphs
(2)(i)(E) and (F) and add paragraph (2)(i)(G) to read as follows:
Sec. 1.3 Definitions.
* * * * *
Swap. * * *
(2) * * *
(i) * * *
(E) A forward rate agreement;
(F) A non-deliverable forward involving foreign exchange; and
(G) Event contracts, including those based on sports-, politics-,
cultural, and weather-related events.
* * * * *
Issued in Washington, DC, on October 15, 2026, by the
Commission.
Christopher Kirkpatrick,
Secretary of the Commission.
NOTE: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to Further Definition of ``Swap''--Inclusions--Commission
Voting Summary
On this matter, Chairman Selig voted in the affirmative. No
Commissioner voted in the negative.
[FR Doc. 2026-21377 Filed 10-16-26; 8:45 am]
BILLING CODE 6351-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on October 19, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.