CFTC writes sportsbooks and casinos out of the swap definition

On 9 October the Commodity Futures Trading Commission released an interim final rule (IFR). The rule writes into regulation the agency’s long-held view that state-licensed sportsbook bets, casino games and other games of chance are not swaps.

“Casino-style gambling products are not derivatives,” said Chairman Michael S. Selig. He said the rule “provides clarity regarding the limits of its regulatory remit”.

The rule was published in the Federal Register on 19 October and took effect that day. The Commission cited good cause to skip the usual delay. Comments are due by 18 November. A companion proposal, published the same day, would expressly bring event contracts within the swap definition.

The product test

The IFR adds a new paragraph (7) to the swap definition in CFTC Regulation 1.3. An agreement falls outside the definition if two conditions are met:

• Who offers it: a person licensed or authorised under state law, or under tribal law through the Indian Gaming Regulatory Act, offers it within the scope of that licence, and it is regulated as gambling under that law.
• Where it trades: it is not traded on a board of trade, an organised exchange, a swap execution facility, or “any other market in which trades are executed multilaterally or subject to individual negotiation”.

If both conditions are met, the rule names three examples:

• wagers accepted by licensed sportsbooks
• casino table games, slot machines and other electronic gaming devices
• other licensed games of chance such as bingo, pool wagering, lotteries and raffles

The preamble explains the reasoning. In state-regulated gambling, the odds or “line” are typically set by a licensed operator “acting as principal with its customers on a bilateral basis”. The CEA, by contrast, is aimed at price discovery on multilateral venues such as DCMs and SEFs. The Commission says the test also stops state-licensed operators from later offering products that properly fall within CFTC jurisdiction unless they comply with the CEA.

Answering the states

The preamble directly addresses the states’ arguments. It cites:

• a comment letter of 30 April from 40 states and the District of Columbia calling sports event contracts “indistinguishable from traditional sports betting”
• New Jersey’s Supreme Court brief in Flaherty v. KalshiEX
• a Kentucky filing claiming that treating event contracts as swaps would transfer “every ounce of authority over sports wagering” to the CFTC

It also cites the Ninth Circuit’s August decision in KalshiEX v. Assad. That court concluded that sports event contracts are “likely not swaps” and worried that “bingo games and pingpong matches” could otherwise fall under CFTC jurisdiction.

The IFR is the Commission’s answer to that concern. It says that recognising exchange-traded event contracts as swaps does not take bookmaking away from the states. The rule does not further define “security-based swap”. The Commission asks whether a different functional test would draw the line better.

Why it matters

This is mostly a litigation instrument, but it is drafted in market-structure terms. The dividing line is not the subject matter, sports or otherwise, but the execution model: principal-based bilateral wagering versus multilateral, tradable contracts.

Prediction-market operators and their liquidity providers should note two points:

• The test rewards venues that look like exchanges, with order books, matched trades and open access.
• It could put pressure on any arrangement where a single affiliated market maker effectively sets the price.

State-licensed sportsbooks moving into exchange-style products should read the anti-circumvention language closely. With comments open until 18 November and the courts split, the paragraph (7) wording may yet change.

Sources

• CFTC Release 9309-26, 9 October 2026 — https://www.cftc.gov/PressRoom/PressReleases/9309-26
• Federal Register, 91 FR 65969, 19 October 2026 — https://www.govinfo.gov/content/pkg/FR-2026-10-19/html/2026-21376.htm