Prediction Markets and the Swap Definition: The CFTC’s October 2026 Rules

De Silva Law Offices, LLC

The fight over who regulates prediction markets, the CFTC or the states, turns in large part on whether event contracts are “swaps.” An event contract pays a fixed amount if something happens and nothing if it does not. Exchanges registered with the CFTC now list them on games, elections and the weather. If they are swaps traded on a registered exchange, the Commodity Exchange Act gives the CFTC exclusive jurisdiction over them. State gaming regulators say sports contracts are bets that need a state license. On October 9, 2026, the CFTC moved to settle the question by rule.

The CFTC proposed a rule that would add event contracts to its definition of “swap.” In a companion interim final rule, effective October 19, it took casino-style gambling out of the same definition. The rules arrive while the federal courts of appeals are split over whether sports event contracts are swaps and whether federal law preempts state gambling law as applied to them. New Jersey, Crypto.com and Robinhood have each asked the Supreme Court to resolve the split.

This article explains what the two rules do, where the CFTC draws the line between an event contract and a bet, whether the agency can settle the question by rule, and why the alternative to a federal market may be an offshore one.

What the CFTC’s Two Rules Do

The proposal

The first release would add a new paragraph to the definition of “swap” in CFTC Rule 1.3. The paragraph would list “[e]vent contracts, including those based on sports-, politics-, cultural, and weather-related events” among the products the definition includes.[1] The same list already names products such as forward rate agreements and non-deliverable forwards involving foreign exchange, which the CFTC and the SEC placed there in their 2012 joint rule further defining “swap.”[2]

The proposal rests on two kinds of support. First, the CFTC argues that event contracts already meet the statutory definition under four of its clauses. They can be binary options on commodities. They pay out on an event “associated with a potential financial, economic, or commercial consequence.” They are “commonly known to the trade as” swaps. And they can be combinations of those.[3] Second, the CFTC treats its authority to “further define” the term as an independent basis for the rule, even if a court reads the statute more narrowly.[4]

For the “known to the trade” clause, the CFTC points to its own treatment of event contracts since the early 1990s, to the thousands of event contracts exchanges have self-certified, and to comment letters from CME Group and Cboe. It also points to government enforcement actions that proceed on the theory that event contracts are swaps, including the Van Dyke insider trading case.[5] The proposal cites the Northern District of Illinois’s October 2 decision in Coinbase Financial Markets v. Raoul three times.[6]

The interim final rule

The second release adds a new paragraph (7) to the same definition. Under it, “swap” does not include a transaction offered by an operator licensed to offer gambling under state or tribal law, acting within that license, if the transaction is regulated there as gambling and is not traded on an exchange or any other market where trades are executed multilaterally or subject to individual negotiation.[7] The rule names three examples: sports wagers taken by a licensed sportsbook, casino games, and other licensed games of chance such as bingo, pool wagering, lotteries and raffles.

The interim rule takes effect on October 19, 2026, when it is published in the Federal Register, without prior notice and comment. Comments on both releases are due November 18, 2026, and the CFTC says it may revise the interim rule in response.[8]

The two releases work as a pair. The Sixth and Ninth Circuits worried that if sports event contracts are swaps, every bet placed with a sportsbook would be one too, and would have to move onto a federal exchange.[9] The interim rule answers that concern directly. The CFTC says it implements an approach the Third Circuit suggested in April: using the agencies’ power to “further define” swaps to keep far-fetched cases out.[10]

Where the CFTC Draws the Line Between Event Contracts and Casino Gambling

The exclusion has two tests, modeled on the ones the CFTC and the SEC used in 2012 to keep insurance and ordinary consumer transactions out of the swap definition.[11] The provider test asks who offers the product. It must come from an operator licensed or authorized to offer gambling under state or tribal law, acting within that authority, and the product must be regulated as gambling there. The product test asks how it trades. It must not be traded on an exchange or any other market where trades are executed multilaterally or subject to individual negotiation. A bet a licensed sportsbook offers as principal, on its house rules, passes both tests. A contract matched on an exchange’s order book fails the second.[12]

The CFTC’s reasoning is structural. The table below sets out the distinctions the two releases draw.[13]

The CFTC adds that Congress addressed event contracts involving “gaming” in the statute’s special rule for event contracts, that exchanges have listed event contracts under federal oversight since the early 1990s, and that it knows of no trade usage treating a sportsbook bet as a swap.[14]

The release also concedes a point the states are likely to use. The CFTC acknowledges that “a person can achieve similar economic exposure” through a wager or an event contract.[15] Its answer is that similar exposure does not require identical regulation, and it points to insurance and credit default swaps, which can hedge similar risks under different regimes. The line turns on who offers a product and how it trades, rather than on what the product is about.

That choice matters for businesses near the line. A state-licensed betting exchange, where customers bet against each other on an order book rather than against the house, fails the product test. Sporttrade has already closed its state-regulated operations in five states to pursue federal registration as an exchange and clearinghouse.[16] Fantasy contests raise a different question. New York, for example, regulates them under a separate statute, and its highest court, by a 4–3 vote, upheld that statute against a state constitutional challenge.[17] The provider test requires that a product be “regulated as gaming or gambling,” and the CFTC asks commenters whether it is clear which products meet that requirement.[18]

Falling outside the exclusion does not make a product a swap. The CFTC says so expressly, and it notes that some unlicensed transactions, such as a casual bet between friends, may fall outside the swap definition for other reasons.[19] But they do not get the certainty the rule gives licensed sportsbooks and casinos.

Can the CFTC Define Event Contracts as Swaps by Rule?

The obvious objection is that it cannot. Since Loper Bright Enterprises v. Raimondo ended Chevron deference in 2024, courts decide what a statute means without deferring to the agency that administers it.[20] On that view, a rule cannot displace the Sixth and Ninth Circuits’ reading of the definition’s “event” clause. Both rulings came at the preliminary-injunction stage, and, as the CFTC reads them, both addressed only that clause.

The proposal answers with a passage from Loper Bright itself. The Court recognized there that some statutes “expressly delegate[]” to an agency the authority to give meaning to a particular statutory term.[21] The CFTC reads Dodd-Frank’s instruction to “further define” the term “swap” as that kind of delegation. It goes further. Where it is uncertain whether a particular sports, political, cultural or weather event has potential financial consequences, the CFTC says its power to further define the term lets it decide which contracts qualify.[22]

The argument has force. It also has limits.

First, a delegation has boundaries, and under Loper Bright the courts set them. A court could read “further define” as authority to clarify what the statute already covers, not to reach contracts that courts of appeals have held likely fall outside it. The 2012 rule used the same authority in both directions, placing foreign exchange products in the definition and keeping insurance out. It did not, however, take a side on a category of contracts the courts of appeals had already divided over.

Second, the interim rule supplies an argument against the proposal. To explain why casino gambling is not a swap, the CFTC relies on the principle that, absent a more specific indication in the text, Congress is not presumed to disturb the balance between federal and state authority.[23] The Ninth Circuit reasoned along similar lines when it invoked the major-questions doctrine, and the states can be expected to turn the CFTC’s own citation against the proposal. Neither release addresses that doctrine directly. Both rely instead on the CFTC’s exclusive jurisdiction over swaps traded on registered exchanges and on the statute’s special rule for event contracts that involve “gaming.”

Third, a definition answers only one question. Even if every event contract is a swap, a court must still decide whether the Commodity Exchange Act displaces state gambling law. The Sixth Circuit held that Ohio and Tennessee could enforce their laws even if the contracts were swaps, and the District of Utah reached the same result in a final judgment.[24] That preemption question is the one New Jersey has asked the Supreme Court to decide, and a rule defining “swap” does not resolve it.

Fourth, neither release amends Rule 40.11, the regulation the Ninth Circuit read as barring gaming contracts from exchanges. The proposal says that once event contracts are swaps by regulation, there will be no basis to read the CFTC’s rules otherwise. Rule 40.11 itself is the subject of the CFTC’s separate June 2026 proposal on public-interest determinations, which has not been finalized.[25]

Two Procedural Questions

Good cause for the interim rule

The Administrative Procedure Act lets an agency skip notice and comment when that process would be impracticable, unnecessary or contrary to the public interest. Courts read that exception narrowly. The CFTC grounds its finding in the circuit split and in state enforcement: Arizona’s criminal case against an exchange, Minnesota’s attempted criminal ban on prediction markets, and New York’s request for relief that, as the CFTC describes it, would bar a New York-based exchange from offering event contracts anywhere. It says markets carrying tens of billions of dollars in transactions are at stake.[26]

The same release says, in its cost-benefit discussion, that the rule does not change market participants’ rights or obligations under the Commodity Exchange Act, because it codifies a position the CFTC already holds, and that it will have limited impact on the statutory cost-benefit factors.[27] A challenger can be expected to put those passages side by side. If the rule changes nothing, it is harder to explain why it had to take effect before anyone could comment. The CFTC’s answer is that the harm comes from confusion in the courts, and that removing the confusion is the point.

Who would bring that challenge is less clear. The rule’s direct effect is to leave state- and tribe-licensed gambling where it already is.

The SEC’s role

Section 712(d)(1) of Dodd-Frank directs the CFTC and the SEC, in consultation with the Federal Reserve, to further define “swap” jointly.[28] Each release says in a footnote that the SEC “joins” the rule to satisfy that requirement. Neither carries an SEC release number or file number, as the agencies’ June 2026 joint request for comment on the swap definition did. The Federal Register versions list the CFTC as the only issuing agency.[29] A challenger is likely to ask how the SEC joined.

The Risk of Pushing the Market Offshore

If the federal framework does not hold, trading in event contracts is unlikely to stop. More of it is likely to move outside U.S. oversight. The danger of driving this market offshore should not be underestimated.

The history is instructive. Intrade, an Irish prediction market, served U.S. customers for years. In a 2005 settlement order against Intrade’s operator, the CFTC said U.S. customers accounted for up to 40 percent of Intrade’s customer base. When the CFTC sued in November 2012, Intrade announced within hours that it would stop serving U.S. residents.[30] After its 2022 CFTC settlement, Polymarket blocked U.S. users, and as of this spring it still kept them off its main international exchange.[31] Blocking does not always keep them out. In the Van Dyke case, the CFTC and the Justice Department allege that a U.S. soldier used classified information to make more than $400,000 on that international exchange, which authorities said he reached through a VPN.[32]

Sports betting shows the same pattern at greater scale. The American Gaming Association estimated in 2022 that Americans wager $63.8 billion a year with illegal bookmakers and offshore sites, nearly 40 percent of the U.S. sports betting market.[33] The AGA has filed a Supreme Court brief supporting New Jersey’s petition, so the figure comes from the other side of this dispute. It measures demand that legal channels have not captured.

The difference lies in what an offshore platform does not have to do. A registered exchange must surveil trading, provide impartial access, clear trades through a registered clearinghouse and report trading data to the CFTC.[34] An offshore platform that is not registered with the CFTC has none of those obligations. And closing a regulated exchange to a state’s residents does not give that state any more control over an offshore platform.

Where This Leaves the Dispute

The two releases put the CFTC’s position on the definitional question into rule text, and the interim rule is built to meet the concern the CFTC says drove the Sixth and Ninth Circuit decisions. They will not end the litigation. The proposal still has to survive comment and any challenge, the interim rule’s good-cause finding may be tested, and the preemption question remains with the courts. The releases do change the record. The CFTC’s position now appears in proposed and interim rule text, not only in briefs, as the Supreme Court decides whether to take the case.

De Silva Law Offices, LLC practices at the center of the prediction-markets and event-contracts space. The firm represents exchange applicants, introducing brokers, fund sponsors and individual traders in matters involving CFTC-regulated prediction markets, and it has filed comment letters with the CFTC on its prediction-market rulemakings. Its analysis of the litigation and rulemaking in this area is published on the firm’s site and in Law360. Questions about this article or the firm’s practice may be directed to info@desilvalawoffices.com.

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