The Commodity Futures Trading Commission (CFTC) has advanced two crucial event-contract actions to White House review, intending to define swaps to include event contracts and exclude casino-style gambling. This regulatory push coincides with federal appeals courts, specifically the Sixth Circuit, ruling on whether sports contracts are subject to state gambling laws, creating a complex legal landscape.
What Happened
On September 28, two CFTC event-contract actions were sent to the Office of Information and Regulatory Affairs (OIRA) for White House review. One, listed as RIN 3038-AF82, is a proposed rule titled “Further Definition of ‘Swap’ to Include Event Contracts.” The other, RIN 3038-AF81, is an interim final rule under review, titled “Further Definition of ‘Swap’ to Exclude Casino-Style Gambling Products.” These submissions occur just five days after a federal appeals court ruled that certain sports contracts were not swaps, allowing Ohio and Tennessee to apply their state gambling laws. The complete regulatory text for these rules has not yet been published, so their precise definitions remain unconfirmed.
Key Details
- Two CFTC event-contract actions, one a proposed rule and one an interim final rule, were sent to the White House for review on September 28.
- The proposed rule (RIN 3038-AF82) aims to define swaps to include event contracts.
- The interim final rule (RIN 3038-AF81) seeks to exclude casino-style gambling products from the definition of swaps.
- A federal appeals court ruled on September 25 that sports contracts in Ohio and Tennessee were not swaps, permitting state gambling laws to apply.
- The specific wording and full impact of the CFTC’s proposed rules are not yet public, as the regulatory text has not been published in the Federal Register.
- An interim final rule can take effect with a post-publication comment period, while a proposed rule typically seeks comment before becoming final.
- The CFTC’s March advance notice sought information on various aspects of event contracts, but these new submissions represent a later, more concrete regulatory step.
Why It Matters
The simultaneous actions by the CFTC and federal courts highlight the evolving and contested regulatory landscape for prediction markets and event contracts. The CFTC’s attempt to delineate what constitutes a ‘swap’ versus a ‘casino-style gambling product’ will be crucial in determining federal oversight. The pairing of an inclusion rule with an exclusion rule suggests the CFTC is attempting to draw a clear line for federal derivatives oversight, while simultaneously acknowledging categories that should remain outside. However, the exact placement of this boundary will significantly impact whether certain sports contracts are viewed as federally regulated swaps, state-regulated gambling products, or both under conflicting legal theories. The lack of published text means that the agency’s specific approach, such as a bright-line sports exclusion or an economic use test, is still unknown. This ongoing conflict between federal regulatory efforts and state-level legal interpretations creates uncertainty for platforms offering such contracts and the broader prediction market industry.