CFTC Proposes to Define Sports and Political Event Contracts as Swaps

The Commodity Futures Trading Commission on October 9, 2026 published a Notice of Proposed Rulemaking that would expressly further define the term “swap” under the Commodity Exchange Act to include event contracts, including those based on sports, politics, cultural, and weather-related events. Written comments must be received within 30 days of the proposal’s publication in the Federal Register.

“Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events,” Chairman Michael S. Selig said. “These products are commodity derivatives squarely within the CFTC’s regulatory remit under the Commodity Exchange Act and are within the agency’s exclusive jurisdiction.”

The proposal, titled “Further Definition of ‘Swap’ – Inclusions,” would add event contracts to the instruments listed in the Commission’s regulatory definition of swap. The published document is marked as approved by the Commission, subject to pre-publication technical corrections. The SEC joins in proposing the rule in satisfaction of a Dodd-Frank Act requirement that the two agencies jointly further define the term, a duty the agencies first carried out in an August 13, 2012 joint rule, and the CFTC consulted the Federal Reserve Board by sharing the proposal.

How the Proposal Reaches Event Contracts

According to the proposal, event contracts are implicated by four clauses of the statutory swap definition: the clause covering transactions whose payment depends on the occurrence, nonoccurrence, or extent of occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence; the clause covering options of any kind, which the Commission said captures binary options; the residual clause covering instruments commonly known to the trade as swaps; and the clause covering combinations or permutations of the others.

The Commission said it reads the trade in that residual clause as participants in the derivatives markets, including the CFTC, its registrants, and traders, rather than the general public, and that the standard does not require universal recognition. The proposal also states that the statutory definition of an excluded commodity, a category that remains a commodity under the act, makes clear that events related to sports, politics, culture, and weather are themselves commodities, and that many event contracts are structured as binary options paying a predetermined fixed amount, typically one dollar, if a condition is satisfied and zero if it is not.

The proposed addition would not reach futures contracts, security-based swaps, or other instruments within SEC jurisdiction, and it would not reach casino-style gambling products. In a companion Interim Final Rule published the same day, the Commission codified its position that casino-style gambling products, including wagers placed on sportsbooks and casino games, are excluded from the swap definition; that rule is effective immediately upon Federal Register publication, with comments also due within 30 days.

“Casino-style gambling products are not derivatives,” Selig said.

State Actions and a Federal Court Split

The proposal recounts a series of state actions against event-contract markets. Minnesota enacted a criminal prohibition on the operation or facilitation of a prediction market that the proposal says purports to make it a felony to offer event contracts on athletic events, elections, and policymaking decisions. Arizona filed a twenty-count criminal information against a designated contract market over sports and elections contracts, and New York sought a temporary restraining order covering sports, culture, and elections contracts that, because that market is headquartered in New York, the proposal says threatens its offering nationwide. State trial courts have ordered the same market to geofence its offering of sports-related event contracts in Michigan, Washington, and Nevada.

Three federal appeals courts have ruled on whether a sports-related event contract is a swap. In April 2026, a divided Third Circuit panel held in KalshiEX v. Flaherty that sports-related event contracts traded on a CFTC-licensed contract market fit the statutory definition, and the dissenting judge agreed that a plain reading of the text supported that fit. On August 28, 2026, the Ninth Circuit adopted the opposite interpretation in KalshiEX v. Assad, describing the substance of the contracts as sports gambling and concluding they are likely not swaps; a petition for rehearing and rehearing en banc was filed on September 9, 2026. On September 25, 2026, a Sixth Circuit panel in KalshiEX v. Schuler also held the contracts are not swaps, reasoning that the underlying event must be inherently associated with a financial, economic, or commercial consequence.

The Commission said the record demonstrates widespread confusion and inconsistent treatment of the swap definition, and that its express statutory authority to further define the term provides an independent legal basis for treating the contracts as swaps.

Agency History, Market Size, and Preliminary Findings

CFTC-regulated exchanges have listed event-driven contracts since 1992, with payouts tied to regional insured property losses, bankruptcy counts, temperature volatilities, corporate mergers, and corporate credit events, later extending to scientific advances, world population levels, the adoption of legislation, and celebrity marriages. The agency issued a no-action letter to Iowa Electronic Markets for election contracts in 1993, designated HedgeStreet as the first contract market dedicated to event contracts in 2004 — a market renamed Nadex in 2009 and transitioned to the Crypto.com platform in 2025 — published a concept release in 2008, approved contracts on box-office receipts in 2010, and in a January 3, 2022 order penalized Blockratize, doing business as Polymarket.com, for offering event contracts it found constituted swaps without registration.

As of September 1, 2026, at least seven CFTC-registered contract markets offered sports-related event contracts to U.S. persons, and more than fifteen applications for contract-market designation have been filed since 2025. Based on nonpublic daily trade data reported by the exchanges, the Commission estimated that average monthly event-contract volume in August 2026 was about $1.5 billion, of which approximately $1.2 billion was in sports-based contracts, about $11 million in politics-related contracts, and about $4 million in weather-related contracts. Exchanges have self-certified thousands of event contracts with the agency, including CME Group contracts based on sports and elections that were self-certified as swaps, and both CME and Cboe Global Markets told the Commission in comment letters filed in April and May 2026 that event contracts fall within the existing swap framework.

The Commission said it preliminarily believes the proposal would not change market participants’ legal rights or obligations, because it already treats event contracts as swaps, and that the primary benefit would be added certainty of exclusive CFTC jurisdiction at negligible direct cost. Possible indirect costs, it said, include reduced fee and other revenue for states if entities structure their businesses as federally regulated contract markets, and transition costs where federal and state regimes overlap. It also preliminarily noted that retail participants could be harmed if added certainty increases listed volume, because certain event-contract trading characteristics (outcomes occurring at unpredictable intervals, a perception of skill-based decision-making, near-miss experiences, and potential for loss-chasing behavior) can be associated with addictive potential.

Selig certified under the Regulatory Flexibility Act that the proposal would not have a significant economic impact on a substantial number of small entities, and the Commission determined the Paperwork Reduction Act does not apply, identified no anticompetitive effects, and found no viable regulatory alternatives. The Office of Management and Budget reviewed the action as a significant regulatory action under Executive Order 12866, and the Commission said the proposal is not expected to be an Executive Order 14192 regulatory action because it imposes no more than de minimis net costs.

Comments must be submitted in writing through Regulations.gov and received within 30 days of the proposal’s publication in the Federal Register. They may also be mailed to Secretary of the Commission Christopher Kirkpatrick at the agency’s Washington headquarters, referencing “Further Definition of ‘Swap’ – Inclusions” and RIN 3038-AF82.