CFTC Prepares Swap Expansion While Court Case Remains Unresolved

CFTC's swap expansion rests on a commercial test courts have not yet settled

On October 9, hours before a full NFL slate kicked off, the Commodity Futures Trading Commission released a notice of proposed rulemaking that did something the agency had never done explicitly before: it named sports, politics, culture, and weather as categories of event contracts that fall within its definition of a swap under the Commodity Exchange Act. Chairman Michael Selig accompanied the release with a statement declaring these products "squarely within the CFTC's regulatory remit" and "within the agency's exclusive jurisdiction." The timing was not accidental. Neither was the language.

The legal architecture underneath that claim runs through the Third Circuit's April decision in KalshiEX LLC v. Flaherty, which held that sports event contracts could satisfy the CEA's swap definition because their outcomes connect to identifiable economic consequences. The court pointed to franchise valuations, television revenue, and local economic activity as evidence that sporting events produce the kind of "financial, economic or commercial" downstream effects that Dodd-Frank's core prongs require. The CFTC's proposed rule incorporates that reasoning directly, citing the Third Circuit's endorsement of what it calls a broad class of economic stakeholders whose interests are affected by game outcomes.

That is the seam worth examining. The Third Circuit's test is not whether a contract references a sporting event. It is whether the event generates commercial consequences of the kind the statute contemplates. The commission is now proposing to write that test into the definition itself, which would shift the analysis from case-by-case circuit reasoning to codified regulatory text. The difference matters because codified text carries Chevron-adjacent deference weight in enforcement proceedings, even after the Supreme Court's recent deference jurisprudence, as long as the agency is interpreting its own governing statute within a plausible reading of the grant.

The consensus read in the commentary I have seen treats this rule as a consolidation move — the CFTC locking in a favorable circuit ruling before a less favorable one arrives. I think that framing undersells the legal exposure. A proposed rule is not a final rule, and between now and any final rule sits a notice-and-comment period in which every state gaming regulator who believes this definition displaces their authority will have standing to submit a record. The Nevada gaming chief's recent public objection to the swap definition as a disguised betting classification is not a legal argument yet, but a comment period converts it into one. Courts reviewing the final rule will have that record.

The harder problem for the commission is the Sixth Circuit. Kalshi has asked for a rehearing there after a ruling that went against it on sports contracts. If the Sixth Circuit holds its position and the commission publishes a final rule asserting exclusive jurisdiction, you have a direct conflict between regulatory text and circuit precedent in the same statutory space. That is the architecture of a Supreme Court petition, and the NFL has already filed one with an explicit deadline tied to the 2027 season.

The standard a reviewing court would apply to the commission's final rule is whether the proposed swap definition, as applied to event contracts, falls within the agency's statutory authority under the CEA as amended by Dodd-Frank — not whether the policy outcome is sensible, and not whether the Third Circuit reached the right result, but whether Congress delegated to the CFTC the power to define swaps expansively enough to reach contracts whose "commercial consequences" are indirect and aggregate rather than bilateral and specified.