CFTC tries to write in rules what courts have refused to settle

The CFTC filed two rules with the White House on September 28, and neither of them will resolve anything quickly. That is the part the coverage keeps missing.

RIN 3038-AF82 would amend the regulatory definition of a swap to explicitly cover event contracts — the yes-or-no products traded on Kalshi, Polymarket, and their growing number of competitors. It goes to public comment, which means months before it can be final, and then the litigation begins again. RIN 3038-AF81 is the more unusual instrument: an interim final rule that would exclude casino-style gambling products from the swap definition, potentially taking effect before the comment window closes. Agencies reach for interim final rules when they want a regulation active while the deliberation is still running. The CFTC classified both as not economically significant, which affects the review timeline at OIRA but does not reflect what is actually at stake.

What is at stake: whether Chairman Michael Selig can use a regulatory definition to accomplish what the Third Circuit and Sixth Circuit have declined to hand him in litigation. The courts have split on whether sports event contracts qualify as swaps under the Commodity Exchange Act. That split is now before the Supreme Court. The CFTC's response is to redraft the definition itself, so that the answer is written into the regulation rather than waiting on the justices.

I have watched regulators attempt this maneuver before — using rulemaking to get ahead of a court that is moving slowly in the wrong direction. It works when the White House backs the rule through to finalization before the court rules. It fails when the court moves faster, or when a new administration changes the calculus at OIRA. The CFTC classified these rules as not economically significant, which puts them on the faster review track. But "faster" at OIRA still means weeks, and the Supreme Court's term opened this week.

The interim final rule carries the real bet. If RIN 3038-AF81 takes effect before the Court rules, the CFTC can argue that casino-style gambling is already carved out of the swap definition by federal regulation — which removes the states' strongest remaining argument. Ohio and Tennessee have been pressing exactly that argument in their own litigation. New York sued Polymarket last week on the same theory. If the exclusion rule lands first, those cases shift. Not resolved, but shifted.

The piece of this I don't think the market has priced is the sequencing risk. The proposed rule — the one that pulls event contracts into the swap definition — goes to public comment and cannot be final for months. The interim final rule — the one that carves out casino products — could move faster. That asymmetry means there is a window in which casino-style gambling is explicitly excluded from swap status, but event contracts are not yet explicitly included. During that window, the states have a cleaner argument than they have had at any point this year.