CFTC swap definition leaves 39 states with no role to play

Michael Selig chose a Friday to file two rules that together do something no single enforcement action could: they draw a line between what the CFTC governs and what it does not, and they draw it in the Federal Register.

The first rule proposes expanding the definition of "swap" under the Commodity Exchange Act to cover event contracts — sports, weather, politics, cultural outcomes. The second, an interim final rule effective on publication, confirms that casino-style gambling products, sportsbook wagers included, fall outside that definition entirely. Two rules, one architecture: the federal agency keeps the prediction markets, the states keep the sportsbooks, and the line between them is now written down.

Selig's language was precise in a way that signals intent. "Commodity derivatives squarely within the CFTC's regulatory remit" and "exclusive jurisdiction" are not description — they are claim-staking. The CFTC has been asserting this position in litigation, but a rulemaking carries different weight. A court can reverse an agency's legal argument. Reversing a validly promulgated rule requires the court to engage Chevron's successor doctrine under Loper Bright, and the administrative record the agency builds during a 30-day comment period becomes part of what any reviewing court inherits.

The timing is the part the sources understate. The CFTC submitted these proposals to the White House Office of Information and Regulatory Affairs on September 28 — before the gaming regulators from 39 states filed their brief urging the Supreme Court to take up Flaherty v. KalshiEX. The sequence matters. The agency was not reacting to the coalition. It was ahead of it, and the rulemaking now sits in the Federal Register while the Court decides whether to grant certiorari.

What 39 states and the NFL asked the Supreme Court to do is resolve the circuit split — Third and Ninth Circuits disagree on whether event contracts qualify as federally regulated swaps. That question was already contested as a matter of litigation. It is now also contested as a matter of administrative law, because the CFTC has answered it formally and created a record.

I do not think the conventional read of this situation is right. The consensus framing treats the Supreme Court as the place where the jurisdictional question gets resolved, and the CFTC's rulemaking as a parallel track. My reading is that the rulemaking is not parallel — it is a prior. If the Court grants cert in Flaherty and takes up the question of CFTC exclusive jurisdiction, it will now do so against a backdrop in which the agency has formally defined event contracts as swaps and casino products as non-swaps. That is a different case than the one New Jersey filed. The justices will not simply be interpreting the Commodity Exchange Act in the abstract; they will be reviewing whether a promulgated rule is consistent with the statute. That is a harder path for the states than they appear to have priced.