CFTC swap redefinition cannot fix a statutory text problem

Nicole Saharsky filed a letter with the Ninth Circuit on September 25 that cut through the procedural noise in about four sentences. Kalshi had asked the court to hold its en banc petition until the CFTC finished revising 17 CFR 40.11 — a rulemaking the agency told the White House it would complete within two months. Saharsky, representing Nevada, told the court the CFTC's timeline was already on the record when the panel issued its decision. The court knew. It ruled anyway.

That sequence matters more than the rulemaking itself.

The Ninth Circuit's August ruling against Kalshi did not rest on what Section 40.11 said. It rested on what the Commodity Exchange Act says — the text, context, and purposes of the statute. The court cited 40.11 only to knock down a subsidiary argument. The foundation of the holding was statutory construction, and a revised regulation does not reach statutory text. Regulations interpret statutes. They do not rewrite them.

The CFTC has now sent two proposals to the White House Office of Information and Regulatory Affairs: one would define swaps to include event contracts, the second would carve out casino-style gambling products. The agency is threading a needle — trying to claim jurisdiction over prediction market sports contracts while simultaneously distinguishing them from the casino products that states regulate. I have watched agencies attempt that kind of dual-track rulemaking before, and the problem is not the drafting. The problem is that once a circuit court has construed the statute, a regulation that contradicts that construction runs directly into Chevron's successor framework under Loper Bright. The court reads the statute. The court's reading governs. An agency cannot override that with a notice-and-comment rulemaking.

Kalshi's position, read charitably, is that a revised rule plus a second look from an en banc panel might produce a different outcome. Saharsky's position, read plainly, is that the petition is a delay tactic designed to extend operations while the legal architecture collapses around them. The Sixth Circuit has now ruled the same direction — Ohio and Tennessee may enforce their gambling statutes. Two circuits, the same answer, different statutory routes to get there.

The prediction markets that have formed around Kalshi's federal preemption argument are, in my view, mispriced toward Kalshi. The consensus appears to treat the CFTC rulemaking as a live variable that could shift the outcome. The rulemaking is a live variable for future contracts and future platforms. For the Ninth Circuit's current holding on sports-event contracts, it is not. The court has already told you what it thinks of the statutory argument. A revised regulation lands in the same court, under the same reading of the same statute.

The standard that applies here is the one the court already applied: whether the CEA's text and purposes authorize CFTC jurisdiction over sports-event contracts such that federal law preempts state gaming regulation. The Ninth Circuit answered that question in August. The rulemaking does not get Kalshi a new answer to an old question.