Sixth Circuit loss sharpens CFTC's swap rule gambit

When the Sixth Circuit sided with Ohio and Tennessee against Kalshi, it handed the CFTC a problem that no press release could solve. A unanimous three-judge panel had found that sports-event contracts were not demonstrably swaps under federal law — precisely the classification the Commission needs to win. Chairman Michael Selig's response was to go to the rulemaking, not the courtroom. Two proposals, filed through the Office of Information and Regulatory Affairs on September 28 and published in the weeks since, now formally assert what the Sixth Circuit refused to concede.

The first proposal extends the swap definition to event contracts tied to sports, politics, weather, and cultural events. The second, an interim final rule effective on publication, draws the line at casino-style gambling — sportsbook wagers and casino games stay excluded. Read together, they are Selig's attempt to close the definitional gap before the Supreme Court decides whether to open it.

The sequencing here is what interests me. Thirty-nine state gaming regulators and the NFL have filed briefs urging the Court to take up Flaherty v. KalshEX, the New Jersey petition that now sits before nine justices, four seats of which remain empty. Selig is watching the same calendar. A rulemaking that completes before the Court grants certiorari gives the Commission something an amicus brief cannot: a codified federal position with the procedural weight of notice-and-comment behind it. Courts have to grapple with final rules in ways they do not have to grapple with agency arguments.

The problem is that the Sixth Circuit already grappled with the agency's position and rejected it without the benefit of a completed rule. What the new proposals give Selig is a stronger administrative record. What they cannot give him is a circuit split that resolves in his favour before the Court steps in.

The NFL's brief frames this as a question of who is better placed to oversee sports integrity — states, which have enforcement infrastructure and existing compact relationships, or a federal commodities regulator whose mandate was written for grain futures. That framing is not accidental, and Selig's response does not really answer it. Calling a sports-event contract a swap does not make the integrity argument go away; it relocates the argument to a different court on a different timetable.

I have been watching this jurisdictional fight long enough to know that the side with the more durable legal theory tends to win on a longer timeline than markets expect, and the side with the more immediate procedural advantage tends to win the interim rounds. Right now Selig holds the procedural cards. The Sixth Circuit outcome suggests the legal theory is thinner than the Commission's public posture implies.