CFTC Publishes Notice of Public Rulemaking Proposing Sports Event Contracts Be Included in Swap Definition

• The CFTC today published a notice of public rulemaking that proposes providing additional market clarity on the definition of a swap
• The new definition proposed by the CFTC includes event contracts based on sports, politics, cultural, and weather-related events
• The notice will be published in the Federal Register

The Commodity Futures Trading Commission is officially proposing to include event contracts in the definition of a swap, including event contracts based on sports, politics, cultural, and weather-related events.

The commission today published a notice of proposed rulemaking that proposes providing additional market clarity by defining the term “swap” to include event contracts.

“Americans use event contracts to hedge risks, speculate, and provide the public with information about the outcome of future events,” Chairman Michael S. Selig said in the announcement. “These products are commodity derivatives squarely within the CFTC’s regulatory remit under the Commodity Exchange Act and are within the agency’s exclusive jurisdiction.”

Including Sports Event Contracts in Swap Definition

The Commodity Futures Trading Commission (CFTC) submitted the definition change to the Office of Information and Regulatory Affairs in late September.

The new proposal notes that the contracts are financial instruments commonly known to the trade as swaps, and proposes to resolve any ambiguity regarding the contracts. The basis of what defines a swap, and if sports event contracts are classified as swaps, is the central question of several lawsuits throughout the country between prediction market operators and state gaming regulators.

“This proposal seeks to clarify that event contracts, including those based on sports-, politics-, cultural-, and weather-related events, are swaps within the CFTC’s jurisdiction. The CFTC has historically recognized that many event contracts are covered by the Commodity Exchange Act’s (the “CEA”) swap definition,” the CFTC wrote.

Even if the rule is approved and event contracts are included in the definition of a swap, it’s unlikely that courts will have to abide by the definition and will still interpret the definition for itself. However, this could be the CFTC better positioning itself for a potential U.S. Supreme Court evaluation of sports event contracts and who regulates the markets.

Comments on the notice of public rulemaking must be receiving within 30 days of the rulemaking’s publication in the Federal Register.

Selig Lauds Rule

Selig, on his X social media account, said it is important for the commission to clarify these event contracts as being defined as swaps.

“Event contracts are used by Americans every day to hedge risks, speculate, and provide the public with information about the outcome of future events. With this move, the @CFTC is taking another important step to clarify that these commodity derivatives fall squarely within the CFTC’s regulatory remit under the Commodity Exchange Act and are subject to the agency’s exclusive jurisdiction.”