CFTC to Exclude Casino-Style Gambling Products From Swap Definition
By Robert Linnehan in Industry
Published:
- The CFTC today approved an interim final rule to exclude gambling-style games from its “swap” definition
- The rule will go into effect upon publication in the Federal Register
- Another recently proposed rule to include sports event contracts in the definition of a “swap” has yet to be approved
The Commodity Futures Trading Commission today announced the approval an interim rule that will bar casino style-gambling products, including wagers placed on sportsbooks and casino games, from its definition of a “swap.”
This will prohibit prediction market operators from offering any event contracts being offered around casino-style gambling products. It does not affect anything regarding DCMs offering federally-regulated sports event contracts, however.
“Casino-style gambling products are not derivatives,” Chairman Michael S. Selig said in the announcement. “Just as the CFTC has done with respect to other products historically regulated by the states, the Commission today provides clarity regarding the limits of its regulatory remit by codifying the exclusion of casino-style gambling products from the ‘swap’ definition.”
Banning Casino-Style Games
The approved interim final rule will be effective immediately upon publication in the Federal Register. Public comments will be accepted on the rule for 30 days after it is published in the register.
The Commodity Futures Trading Commission (CFTC) submitted the rule to the Office of Information and Regulatory Affairs in late September.
“This action is intended to remove regulatory ambiguity and clarify the boundaries between the Commission’s jurisdiction over the derivatives markets and State and Tribal jurisdiction over casino-style gambling,” the CFTC wrote in the interim final rule.
Under the plain language of the Commodity Exchange Act (CEA), casino-style gambling products “are not swaps” or any other instrument the CFTC regulates, and is therefor outside the scope of the commission’s jurisdiction, the CFTC reported in the rule.
While no casino-type games have yet to be offered by DCMs, it’s easy to see how they potentially could be offered. Event contracts could be offered on the next spin of a roulette wheel, for instance, with traders taking up positions on what number or color space the roulette ball could land.
“Casino-style gambling products are not derivatives. Today, the @CFTC is providing clarity regarding the limits of our remit by codifying the exclusion of casino-style gambling products from the ‘swap’ definition just as we have done with respect to other products historically regulated by the states,” Selig said today on his X social media account.
Event Contract Rule Next?
The CFTC also submitted a second rule to the Office of Information and Regulatory Affairs, which if approved will officially expand the definition of a “swap” to include event 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.
While the newly proposed rule does not specifically mention sports event contracts, it’s likely to include the product in its definition of a swap.
A split currently exists at the circuit court level regarding swaps and sports event contracts. The U.S. Court of Appeals for the Sixth Circuit most recently ruled Kalshi did not show that its sports event contracts satisfied the statutory definition of a swap, noting that the Commodity Exchange Act “neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws.”
The U.S. Court of Appeals for the Ninth Circuit agreed with the Sixth Circuit’s evaluation of the definition. The Ninth Circuit ruling enabled Nevada to enforce its state gambling laws against Kalshi’s sports event contracts and disagreed with Kalshi’s overly broad reading of the CEA and ruled that its sports event contracts are likely sports bets.
The Sixth and Ninth Circuit decisions differed sharply from a U.S. Third Circuit Court of Appeals ruling this past April, in which the court ruled New Jersey could not regulate Kalshi’s sports event contract offerings, as they reached the CEA’s definition of a swap.
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.
Regulatory Writer and Editor
Robert Linnehan covers all regulatory developments in online gambling and sports betting. He specializes in U.S. sports betting news along with casino regulation news as one of the most trusted sources in the country.
