CFTC Rule Excludes Casino-Style Gambling From Swap Definition

The Commodity Futures Trading Commission on Friday, October 9, 2026, published an Interim Final Rule codifying what the agency describes as its longstanding position that casino-style gambling products, including wagers placed on sportsbooks and casino games, are excluded from the “swap” definition under the Commodity Exchange Act. The rule, titled “Further Definition of ‘Swap’ to Exclude Casino-Style Gambling Products” and identified as RIN 3038-AF81, amends 17 CFR Part 1. It will take effect immediately upon publication in the Federal Register, and written comments must be received within 30 days of that publication.

“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.”

The rule text states that the Securities and Exchange Commission joins in adopting the rule in satisfaction of section 712(d)(1) of the Dodd-Frank Act, which directs the two agencies, in consultation with the Board of Governors of the Federal Reserve System, to jointly further define the term “swap,” and that the CFTC consulted the Federal Reserve Board by sharing the rule.

A Two-Part Exclusion Test

The rule adds paragraph (7) to the definition of “Swap” in 17 CFR 1.3. An agreement, contract, or transaction is excluded from the swap definition if it satisfies both a Provider Test and a Product Test. The Provider Test requires that the transaction be offered or entered into by a person licensed or otherwise authorized to offer gambling or gaming products, or to accept wagers, under the law of a state or the law of a federally recognized Indian tribe pursuant to the Indian Gaming Regulatory Act; that the person act within the scope of that license or authorization; and that the transaction be regulated as gaming or gambling under applicable state or tribal law. The Product Test requires that the transaction not be traded on a board of trade, an organized exchange, a swap execution facility, or any other market in which trades are executed multilaterally or subject to individual negotiation.

Where both tests are met, the rule expressly identifies three categories of excluded products: sports wagers, covering any transaction in which a licensed sportsbook or sports wagering operator accepts a wager on the outcome of one or more sporting events; casino games, covering wagers accepted by a licensed casino operator in connection with a casino table game, slot machine, or other electronic gaming device; and other licensed games of chance, such as bingo, pool wagering, lotteries, and raffles.

The Commission states in the rule text that the exclusion is non-exclusive, and that other gambling-style transactions, such as a casual bet between friends, may also fall outside the swap definition depending on how they are structured and whether they are tradable. Nothing in the rule presumes that a transaction failing either test is a swap. The rule does not further define the term “security-based swap,” and its classifications apply only for purposes of the Commodity Exchange Act; federal tax treatment and associated reporting, withholding, registration, and payment obligations are determined under the Internal Revenue Code, Treasury regulations, and Internal Revenue Service guidance.

The Commission grounds the exclusion in the 2012 joint rule it adopted with the SEC (77 FR 48208, August 13, 2012), which further defined “swap” and excluded traditional insurance products and certain consumer and commercial agreements. In the new rule, the Commission reasons that gambling products parallel those earlier exclusions: they are typically bilateral transactions between a house and its customer rather than instruments traded on an organized market, their prices are set by the house rather than by market forces, the wager obligation is not cleared by a third party, and the products have long been subject to a gambling-specific regulatory regime under state and tribal law.

Court Decisions and State Actions Cited in the Rule

The rule text describes a divide among federal appellate courts over sports-related event contracts. It states that the Sixth Circuit in Schuler and the Ninth Circuit in Assad viewed sports event contracts as legally indistinguishable from casino-style sports wagers and expressed concern that treating them as swaps would federalize commonplace gambling, while the Third Circuit held in KalshiEX, LLC v. Flaherty, 172 F.4th 220 (3d Cir. 2026), that sports-related event contracts traded on a CFTC-licensed designated contract market fit the Commodity Exchange Act’s definition of swaps subject to CFTC jurisdiction. The Commission states that the rule implements the approach the Third Circuit suggested.

According to the rule, 40 states and the District of Columbia argued in an April 30, 2026 comment letter that sports event contracts are indistinguishable from traditional sports betting, and 39 states and the District of Columbia told the Supreme Court in an October 7, 2026 brief that federal and state courts are “hopelessly confused and divided” over the issue. New Jersey argued to the Supreme Court that nothing in the Commodity Exchange Act gives the CFTC authority to become the sole regulator of sports gambling, and Kentucky claimed that treating event contracts as swaps transfers authority over sports wagering from the states to the CFTC. The American Gaming Association argued that if sports wagers qualify as swaps, all sports bets, including those placed on the Las Vegas Strip, would have to be traded on designated contract markets.

The rule also cites state enforcement actions: a twenty-count criminal information filed by Arizona against a designated contract market; a Minnesota statute prohibiting prediction markets, against which the CFTC obtained a preliminary injunction; and New York’s pursuit of a temporary restraining order that would prohibit a prediction market from operating as a CFTC-registered designated contract market. Citing Pew Research Center, the Commission notes $24 billion in trading volume in April 2026 on two prediction markets in arguing that markets with tens of billions of dollars of transactions are at stake.

The Commission found good cause under the Administrative Procedure Act to adopt the rule without prior notice and comment and to make it effective immediately upon publication, citing the court-driven confusion and the risk of prediction markets being shuttered on a state-by-state basis. According to the rule text, the Office of Management and Budget determined the action is a significant regulatory action under section 3(f) of Executive Order 12866 and reviewed it consistent with Executive Order 14215; the Office of Information and Regulatory Affairs determined it is not a major rule under the Congressional Review Act; and the rule is not an Executive Order 14192 regulatory action because it imposes no more than de minimis net costs. The rule states that the Regulatory Flexibility Act’s analysis requirements do not apply because no notice of proposed rulemaking is required, that it creates no new collections of information under the Paperwork Reduction Act, and that the Commission identified no anticompetitive effects. In its consideration of benefits and costs under section 15(a) of the Commodity Exchange Act, the Commission states the rule changes no legal rights or obligations of market participants because the agency already treats casino-style gambling products as outside its jurisdiction.

The Commission requests comment on three specific questions: whether the Provider Test should cover additional categories of providers beyond state-regulated gaming companies and tribes; whether it is clear which agreements, contracts, or transactions are regulated as gaming or gambling under applicable state or tribal law; and whether there are better ways to draw an objective, functional distinction in the Product Test between swaps and traditional gambling products. Comments must reference the rule title and RIN 3038-AF81 and may be submitted through Regulations.gov, by mail, or by hand delivery or courier to Christopher Kirkpatrick, Secretary of the Commission, with Regulations.gov submissions encouraged.

The rule also references a separate Notice of Proposed Rulemaking in which the Commission proposes to further define “swap” to include event contracts and states its preliminary belief that event contracts are known to the trade as swaps. In recounting the history of those products, the rule notes that CFTC-regulated exchanges have listed event-based contracts since 1992, that the Commission issued a no-action letter to Iowa Electronic Markets in 1993 allowing it to list event contracts tied to U.S. and Canadian elections, and that in 2004 the CFTC designated HedgeStreet as the first designated contract market dedicated to listing contracts based on events that are excluded commodities. The Commission states it will consider comments received and may modify the Interim Final Rule if warranted.