Selig Tries to Prepare CFTC Regulations for Supreme Court Scrutiny With Swaps Definition Adjustment

Federal regulations governing what the United States Commodity Futures Trading Commission considers a "swap" could soon come under scrutiny by the Supreme Court of the United States, and the one-man "commission" charged with the administration of that consideration has publicized its latest adjustment. A new final interim rule adds more text stating that "casino-style gambling products" are not swaps.

Selig is clear in the text of the rule that the new regulation is a direct response to decisions out of the US Sixth and Ninth circuit courts of appeal regarding whether sports event contracts qualify as swaps under the Commodity Exchange Act. The circular logic of the rule may not prevent similar occurrences in the future, though.

CFTC announces new interim final rule

Selig announced his new regulation on Friday, Oct. 12, 2026, and quoted himself giving an explanation of the new rule.

"Casino-style gambling products are not derivatives," said Chairman Michael S. Selig. "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 text of the rule, which will become final 30 days following its publication in the federal register, goes further into what Selig considers "casino-style gambling products." It also offers an explanation for why sports event contracts don't fit that description.

Selig points to state/tribal regulation as hallmark of gambling

Selig's definition of a "casino-style gambling product" does not get into the parameters of the products themselves. Rather, it points to the governing structure for the activity.

In the rule, a casino-style gambling product is one that "is offered or entered into by a person that is licensed or otherwise authorized to offer gambling or gaming products, or accept wagers, under the law of a State or the law of a federally recognized Indian tribe pursuant to the Indian Gaming Regulatory Act...and is not 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."

The regulation goes onto say that "sports wagers" occur when "a licensed sportsbook or sports wagering operator accepts a wager on the outcome of one or more sporting events." That's what disqualifies them from swaps from Selig's perspective, and it's a direct retort to opinions from the Sixth and Ninth circuits.

Rule calls out Sixth and Ninth circuit decisions

Selig delves into recent decisions from the Sixth and Ninth circuits in Kalshi v. Orgel and Kalshi v. Assad respectively. The regulation pins the "lack of clarity" that Selig is addressing with this regulation on those decisions.

"...the Sixth Circuit viewed sports event contracts as legally indistinguishable from casino-style sports wagers, and thus, it expressed concern that, if sports event contracts are swaps, any sports wager—including 'every sports wager placed in a casino, on an online sports book, or between two friends at a bar' —would need to 'take place on federal markets.'"

"The Ninth Circuit similarly reasoned that sports event contracts and casino-style sports wagering are indistinguishable, finding that the 'substance' of the sports event contracts at issue was 'sports gambling, regardless of whether [the DCM] calls them swaps.'"

Selig's new regulation reiterates the legal position that counsel for the CFTC has taken in those cases before the Sixth and Ninth circuits among others for why a sports event contract isn't a sports wager.

Pricing and mode of acceptance separate sports event contracts

Selig's points of distinction for why sports event contracts are swaps instead of sports wagers rely upon the perspective that "they are traded on CFTC-registered national exchanges at market-set prices through the interaction of bids or offers placed on a central orderbook." The regulatory scheme and structure of the product are the pertinent differentiators in Selig's view.

"Gambling products are typically conducted as bilateral transactions between a casino or bookkeeper (a “house”) and its customer rather than on an organized market. Prices are not set by market forces and are not subject to negotiation; rather, customers must accept the price set by the house."

However, Selig leaves room for the definition of swap to adapt.

CFTC could accept gambling products as swaps

One phrase from Selig's regulation could enable the future inclusion of novel products as swaps.

"the 'swap' definition also encompasses any 'agreement, contract, or transaction that is, or in the future becomes, commonly known to the trade as a swap.'"

The rule provides no parameters for what constitutes "commonly known" or a description of the threshold for when a product being known as a swap reaches the common knowledge distinction. The common use of the term swap for a product could indeed be a "trend" that the CFTC itself begins, and then accepts that usage as evidence of being "commonly known to the trade as a swap."

If exchanges started offering contracts matching the product that the CFTC has "commonly" referred to as a swap, the product would then lie outside the CFTC's definition of a gambling product, because from the CFTC's definition, any product that is offered on a registered exchange is automatically and inherently not a gambling product.

As many voices are calling for the Supreme Court of the United States to hear the defendants' appeal in Kalshi v. Flaherty, the likelihood that the court will scrutinize Selig's rules governing gambling and sports event contracts has increased. This interim rule is Selig's attempt to address that scrutiny directly.