CFTC sends the White House rules to make event contracts swaps; one could take effect before public comment

The Commodity Futures Trading Commission has sent two rules on prediction markets to the White House for review. According to the Office of Management and Budget's public list of rules under review, both arrived on September 28. One would add event contracts to the legal definition of a "swap." The other would carve "casino-style gambling products" out of that definition. CoinDesk first reported the filings on Wednesday.

Neither rule's text has been published. For now, all anyone can read is what the OMB entries show.

What the review list tells us

The two rules move on different tracks. The event-contract definition is a proposed rule, so the public gets a comment period before it takes effect. The casino exclusion is an interim final rule. As CoinDesk explained, that kind of rule takes effect as soon as it is published and takes comments afterward. So the CFTC could narrow what counts as a swap right away, while the broader expansion waits.

Neither rule is marked economically significant. OMB uses that label for rules expected to affect the economy by $100 million or more a year, and those rules get a fuller cost-benefit review. Both CFTC rules are marked "No." That is a notable call for rules about an industry where one company, Kalshi, was reported this week to be raising money at about $40 billion. The label concerns the rule's own effect, not the size of the industry, but it does mean a lighter review.

One person is making these decisions. Chairman Mike Selig is the CFTC's only sitting commissioner, CoinDesk noted, so he is acting alone. We covered what the empty seats mean on Tuesday.

What the headline gets wrong: a definition fixes only half the court problem

CoinDesk framed the rules as a challenge to states that call sports contracts gambling. That is right as far as it goes. But the most recent appeals ruling against Kalshi had two parts. On September 25, the Sixth Circuit first ruled that Kalshi's sports contracts are not swaps. It then ruled in the alternative that even if they were, federal commodities law does not override Ohio's and Tennessee's gambling laws.

A rule that defines event contracts as swaps goes after the first part. It does not clearly touch the second, which is about how the court reads the statute Congress wrote, not about the CFTC's definitions. Courts also decide how much weight an agency's reading deserves. So even if both rules are adopted, the Sixth Circuit's backup holding stands until a higher court or Congress changes it. The split between appeals courts is still the likeliest route to the Supreme Court.

The casino carve-out is the other detail worth noticing. Defining some products as outside the swap category looks like the agency marking out ground it will not defend, probably to make its claim over sports and economic contracts easier to argue. What counts as "casino-style" will not be known until the text is published.

Who it actually hits

Kalshi, Polymarket, Crypto.com and Robinhood users in states that are suing should not expect any change to what they can trade until the rules are published and tested in court. Licensed sportsbooks still have the court record on their side for now. Traders who use these markets as a price signal should read our look at how thin some of them are. OMB has not published a completion date for either review.

Sources: OMB Office of Information and Regulatory Affairs, regulatory review list; CoinDesk; earlier Chronicle reporting. This is market information, not investment advice or legal advice.