CFTC sportsbook carve-out takes aim at the Ninth and Sixth Circuit rulings against Kalshi

Three federal appeals courts have split over whether a sports contract traded on a federally licensed exchange counts as a “swap,” the kind of derivative the Commodity Futures Trading Commission oversees, and on Oct. 9 the CFTC issued a rule written to knock out the reasoning on one side. A divided Third Circuit panel said yes in April 2026. The Ninth Circuit, in KalshiEX v. Assad on Aug. 28, and the Sixth Circuit, in KalshiEX v. Schuler on Sept. 25, said no.

The interim final rule says sportsbook wagers and casino games licensed by a state or a tribe are not swaps. It takes effect on the day it is published in the Federal Register, with comments due 30 days after that.

The two courts that ruled against the exchange did not get there the same way, and the agency’s own filings lay out the gap.

The Ninth Circuit threw out the dictionary. The statute covers contracts tied to an “event” associated with a financial, economic or commercial consequence, and the Third Circuit had read “event” in its plain sense. The Ninth Circuit rejected that “plain-language appeal,” held that “event” means something different from “a thing that happens or takes place,” and called the contracts “sports gambling” regardless of whether the exchange calls them swaps. It worried that the broad reading would sweep “bingo games and pingpong matches” into federal jurisdiction. A petition for rehearing by the full Ninth Circuit has been filed.

The Sixth Circuit kept the dictionary and moved the test. It agreed that “dictionaries commonly define an ‘event’ to include an ‘outcome,'” and that “it would be reasonable to describe the Giants winning the Super Bowl” as one. It ruled against the exchange on the second half of the phrase instead, holding that the event must be “inherently associated” with a financial consequence, and a game is not. It also warned that the swap reading would push “every sports wager placed in a casino, on an online sports book, or between two friends at a bar” onto federal markets, making off-exchange betting a felony.

The proposed rule that would define event contracts as swaps argues both panels were “substantially based on the concern” that casino gambling would come along for the ride. The interim rule is the agency’s answer to that concern, and it says it “implements the Third Circuit’s suggested approach.” The Third Circuit had noted that Congress let the CFTC and the Securities and Exchange Commission “further define” swaps for exactly the kind of far-fetched case a state might raise.

That works cleanly against the Ninth Circuit. Its bingo-and-casino worry now has a federal regulation sitting on top of it, and the agency also says that, to the extent the panel relied on a CFTC regulation, the proposal would clarify that point by rule. It works less well against the Sixth Circuit. “Inherently associated” is a reading of the statute’s words about the event itself, and no carve-out for sportsbooks changes whether a football game carries an inherent commercial consequence. A court that agrees with the Sixth Circuit can accept every word of the interim rule and still rule against the exchange.

For state gaming regulators, the carve-out comes with a test attached. A product escapes the swap definition only if it is offered by an operator licensed by a state or a tribe, acting within that license, regulated as gambling under that law, and not traded on an exchange or any market where trades happen “multilaterally or subject to individual negotiation.” The rule names the model it protects: a sportsbook acting as principal, where “customers must accept the price set by the house.”

The rule says the test “ensures that State and Tribal-regulated entities do not, in the future, begin offering products properly within the Commission’s jurisdiction” unless they follow federal law. A licensed sportsbook that builds an exchange, letting bettors set prices against each other, walks out of the exclusion and into CFTC territory, whatever the state license says. The guarantee covers the house-banked bet as it exists today, and nothing past it.

So the bargain on offer to the states has a fence on both sides: they keep the sportsbook, but their licensees cannot copy the exchange model, where customers trade prices with each other, without answering to Washington. The interim rule also notes its exclusion is non-exclusive, citing a casual bet between friends and even an illegal sportsbook in a state that bans gambling as examples of things that may not be swaps either.

The Supreme Court is weighing New Jersey’s petition in the Third Circuit case, where the state argued that nothing in the statute lets the CFTC “become the sole regulator of sports gambling.” If the justices take it, they will be reading a statute that now comes with an agency rule built to answer the Ninth Circuit and a court split the rule leaves partly standing.

The interim rule’s own description of the market is the line state regulators should underline: there is “not currently a practical overlap” between what licensed sportsbooks sell and what exchanges list.