Event contract or swap, and why the label decides the case

A reader arrives at a venue that says it is a federally regulated exchange, and at a state notice that says the same venue is doing something the state forbids. Both statements can be made in good faith, because they are answers to a question that is still open. This page is about what that question actually is. It is not legal advice, and nothing here is our own card: every claim below is a court's or the Commission's, cited so you can read it yourself.

How it works

Four pieces of federal law do the work, and they interlock in one direction.

The jurisdiction grant. The Commodity Exchange Act gives the CFTC "exclusive jurisdiction" over accounts, agreements and transactions involving swaps or futures "traded or executed on a contract market designated" by the Commission — 7 U.S.C. 2(a)(1)(A). A designated contract market is the DCM every US venue's marketing mentions. The word doing most of the work in that sentence is swaps: the grant reaches a contract only if the contract is one. Since September 2026 exclusive has been contested too — see the Sixth Circuit below.

The definition. 7 U.S.C. 1a(47)(A)(ii) defines a swap to include any agreement, contract or transaction that provides for any purchase, sale, payment or delivery "that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence." Five subparagraphs surround it, and the other four are about rates, currencies, commodities, indices and instruments. Where clause (ii) stops is the entire dispute.

Self-certification. A registered entity may list a new contract by filing a written certification that it complies with the Act and the Commission's regulations, under 7 U.S.C. 7a-2(c)(1). Nobody approves it first. A contract is live because the venue certified it, which is why "the CFTC allows this" and "the CFTC has not stopped this" are different sentences that look identical from outside.

The Special Rule. 7 U.S.C. 7a-2(c)(5)(C) lets the Commission determine that a contract is contrary to the public interest, and lists the activities that trigger the power: activity unlawful under federal or state law, terrorism, assassination, war, gaming, and other similar activity the Commission names by rule. The Commission's regulation implementing it is 17 CFR 40.11, adopted in 2011.

So the chain, as the venues argue it, is: a venue registers, certifies its own contracts, and lists them. If those contracts are swaps on a DCM, federal law occupies the ground and a state's enforcement letter is preempted. If they are not swaps, the federal grant never reaches them and the state's ordinary authority is untouched. The Sixth Circuit added a third setting: contracts that could be swaps on a DCM and still answer to state law, because the grant of exclusive jurisdiction does not reach a state's general laws in the first place.

Where the three circuits split

Three federal appeals courts took that question in 2026, between April and September, and reached two conclusions by three different routes.

Third Circuit, 6 April 2026. In KalshiEX, LLC v. Flaherty, No. 25-1922 — reported at 172 F.4th 220 — the court affirmed a preliminary injunction against New Jersey's enforcement. Writing for the majority, Judge Porter began and largely ended with the text: the statute requires only that the event be "associated with a potential financial, economic, or commercial consequence", and the outcome of a sports event "certainly can be" so associated, given sponsors, advertisers, networks, franchises and communities. "The analysis need not go further." Having found the contracts likely swaps, the court held both field and conflict preemption applied, and defined the preempted field as the regulation of trading on a DCM rather than the broader field a state traditionally occupies. Judge Roth dissented.

Ninth Circuit, 28 August 2026. In KalshiEX, LLC v. Assad, No. 25-7516, the court affirmed in part a district court's order dissolving the equivalent injunction against Nevada. Judge R. Nelson's opinion agreed that section 2 preempts state regulation of swaps traded on a DCM, and then held that sports event contracts are not swaps. The reasoning is structural rather than lexical: the definition uses event and occurrence as separate words, so reading event as "anything that happens" makes one of them superfluous; the surrounding subparagraphs refer almost exclusively to financial measures, indices and instruments; and a reading broad enough to capture these contracts lacks a limiting principle, since 7 U.S.C. 2(e) makes it unlawful for a non-eligible participant to enter a swap anywhere but a DCM. On "associated with", the panel adopted the district court's narrower construction — the event must be inherently associated with a financial consequence, not merely have some potential downstream one. Judge Lee concurred separately. The panel remanded the separate question of election contracts for the district court to consider first.

Sixth Circuit, 25 September 2026. In KalshiEX LLC v. Schuler and KalshiEX LLC v. Orgel, Nos. 26-3196 and 26-5235, a unanimous panel — Judge Gibbons writing, with Judges Clay and Bloomekatz — affirmed the Southern District of Ohio's refusal of an injunction against Ohio's regulators and vacated the Middle District of Tennessee's injunction against Tennessee's. On the definition it went partly its own way. It agreed with Kalshi that sports contracts are "conditioned on the occurrence of 'event[s]'", and then held that an event must be "inherently associated" with a financial consequence — a change in interest rates is, the name of a Super Bowl MVP is not, because any consequence of that "would depend on external, downstream events". So sports event contracts are not swaps. It then held in the alternative that, even if they were, the Act "neither expressly nor impliedly preempts" Ohio's or Tennessee's laws: the words "exclusive jurisdiction" "typically" limit courts' jurisdiction "rather than agencies' power to regulate or states' power to make law", and what the provision displaces is "direct enforcement and regulatory authority pertaining to the licensing and operation of DCMs", which general state laws with only incidental effects on a DCM are not. Unlike the Ninth Circuit, which declined to apply any presumption against preemption, it applied one. Kalshi petitioned for rehearing en banc on 9 October 2026.

Three things about the split are easy to lose and change what it means.

1. All three are preliminary. The Third Circuit found a "reasonable chance" of success — a standard it was careful to say does not mean more likely than not. The Ninth Circuit reviewed the dissolution of an injunction for abuse of discretion, and the Sixth reviewed one grant and one denial of an injunction the same way. No court has entered a final judgement about what these contracts are.
2. Each binds only its own circuit. The Third covers Delaware, New Jersey, Pennsylvania and the Virgin Islands; the Ninth covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington and the Pacific territories; the Sixth covers Kentucky, Michigan, Ohio and Tennessee. Most of the country is in none of them.
3. They disagree about method, not only outcome. The Ninth Circuit's concurrence says so plainly, describing the Third Circuit's approach as a more literalist textualism, and the Sixth disagrees with both of the others on what "exclusive jurisdiction" displaces. A split on method is not closed by one more district court.

What the CFTC has proposed

While the courts were reading the statute, the Commission started writing down where the line falls. An advance notice appeared at 91 FR 12516 on 16 March 2026 — the Third Circuit cited it. The proposal itself, Prediction Markets; Public Interest Determinations, RIN 3038-AF65, was published at 91 FR 35806 on 12 June 2026, with comments closing 27 July 2026. It would replace 17 CFR 40.11 outright.

Two definitions in it matter here.

"Involve". Proposed 40.11(a)(3) says a contract involves an activity "if their settlement is determined by an occurrence, extent of an occurrence, or contingency in the activity" — a narrower test than the current rule's "involves, relates to, or references". The preamble's worked example is precise: a contract settling on whether someone is convicted of securities fraud does not involve unlawful activity, because settlement turns on the court's judgement, which is a lawful act.

"Gaming". Proposed 40.11(b)(1) would define it as any activity that participants typically engage in for recreation or to entertain others, is governed by rules, and includes measurable occurrences or outcomes depending on the participants' luck, skill or athletic ability. Appendix F explains the choice: gaming is "the game itself, the activity that occurs", parallel to terrorism, assassination and war, which are things that happen in the world. The Commission expressly rejects a definition built around staking value on a contingent outcome, because under one "every event contract would involve 'gaming' by definition" and the category would have no limiting principle. On the same reasoning, professional sports are inside the definition: the participants are paid, but the typical purpose of the activity is to entertain an audience.

Note what that does and does not decide. Being inside the Special Rule means a contract can be reviewed, against factors the proposal lists — aggregate outcomes and league-verified settlement data weigh against a public interest finding, while settlement on a player's injury, on an official's judgement call, or on a game of pure chance weighs for one. It is not a ban. That is the Commission's reading of its own rule, and it is not the Ninth Circuit's: that panel read the existing 40.11 as a prohibition, and concluded the self-certification was unlawful under it. A proposed rule does not settle that either. It is a proposal until it is a final rule, and it was published while the Ninth and Sixth Circuit appeals were pending.

Why this page will not just call it one thing

Everywhere else on this site, the vocabulary rule that keeps certain words out of our prose looks like fastidiousness. Here is where it comes from, stated once.

The question "what is a regulated event exchange really doing" is not a framing choice, a register, or a house style. It is the operative legal question in litigation between named, living companies and named state agencies, it has been answered both ways by federal appellate courts inside one year, and a federal regulator is mid-rulemaking on the piece of it that turns on a single word. A sentence here that settles it in either direction would not be describing the subject. It would be joining one side of it, in a page with no counsel behind it, no card to check it against, and no source that could support the sentence — because if such a source existed the split would not.

So the page names documents: the case, the court, the date, the disposition, the standard the court was applying. Those are checkable, and where they conflict the conflict is the fact. The same applies to a venue's own description of itself, which is a litigating position stated in marketing copy, and to a state notice, which is the other one.

What it costs

Not a fee. The dispute is expensive in three other currencies, and each has a number attached.

• Exposure, for the venue. New Jersey's notice threatened enforcement under statutes making violations crimes of the fourth degree, with fines up to $100,000 — N.J. Stat. Ann. sections 5:12A-11(c) and 2C:43-2, as recited in the Third Circuit's opinion. A venue facing that in several states at once does not wait for the merits; it geofences, and your access is the variable it adjusts.
• Time, if the Commission acts. Under the June 2026 proposal, a review must begin within 10 days of listing, the Division has 15 days to issue a written statement of concerns, the venue has 30 days to respond, and the review period runs 90 days — extendable only with the venue's own agreement. The Commission "may request that the registered entity suspend the listing or trading" during it. That is the shape of the worst case for an open position: not a confiscation, a market that stops.
• Finality, which nobody has bought yet. All three appellate decisions came on preliminary motions. The cases continue below, one question (election contracts) has been sent back to a district court, both Sixth Circuit cases were remanded, and a split between circuits on a federal statute is the classic occasion for further review — New Jersey's petition from the Third Circuit is pending in the Supreme Court as No. 26-299, and Crypto.com's derivatives exchange has its own from the Ninth as No. 26-344. Any plan that assumes today's answer is the final one is priced wrong.

What you can do about it

Concrete things, in the order they bite.

What this argument does to an ordinary reader — which of four different mechanisms shuts them out, and which of them they only discover after depositing — is in why a venue is unavailable where you are.

1. Know which circuit you are in before you read a headline. A ruling from the Third Circuit changes nothing about enforcement in Nevada or Ohio, and the reverse holds too. If your state is in none of the three, no appellate court has spoken about you at all, and what governs your access is the venue's geofence and your own state's regulator.
2. Read the venue's rulebook on suspension and delisting before you fund an account, not after. The clause you want is what happens to an open position when a contract stops trading: settled at the last price, voided at mid, returned at cost, or held until the underlying event resolves. These differ by venue, and none of them is decided by the court cases above.
3. Prefer contracts whose settlement source is named and objectively verifiable. This is not only good practice — it is the direction of the Commission's own proposed factors, and a contract settling on a league-published statistic is in a different position from one settling on an official's judgement call.
4. Separate the contract type from the venue. The split is about sports event contracts specifically. Election contracts were remanded rather than decided, and macroeconomic and weather contracts were never the subject of any of the three appeals. A venue's US status is not one status; see Kalshi, Polymarket US, Robinhood Prediction Markets and ForecastEx in the venues listing, where the contract mix differs card by card.
5. Track the documents, not the coverage. There are four of them: the three opinions and the proposed rule, all cited above. Each is under fifty pages, each says what standard it was applied under, and between them they contain every fact a summary of this subject can legitimately contain.
6. Do not let anyone's vocabulary do your thinking, including ours. A venue that calls its product a swap and a regulator that calls it something else are both making an argument. The useful question is narrower and answerable: what is the settlement source, who is the counterparty, in which states can I open the account, and what happens to my position if the contract is pulled.