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

Whether an event contract is a swap under the Commodity Exchange Act decides whether a state may regulate it. Two circuits read the definition oppositely.

*https://predictionmarkets.tools/guides/event-contract-vs-swap · background to Prediction Market Venues*

**Answer:** A swap is a statutory category in the Commodity Exchange Act, and an event contract is a swap only if it fits that definition. If it does, the CFTC's exclusive jurisdiction displaces state law; if it does not, the states are free. Two federal appeals courts answered that question in opposite directions in 2026, both on preliminary motions, so nobody's description settles it.

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 the work in that sentence
is not *exclusive*, it is **swaps**: the grant reaches a contract only if the contract is one.

**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 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. There is no third setting.

## Where the two circuits split

Two federal appeals courts took that question in 2026 and reached opposite conclusions, five
months apart.

**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.

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

1. **Both 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. Neither court 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. Most of the country is in neither.
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. 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 both 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.** Both appellate decisions came on preliminary
  motions. The cases continue below, one question (election contracts) has been sent back to a
  district court, and a split between circuits on a federal statute is the classic occasion for
  further review. 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](https://predictionmarkets.tools/guides/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, and vice versa. If your state is in neither, 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 either appeal. A venue's US status is not one
   status; see [Kalshi](https://predictionmarkets.tools/tools/kalshi), [Polymarket US](https://predictionmarkets.tools/tools/polymarket-us),
   [Robinhood Prediction Markets](https://predictionmarkets.tools/tools/robinhood-prediction-markets) and
   [ForecastEx](https://predictionmarkets.tools/tools/forecastex) in the [venues listing](https://predictionmarkets.tools/categories/prediction-market-venues),
   where the contract mix differs card by card.
5. **Track the documents, not the coverage.** There are three of them: the two opinions and the
   proposed rule, all linked 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.

## Tools this bears on

- [Kalshi](https://predictionmarkets.tools/tools/kalshi.md) — A CFTC-designated exchange for event contracts, settled in dollars against named sources.
- [Polymarket US](https://predictionmarkets.tools/tools/polymarket-us.md) — Polymarket's CFTC-designated US exchange — dollars, KYC, and no on-chain oracle.
- [Robinhood Prediction Markets](https://predictionmarkets.tools/tools/robinhood-prediction-markets.md) — Event contracts in the Robinhood app, routed to three exchanges — one of them its own JV.
- [ForecastEx](https://predictionmarkets.tools/tools/forecastex.md) — Economic and climate contracts on a CFTC exchange that pays interest on your collateral.
- [Crypto.com Prediction](https://predictionmarkets.tools/tools/crypto-com-prediction-markets.md) — Event contracts on a CFTC-designated exchange, traded from inside the Crypto.com app.

## FAQ

### Is an event contract a swap?

Sometimes, and that is the honest answer rather than a hedge. The Commodity Exchange Act defines a swap to include an agreement whose payment depends on the occurrence of an event or contingency associated with a potential financial, economic or commercial consequence. Whether a given contract fits is a question of statutory interpretation that two federal appeals courts decided differently in 2026.

### Does a CFTC registration make a venue legal in my state?

It is the argument, not the conclusion. The venue's position is that the CFTC's exclusive jurisdiction over swaps traded on a designated contract market displaces state law. The Third Circuit found that likely; the Ninth Circuit found it unlikely for sports contracts. Both rulings are preliminary, and neither is binding outside its own circuit.

### What would the CFTC's proposed definition of gaming change?

It would decide which contracts get reviewed, not which are legal. Under the proposal published on 12 June 2026, a contract whose settlement is determined by an occurrence in a game falls inside the Special Rule and is then measured against a list of public interest factors. The proposal is not in force.

### Why does this site avoid describing venues in the terms a state regulator uses?

Because the description is the disputed question. Calling a regulated event exchange one thing or the other is not a summary of the fight, it is a vote in it, and there is no card, no counsel and no cited source behind such a sentence here. The page names the documents instead.

## Sources

1. [KalshiEX, LLC v. Flaherty, No. 25-1922 (precedential opinion)](https://www2.ca3.uscourts.gov/opinarch/251922p.pdf) — United States Court of Appeals for the Third Circuit, 2026-04-06
2. [KalshiEX, LLC v. Assad, No. 25-7516 (opinion for publication)](https://cdn.ca9.uscourts.gov/datastore/opinions/2026/08/28/25-7516.pdf) — United States Court of Appeals for the Ninth Circuit, 2026-08-28
3. [Prediction Markets; Public Interest Determinations, 91 FR 35806 (RIN 3038-AF65)](https://www.federalregister.gov/documents/2026/06/12/2026-11854/prediction-markets-public-interest-determinations) — Commodity Futures Trading Commission, 2026-06-12
4. [Prediction Markets, 91 FR 12516 (advance notice of proposed rulemaking)](https://www.govinfo.gov/content/pkg/FR-2026-03-16/html/2026-05105.htm) — Commodity Futures Trading Commission, 2026-03-16
5. [7 U.S.C. 1a, Definitions (2024 edition of the United States Code)](https://www.govinfo.gov/content/pkg/USCODE-2024-title7/html/USCODE-2024-title7-chap1-sec1a.htm) — Office of the Law Revision Counsel, U.S. House of Representatives, read 2026-09-19
6. [7 U.S.C. 7a-2, Common provisions applicable to registered entities](https://www.govinfo.gov/content/pkg/USCODE-2024-title7/html/USCODE-2024-title7-chap1-sec7a-2.htm) — Office of the Law Revision Counsel, U.S. House of Representatives, read 2026-09-19
7. [Provisions Common to Registered Entities, 76 FR 44776 (adopting 17 CFR 40.11)](https://www.govinfo.gov/content/pkg/FR-2011-07-27/pdf/2011-17977.pdf) — Commodity Futures Trading Commission, 2011-07-27. The rule this release adopted is the section 40.11 still in force; the June 2026 proposal would replace it and has not been finalised.

*Last updated 2026-09-19. A reference page, corrected in place — not a dated post.*