The United States Commodity Futures Trading Commission has submitted two proposals for adjustments to regulations governing how the agency defines “swaps” under federal laws. One of the proposed adjustments explicitly includes “event contracts” in the definition of swaps while the other explicitly excludes “casino-style gambling products” from the definition.
The new language could be a direct response to rulings from the US Sixth Circuit Court of Appeals and the Ninth Circuit Court of Appeals. Meanwhile, Coinbase has introduced a new offering that turns packs of trading cards into commodities.
CFTC moves to insert new language into regulations governing “swaps”
According to the US Office of Information and Regulatory Affairs (OIRA), the Commodity Futures Trading Commission (CFTC) filed the proposed rule on event contracts and the interim final rule on casino-style gambling on Monday, Sept. 28. The latter takes effect with executive approval while the former will proceed to a public comment period if it continues.
The OIRA has not published the full text of either rule yet. However, barring casino-style gambling from approval as swaps could address concerns that prediction market exchanges registered with the CFTC plan to offer event contracts based on the outcomes of roulette wheel spins and other casino activities.
Adding event contracts to the list of products that the CFTC officially recognizes as swaps also could have some limited impact on the agencies’ legal disputes with state governments. Congressional action or US Supreme Court intervention could be the true difference makers for exchanges in that regard, though.
CFTC’s regulatory response to circuit court rulings
The CFTC’s potential explicit categorization of event contracts as swaps could become significant if the Supreme Court declines opportunities to weigh in on the legal questions around what is and isn’t a swap under federal law. Should Congress also pass on further clarifications, as it did in voting down the CLARITY Act, that would give more weight to the CFTC’s regulations.
The Supreme Court currently has three petitions before it concerning competing rulings out of the US Third Circuit Court of Appeals and the Ninth Circuit. The two courts have interpreted the Commodity Exchange Act and other federal laws regarding the purveyance of swaps drastically differently.
A fourth petition may be forthcoming from Kalshi out of its dispute with Ohio and Tennessee officials in the Sixth Circuit. The Supreme Court could give clear direction to the CFTC on which types of event contracts qualify as swaps, which could require further adjustments to this rule in the future.
Coinbase is behind one of the petitions to the Supreme Court. It has expanded upon its own product offerings.
Coinbase introduces opportunities to treat trading cards as tokens
Coinbase has announced that a forthcoming product that will allow users to remotely “open” packs of trading cards that are backed by the physical versions of the cards. The promoted product consists of Pokémon cards.
Users will have the choice to leave the physical cards in the vault with the blockchain showing their ownership or have the physical cards shipped to them. At this time, Coinbase has not announced any further details like pricing or when the “pack ripping” product will go live.
Pricing will likely reflect demand, with packs potentially containing popular and rare cards fetching premiums. If litigation restricts Coinbase’s ability to offer sports event contracts, the product could help it recoup some of the revenue from trading fees it stands to lose.
