The exchange wants the appeals court to reconsider a Sept. 25 ruling that lets Ohio and Tennessee apply gambling laws to its sports contracts. Its petition leans on two Commodity Futures Trading Commission actions that redefine which products count as swaps.
A federal regulator now says an appeals court got the law wrong. Kalshi wants that court to hear the argument again, this time with every active judge on the bench.
The prediction-market exchange has petitioned the Sixth Circuit for rehearing by the full court, or by the original panel, of a Sept. 25 decision that went against it. Neal Katyal of Milbank signed the petition, which was filed Oct. 9, the final day Kalshi had to seek rehearing.
What the agency did
Kalshi's timing was deliberate. The Commodity Futures Trading Commission acted twice that same day. Its interim final rule takes gambling products licensed by a state or a tribe out of the swap definition, provided they are not traded on an organized exchange. Its proposed rule goes the other way for exchange products, bringing event contracts "based on sports-, politics-, cultural-, and weather-related events" inside it.
"Casino-style gambling products are not derivatives," said CFTC Chairman Michael Selig, who described event contracts as "commodity derivatives squarely within the CFTC's regulatory remit."
The interim rule goes further than drawing lines. In explaining itself, it faults the Sixth Circuit panel for reasoning from "the erroneous premise that if event contracts are swaps, then casino-style gambling products must also be swaps." Kalshi quotes that passage and argues the agency's two actions "substantially undermine the panel's holding concerning the meaning of 'swap.'"
What the court decided
Three judges, Eric Clay, Julia Smith Gibbons and Rachel Bloomekatz, ruled unanimously for Ohio and Tennessee. In Gibbons's opinion, a game's result lacks the required link to a "potential financial, economic, or commercial consequence," since whatever economic effects follow are indirect. The judges added a second, independent ground: swap or not, the contracts would not displace state gambling statutes of general application. Ohio's enforcement was allowed to stand, and an order shielding Kalshi in Tennessee was vacated.
The petition also complains that the panel turned down the CFTC's unopposed request to argue the case, and says the ruling clashes with decisions in other circuits and with the Sixth Circuit's own precedent.
Long odds, longer timeline
Full-court rehearing requires a majority of the circuit's active judges and is seldom granted. The states do not have to answer the petition unless the judges request it. While a timely petition is pending, the court's mandate is generally held back, so the case stays alive.
The agency's help has limits. Only the interim rule takes effect on publication, and even then neither action tells judges how to read the statute. The proposed rule carries no legal weight until it is finalized.
Elsewhere, the circuits disagree. Kalshi won in the Third Circuit in April and lost in the Ninth on Aug. 28. New Jersey has asked the Supreme Court to decide the question, with 39 states and the District of Columbia supporting it, and Kalshi must respond by Nov. 9.
Market implications
One reading is that the federal regulator has handed Kalshi a stronger argument. A rule that defines event contracts as swaps and separates them from casino products addresses the reasoning the panel relied on, and the agency itself says the panel erred.
A second reading is that the courts will decide the statute without deferring to the agency. En banc rehearing is rarely granted, the proposed rule is not final, and a growing number of judges and states have rejected Kalshi's reading. The Supreme Court remains the more likely venue for a final answer.
What to watch
Whether the Sixth Circuit calls for a response from Ohio and Tennessee, the Federal Register publication of the CFTC's actions and Kalshi's Nov. 9 Supreme Court filing are the next steps.