CFTC and SEC Seek Comment on Drawing Clearer Lines Between "Swaps" and "Security-Based Swaps" and on "Alternative Compliance"

On June 18, 2026, the Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC" and, together with the CFTC, the "Commissions") jointly issued a Request for Comment on the Further Definition of "Swap" and "Security-Based Swap" and on Alternative Compliance (“RFC”), published in the Federal Register on June 24, 2026. If you trade, clear, issue, or advise on swaps, security-based swaps, or crypto-linked or prediction-market products, this client update is relevant to you. The release is a joint request for comment and seeks input on two themes: (i) ways to draw clearer regulatory lines for innovative products that may implicate both Commissions' interests, and (ii) approaches to enable "alternative compliance." The Commissions frame the effort against an "increasingly convergent financial ecosystem" in which new trading models, digital infrastructure, and "onchain, automated systems are increasingly blurring traditional jurisdictional lines."

What Is the Existing Statutory and Regulatory Framework?

Title VII of the Dodd-Frank Act established the framework for swaps and security-based swaps ("SBS"), allocated authority between the CFTC and the SEC, and gave the Commissions joint authority to further define key terms. Section 1a(47)(A) of the Commodities Exchange Act (“CEA”) defines "swap" through six prongs that capture, among other things, options on rates, currencies, commodities, securities, or indices; payments contingent on an event with a financial or commercial consequence; and executory exchanges that transfer financial risk without conveying ownership. CEA Section 1a(47)(B) then excludes certain instruments, including options on securities or indices subject to the Securities Act of 1933 and Securities Exchange Act of 1934 (the “Exchange Act”); notes, bonds, or evidences of indebtedness that are securities; security forwards intended to be physically settled; futures and security futures products; and SBS.

Exchange Act Section 3(a)(68) defines "security-based swap" as a swap based on (i) a narrow-based security index ("NBSI") (the "SBS NBSI Prong"); (ii) a single security or loan (the "SBS Single Security Prong"); or (iii) an event relating to a single issuer or the issuers in an NBSI that directly affects the issuer's financials (the "SBS Event Contract Prong"). A "mixed swap" contains elements of both a swap and an SBS, and the Commissions have stated this category is, and is intended to be, narrow. In 2012, the Commissions jointly adopted the rules and interpretations defining these terms in the Product Definitions Adopting Release, 77 Fed. Reg. 48208, which is the foundational framework this RFC now revisits.

What Has Changed in the Market?

The RFC reflects a cooperative posture between the Commissions. On March 11, 2026, they entered into a Memorandum of Understanding to support harmonization and coordination, establishing regular meetings, data sharing, advance notifications, and staff cross-training, and created a Joint Harmonization Initiative.

There are a number market factors driving the RFC. Participants increasingly raise questions about whether innovative products and whether certain event contracts are swaps, SBS, or mixed swaps, or fall within an exclusion to the Title VII swaps regulatory framework. CFTC-registered prediction markets have grown rapidly, with 2025 volumes exceeding $25 billion. The CFTC withdrew its 2024 event-contracts proposal in February 2026 and issued a new prediction-markets NPRM (RIN 3038-AF65) on June 10, 2026, while its Division of Market Oversight cautioned that listed event contracts may be SBS or otherwise subject to SEC jurisdiction. The CFTC has also signaled plans for a perpetual-contracts framework, all amid active litigation over the status of event contracts, including Kalshi-related cases and Crypto.com v. Nevada in the Ninth Circuit.

What Is the RFC Asking for Comment On?

The RFC poses 15 numbered questions across two parts. We highlight the questions most consequential for market participants and summarize the balance below.

Part II — Definitional Clarity (Questions 1–11). The Commissions ask whether they should adopt principled, objective criteria to distinguish swaps, mixed swaps, SBS, and excluded instruments, building on the 2012 Product Definitions Adopting Release. The questions of greatest practical importance are:

• Event contracts and binary options. Whether event contracts settling by reference to a security or index should be treated as a "put, call, straddle, option, or privilege on" a security for purposes of the exclusion, and how such contracts differ from binary options that already trade as standardized options on national securities exchanges.
• Perpetual contracts. Whether a cash-settled "perpetual" contract referencing an equity security could be treated as a security future, and the effects of such products on liquidity, price discovery, and hedging.
• Structured notes. When an instrument is a note, bond, or evidence of indebtedness that is a security, including the relevance of qualification under the Trust Indenture Act of 1939 and whether terms reflect a lender-borrower relationship, particularly in light of the existing structured notes market.
• NBSI transitions. For the SBS NBSI Prong, the treatment of contracts referencing changes in the composition (versus the price or value) of an NBSI, and whether to revise the existing tolerance- and grace-period rules or add transition rules or safe harbors for indices that migrate between narrow-based and broad-based.

The remaining definitional questions seek input, at a more general level, on the need for additional clarity around the CEA Section 1a(47)(B) exclusions; the lines among swaps, SBS, and mixed swaps; when an instrument is based on "any interest" in a security or index rather than its value; the scope of the SBS Single Security Prong; when an event "directly affects" an issuer's financials under the SBS Event Contract Prong (and its relation to existing credit default swap guidance); and the meaning of "intended to be physically settled" in the security-forward exclusion, for which the 2012 Product Definitions Adopting Release declined to set a bright-line test.

Part III — Alternative Compliance (Questions 12–15). These questions explore whether, where products implicate both agencies, compliance with one Commission's framework could satisfy "substantially similar" requirements of the other. The Commissions ask how "substantially similar" should be measured (scope, objectives, outcomes, supervisory programs, or enforcement authority); when to pursue joint or coordinated registration, tailored rules, or deemed filing in light of Title VII's limits on each agency's exemptive authority; how surveillance, examination, and enforcement should operate; and how to deter manipulation and trading on material non-public information across markets. Data-driven input is expressly encouraged.

This is a request for comment, not a proposed rule. It imposes no new obligations and changes no current classifications. The 2012 Product Definitions Adopting Release and existing interpretations remain controlling until any rulemaking is finalized. Its significance is directional: it is the most concrete product-definition workstream to emerge from the March 2026 MOU and, paired with the companion data-reporting RFC, signals that the agencies intend to address classification and reporting friction together. The emphasis on event contracts, binary options, perpetual contracts, and structured notes shows the practical driver is the classification of novel, crypto, and prediction-market products — and the outcome could determine whether such products fall under the CFTC, the SEC, both (as mixed swaps), or within an exclusion. The "alternative compliance" inquiry is potentially the most consequential for dually active firms, since a workable substituted-compliance regime could materially reduce duplicative burden; the RFC itself flags, however, that Title VII limits each Commission's exemptive authority, suggesting coordinated or tailored mechanisms rather than outright exemptions. If you are active in these markets, the comment period is a meaningful opportunity to shape definitional lines and potential safe harbors, and well-supported, data-driven submissions are invited.

Next Steps and Timing

Publication in the Federal Register on June 24, 2026 fixes the comment deadline at August 24, 2026 (60 days after publication). Comments should reference RIN 3038-AF71 (CFTC) and File No. S7-2026-21 (SEC) and may be submitted via Regulations.gov, the SEC's internet comment form, or rule-comments@sec.gov, or by mail. The companion data-reporting RFC (File No. S7-2026-22) shares the same deadline. We recommend that you (i) inventory your existing and planned products — event contracts, perpetuals, structured notes, and index-linked instruments — for classification risk; (ii) decide whether to comment individually or through trade associations and prepare data-driven submissions before the deadline; (iii) coordinate positions across both RFCs; and (iv) monitor for follow-on rulemaking.

Key Takeaway

The RFC does not change any current classifications and imposes no new obligations — the 2012 Product Definitions Adopting Release and existing interpretations remain controlling until any rulemaking is finalized. It is, however, the most concrete product-definition workstream to emerge from the March 2026 Memorandum of Understanding, and it signals that the CFTC and SEC intend to address classification and reporting friction together. If you trade, clear, issue, or advise on event contracts, perpetual contracts, structured notes, or index-linked or crypto products, you should review the RFC and assess whether to comment, because the outcome could determine whether your products fall under the CFTC, the SEC, both (as mixed swaps), or within an exclusion.

Quick Reference Guide: Product Types and Classification Questions

• Event contracts / binary options. The question is whether they should be treated as swaps, security-based swaps, mixed swaps, or excluded instruments, turning on whether they settle by reference to a security or index and how they differ from standardized options traded on national securities exchanges.
• Perpetual contracts. The question is whether a cash-settled perpetual contract referencing an equity security could be treated as a security future, and how such products affect liquidity, price discovery, and hedging.
• Structured notes. The question is when a note, bond, or evidence of indebtedness is a security excluded from the definition of “swap,” including the relevance of qualification under the Trust Indenture Act of 1939 and whether the terms reflect a lender-borrower relationship.
• NBSI-linked contracts. The question is how contracts referencing changes in the composition (versus the price or value) of a narrow-based security index are treated under the SBS NBSI Prong, and whether tolerance-, grace-period, or transition rules should be revised for indices migrating between narrow-based and broad-based.

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If you have any questions, please contact Evan Koster, Michael Loesch, or Brendan Dignan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.