Seventh Circuit Expands CFTC Authority With Broad ‘Swap’ Definition
COURT HANDS CFTC SWEEPING SWEEPSTAKES POWER OVER SWAPS
A divided Seventh Circuit just handed the Commodity Futures Trading Commission the kind of broad enforcement reach regulators have long wanted. In a 2-1 decision, the court let the CFTC punish a family trust for trading “swaps” that were never reported, never cleared, and never executed on any exchange. The ruling signals that the agency can now reach almost any bespoke, privately negotiated contract that looks like a futures bet—even when the contract sits outside the usual futures or securities boxes.
The Conway Family Trust had struck two separate agreements with an energy merchant, each tied to the future price of electricity. The trust would pay or receive cash depending on where prices landed. Because the deals were struck directly between the two parties and never touched an exchange or clearinghouse, the trust argued they were simply private commercial contracts, not the sort of standardized instruments the CFTC was created to police. The CFTC disagreed and fined the trust for failing to follow Dodd-Frank’s reporting, clearing, and exchange-trading rules. On appeal, the majority said the statute’s definition of “swap” is intentionally wide and functional: if two parties exchange payments based on an underlying price and the contract isn’t narrowly carved out, it is a swap—no matter how customized the terms or how few the counterparties.
The dissent warned that reading the statute so broadly lets the agency regulate virtually every bespoke hedge or supply contract, a result Congress never intended. The majority brushed that aside, holding that the trust’s failure to register or report the deals violated the Commodity Exchange Act and that penalties were proper. With the ruling, the CFTC gains a powerful new precedent that any derivative-like agreement tied to a commodity price can be swept into its jurisdiction.
In plain English, the court told traders and companies that if your contract moves cash based on the future price of anything the CFTC oversees, assume you are inside the agency’s perimeter. The old “this is just a private deal” defense is now thinner than ever.
The decision tilts power toward regulators and away from the decentralized, off-exchange ethos that crypto markets prize. Tokenized swaps, prediction-market contracts, and DeFi perpetuals that reference commodity prices now carry fresh legal risk; platforms hosting such instruments may face registration, reporting, and clearing obligations they previously dodged. Traders betting that bespoke crypto derivatives live in a gray zone will need fresh legal opinions or new structures.
Regulators just picked up another tool; expect more enforcement actions aimed at anything that smells like an unreported swap.
