The Commodity Futures Trading Commission has ordered Kalshi to continue operating its exchange in New York despite the state’s lawsuit seeking to halt the company’s event contracts, escalating the federal-state prediction markets fight into another direct confrontation.
The CFTC said New York’s enforcement action and request for a temporary restraining order constitute a market emergency because the state’s requested relief could prevent the federally registered exchange from offering contracts to anyone, not just New Yorkers. New York regulators believe Kalshi is offering unlicensed NY sports betting.
The agency’s order comes less than a month after it stepped in over Michigan contracts, but goes further by directing Kalshi to keep operating its exchange under normal practices.
Chair: NY has ‘no business’
The emergency authority under the Commodity Exchange Act means the CFTC is ensuring “order in these markets,” Chairman Michael Selig said.
“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” Selig said. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines. They match the bid from a resident of one state with the offer of a resident from another state and submit the trade to a clearinghouse that backstops the transactions of customers throughout the country.
“New York has no business regulating these interstate financial markets. The Commission is required by law to ensure order in these markets, and that is what we have done today.”
Emergency authority explained
The order stems from New York Attorney General Letitia James’ July 31 lawsuit alleging Kalshi is running an illegal gambling operation under state law. New York is seeking broad relief that would bar the company from offering event contracts “within or from” the state, a phrase the CFTC said threatens Kalshi’s worldwide operations because its principal place of business is in New York.
Kalshi notified the CFTC of a potential market emergency on Aug. 1. The commission agreed, invoking a section of the CEA, which allows it to direct a registered entity to take steps necessary to maintain or restore orderly trading during an emergency.
The CFTC found that a forced shutdown could disrupt open positions, force liquidations and push trading to rival exchanges, impairing prices’ ability to reflect supply and demand. Its final directive is simple: Kalshi “shall continue to perform its functions as an exchange” under its normal practices and the CEA’s core principles.
CFTC order similar to Michigan
The action resembles the CFTC’s recent intervention in Michigan, where the agency told Kalshi to fulfill outstanding contracts involving Michigan customers after a state court ordered the company to unwind them. Kalshi was unable to comply with the order from the CFTC, though, after the orders were already canceled.
But the New York order is broader. Michigan was largely about protecting the settlement of existing positions. In New York, the CFTC is ordering Kalshi to continue regular exchange operations while New York tries to obtain relief that could shut down the platform altogether.
That puts the regulator and the state on a direct collision course. New York argues Kalshi’s sports, election, culture and other event contracts are unlicensed gambling. The CFTC’s order said Kalshi is a designated contract market listing federally regulated swaps and that the commission has exclusive jurisdiction over those products.
Legal fight continues
The emergency order does not dismiss New York’s lawsuit or resolve the ultimate preemption question. It is a CFTC order directed at Kalshi, not a judicial ruling against New York, and the state’s case remains pending.
New York had already won a preliminary injunction fight against Kalshi in July, when a federal judge found the CEA did not preempt the state’s gambling laws as applied to Kalshi’s sports contracts. The state then filed its own enforcement suit at the end of July, seeking at least $36 billion in penalties and broad restrictions on Kalshi’s business.
The CFTC, meanwhile, has separately sued New York over the state’s regulation of prediction markets and has argued that the CEA expressly grants the commission exclusive jurisdiction over swaps traded on designated contract markets.
Why CFTC order matters
The order is a strong assertion of federal authority. Rather than merely litigating preemption in court or filing an amicus brief, the CFTC has used emergency powers to command a registered prediction markets exchange to continue operating in the face of a state’s attempted shutdown.
That stance will likely intensify the question at the heart of the prediction markets fight, which is whether the CFTC can protect a registered exchange from state gambling enforcement, including if a state court or federal court ultimately orders it to stop.
For now, Kalshi has a federal directive to keep trading in New York. Whether that directive can outlast the state’s lawsuit is the next major test.
