The U.S. Commodity Futures Trading Commission (CFTC) on Tuesday used emergency powers and ordered the prediction market Kalshi to remain operational.
The CFTC stated that New York's law enforcement actions and request for a temporary restraining order themselves created a market emergency. The Commission directed Kalshi to continue operating normally and to comply with the Core Principles of the Commodity Exchange Act.
The temporary restraining order requested by New York would have prohibited Kalshi from conducting, from or within the state, activities related to offering contracts tied to sports, culture, elections, and other events, or offering them to state residents. The CFTC stated that the order could prevent Kalshi from offering any event contracts nationwide, as the company is based in New York. According to the CFTC, the state is demanding at least $36 billion in compensation before the case is even heard.
The CFTC stated that the Commodity Exchange Act obligates the commission to ensure a single national market for derivatives, and that severe disruptions threaten orderly trading and price formation. CFTC Chairman Michael Selig said Congress did not intend to subject derivative exchanges to a "patchwork of state gambling laws."
This confrontation is part of a broader nationwide struggle over whether the Commodity Exchange Act preempts state gambling legislation to the extent it applies to event contracts traded on federally regulated exchanges.
CFTC Challenges State Authority Over Prediction Markets
In a lawsuit filed on July 31, New York alleges that Kalshi is conducting illegal, unlicensed gambling activity by offering contracts tied to sports, elections, culture, and other events. The state seeks restitution, disgorgement of unlawfully obtained profits, damages, and the imposition of penalties, including a penalty triple Kalshi's alleged profits, as well as $100,000 for each unauthorized offer or attempt to offer sports betting in New York.
Kalshi argues that states cannot shut down a federally licensed exchange. The CFTC, in turn, asserts that the Commodity Exchange Act grants it exclusive jurisdiction over swap transactions executed on designated contract markets, including event contracts that Kalshi classifies as swaps.
On July 7, a federal judge in a separate New York case denied Kalshi's motion for a preliminary injunction. At this stage, the court concluded that New York's gambling laws are not preempted by the Commodity Exchange Act to the extent they apply to Kalshi's sports event contracts.
Related: Judge Pauses CFTC Case Against U.S. Serviceman Over Prediction Market Bets
In a separate federal case in April, the CFTC filed a lawsuit in federal court against New York to prevent the state from applying its gambling laws to CFTC-registered contract markets. Judge Jed Rakoff denied the agency's motion for an expedited temporary restraining order with prejudice, ruling that the CFTC had not demonstrated a high likelihood of success on the merits or a likelihood of irreparable harm.
The latest CFTC order directs Kalshi to continue operations but does not terminate New York's lawsuit or resolve the underlying jurisdictional dispute. It is not a judicial ruling on whether federal law preempts state application of gambling laws.
The dispute extends beyond New York. The CFTC stated it has filed lawsuits against eight other states, in addition to New York, to protect the jurisdiction granted by Congress.
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