The Commodity Futures Trading Commission used its emergency authority on Aug. 11 to direct KalshiEX to continue operating under its normal practices and the Commodity Exchange Act’s core principles, escalating a federal state dispute over prediction markets.
Summary
- CFTC ordered Kalshi to continue exchange operations after declaring New York’s lawsuit a market emergency.
- New York seeks at least $36 billion and broad restrictions on Kalshi’s event contract business.
- Kalshi notified the CFTC that a temporary restraining order could force liquidations and disrupt markets.
- CFTC says derivatives law gives it exclusive jurisdiction over event contracts traded on registered exchanges.
- Courts remain divided over whether federal commodities law preempts state gambling restrictions on prediction markets.
The action followed an Aug. 1 notice from Kalshi warning that New York Attorney General Letitia James’ July 31 lawsuit could create a market emergency. New York is seeking at least $36 billion in damages and other relief while alleging that Kalshi operates an unlicensed gambling business.
CFTC says New York action threatens Kalshi market stability
In its order, the CFTC said New York’s requested temporary restraining order could create a “major market disturbance” by threatening the continued operation of a federally regulated designated contract market. The agency invoked Section 8a(9) of the Commodity Exchange Act, which allows it to direct a registered entity to take action needed to maintain orderly trading.
The CFTC said Kalshi warned that a shutdown could force open positions to be liquidated and leave customers with unintended exposures elsewhere. Chairman Michael Selig said “New York has no business regulating these interstate financial markets.” That is the Commission’s legal position and remains disputed by New York, which argues Kalshi’s products are subject to state gambling laws.
New York’s case targets Kalshi from its Manhattan headquarters
New York’s petition asks a court to stop Kalshi from operating an unlicensed gambling business “within or from New York or to persons in New York.” It also seeks restitution, disgorgement, damages, triple gains penalties and $100,000 for each alleged unauthorized sports wagering offer.
The CFTC interprets the “within or from New York” language more broadly because Kalshi’s principal place of business is in Manhattan. Its order says the requested relief could therefore prevent the exchange from offering event contracts to users outside the state. New York’s petition, however, frames its claims as enforcement of New York gambling laws.
As previously reported, New York sued Kalshi while seeking at least $36 billion in penalties and restitution. Kalshi removed the case to the U.S. District Court for the Southern District of New York, where the federal forum and the state’s request for interim relief remain central procedural questions.
Courts remain split over federal and state control
The jurisdiction fight has produced different early results. A Minnesota federal judge blocked the state’s prediction market ban at the preliminary stage, while a New York federal judge declined in July to stop state gaming enforcement against Kalshi’s sports contracts.
The CFTC has responded by suing Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin to defend what it says is exclusive federal jurisdiction over derivatives traded on designated contract markets.
The Aug. 11 action is not the first time the CFTC has used emergency authority in Kalshi’s state disputes. On July 14, the agency stayed a Kalshi emergency rule tied to a Michigan court order and directed the exchange to fulfill existing trades involving Michigan residents.
What happens next for Kalshi and New York
The Aug. 11 order directs Kalshi to keep performing its exchange functions under federal market rules. By its terms, it does not decide the merits of New York’s gambling allegations or resolve whether state law is preempted. The New York case was removed to federal court, and the CFTC acknowledged that remand proceedings could delay the state action.
Kalshi also has a separate Second Circuit appeal pending from a July ruling that declined to block New York gaming enforcement. Meanwhile, the CFTC’s June prediction market proposal would create a contract by contract process for reviewing certain event contracts involving gaming and other restricted categories. The emergency order does not set a timetable for that rulemaking.
