CFTC Orders Kalshi to Continue Operations Amid Legal Battle in New York.
The Commodity Futures Trading Commission (CFTC) has issued an order for Kalshi to keep its prediction markets active in New York while the company disputes the state’s lawsuit. The agency characterized New York’s request for a temporary restraining order as a “market emergency.”
In response to New York’s efforts to halt Kalshi’s offerings, the CFTC directed the company and its affiliates to continue operating under current practices and in accordance with the Commodity Exchange Act’s Core Principles. The agency classified New York’s legal move as a “major market disturbance,” emphasizing the importance of maintaining market stability.
The state sought to prevent Kalshi from offering contracts related to sports, culture, elections, and other events to residents or from its New York location. Kalshi appealed to the CFTC after New York filed suit on July 31, warning that a restraining order could severely impact its business. The CFTC highlighted that such an order might halt all of Kalshi’s event contracts nationwide and noted that New York officials are seeking at least $36 billion in damages.
The order explained:
“The Commission finds that New York’s enforcement action and TRO motion constitute an emergency because they constitute a ‘major market disturbance which prevents the market from accurately reflecting the forces of supply and demand’ with respect to event contracts. ‘Under the Commission’s statutory emergency powers, it may direct Kalshi and its affiliates to continue to perform its functions as an exchange…This exercise of the Commission’s emergency authority will give market participants the necessary assurances that a CFTC-registered [designated contract market] cannot be shut down by a single State and that the trades they execute will be duly cleared and fulfilled.’”
Federal Authority Over Prediction Markets
The CFTC clarified that only a federal appeals court can review its directive. A designated contract market (DCM) is a federally registered exchange where regulated contracts are traded.
This is the second time within a month that the CFTC has invoked its emergency powers to protect Kalshi from state actions. In Michigan, the agency intervened after a temporary restraining order had already limited Kalshi’s operations. In New York, the CFTC acted preemptively, asserting that the threat alone could cause a “major market disturbance.”
Read Also: Kalshi Faces Legal Action from New York Over Alleged Illegal Prediction Markets.
The agency stated:
“The sudden, unpredictable shut down of a designated contract market poses an existential threat to the Commission’s registrants, marketplaces, and regulatory jurisdiction, as well as to the individuals and entities that trade in the Commission’s regulated marketplaces, and thus justifies exercise of the Commission’s statutory emergency power.”
Legal Dispute Over State Regulation
Since the 1980s, the CFTC has rarely used its emergency powers in prediction-market disputes. Recently, the agency has also filed lawsuits against nine states over attempts to regulate event contracts.
The CFTC warned that unchecked New York’s case could lead to one state regulating nationwide event-contract swaps on DCMs.
CFTC Chairman Michael S. Selig stated:
“Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. 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.”
