The US Commodity Futures Trading Commission has invoked emergency authority to direct prediction market Kalshi to continue operating as it faces enforcement action from New York. The CFTC argued that the state’s attempt to restrict Kalshi could disrupt a federally regulated derivatives market and create a patchwork of state gaming laws. The order does not resolve the broader dispute over whether federal derivatives law preempts state gambling regulations, leaving Kalshi and regulators facing an important legal battle over the future of event contracts in the United States.
CFTC Orders Kalshi to Continue Operating
The US Commodity Futures Trading Commission has escalated its jurisdictional dispute with New York by invoking emergency powers to direct prediction market Kalshi to continue operating.
The CFTC said New York’s enforcement action and request for a temporary restraining order themselves constituted a market emergency. The agency instructed Kalshi to continue operating under its normal practices and in accordance with the Commodity Exchange Act’s Core Principles.
The order comes as New York seeks to restrict Kalshi from offering contracts tied to sports, elections, culture and other events to customers in the state.
According to the CFTC, the potential restrictions could have consequences beyond New York because Kalshi is headquartered in the state and could potentially face limitations affecting its nationwide operations.
New York Challenges Kalshi’s Event Contracts
New York filed a lawsuit against Kalshi on July 31, alleging that the company operates an illegal and unlicensed gambling business by offering event contracts connected to sports, elections, culture and other events.
The state is seeking restitution, disgorgement, damages and penalties. New York has also requested a penalty equal to three times Kalshi’s alleged gains, along with $100,000 for each unauthorized sports wagering offer or attempted offer in the state.
Kalshi has argued that states cannot shut down a federally regulated exchange, while the CFTC maintains that federal law gives it exclusive jurisdiction over certain derivatives traded on designated contract markets.
The dispute therefore goes beyond Kalshi’s individual business operations and raises questions about the regulatory boundaries between federally supervised derivatives markets and state gambling laws.
CFTC Warns Against Patchwork Regulation
CFTC Chair Michael Selig said Congress did not intend federally regulated derivatives exchanges to face a “patchwork of state gaming laws.”
The commission said the Commodity Exchange Act requires it to maintain a uniform national derivatives market and that significant disruptions could threaten orderly trading and price discovery.
The emergency order reflects the CFTC’s position that state-level restrictions on federally regulated event contracts could undermine the consistency of the US derivatives market.
However, the order does not provide a final judicial determination on whether federal law overrides New York’s gambling regulations.
Courts Have Already Weighed In
The latest confrontation follows several legal disputes over the relationship between prediction markets and state gambling laws.
In a separate New York case, a federal judge denied Kalshi’s request for a preliminary injunction on July 7. The court found at that stage that New York gambling laws were not preempted by the Commodity Exchange Act as applied to Kalshi’s sports-event contracts.
The CFTC has also pursued its own legal action against New York. In April, the commission sued the state in federal court to prevent New York from applying its gambling laws to CFTC-registered contract markets.
Judge Jed Rakoff previously denied the agency’s emergency request for a temporary restraining order, finding that the CFTC had not demonstrated a sufficiently high likelihood of success on the merits or a likelihood of irreparable harm.
The latest CFTC order therefore represents another escalation, but it does not settle the underlying legal question.
Prediction Markets Face Broader Regulatory Battle
The dispute between Kalshi, New York and the CFTC is part of a wider national debate over prediction markets.
Event contracts allow users to take positions on whether particular events will occur, including outcomes involving sports, elections and other developments. Regulators and state authorities disagree over whether certain contracts should be treated primarily as financial derivatives or as forms of gambling.
The CFTC said it has sued eight other states in addition to New York as it seeks to defend what it considers its congressionally granted jurisdiction over federally regulated contract markets.
The outcome of these cases could therefore establish important precedents for the rapidly expanding prediction market industry.
Closing Insights
The CFTC’s decision to invoke emergency powers in support of Kalshi underscores the growing tension between federally regulated prediction markets and state gambling authorities. While the order allows Kalshi to continue operating for now, it does not resolve whether the Commodity Exchange Act preempts state gambling laws or determine whether specific event contracts constitute unlawful wagering. As the legal battle expands across multiple states, the eventual court decisions could shape how prediction markets operate and how jurisdiction over event-based contracts is divided between federal and state regulators.
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