CFTC Invokes Emergency Authority to Keep Prediction Market Kalshi Operating

The US Commodity Futures Trading Commission (CFTC) invoked its emergency authority on Tuesday, ordering prediction market Kalshi to continue operating.

The CFTC said that New York’s enforcement action and request for a temporary restraining order themselves constituted a market emergency and directed Kalshi to continue operating in accordance with its normal practices and the Commodity Exchange Act’s Core Principles.

New York’s requested temporary restraining order would bar Kalshi from operating a business offering contracts tied to sports, culture, elections and other events in or from New York or to people in the state. The CFTC said the order could prevent Kalshi from offering all event contracts nationwide because it is based in New York. According to the CFTC, New York is seeking at least $36 billion in compensatory damages pending an accounting.

The CFTC said the Commodity Exchange Act requires the commission to provide a uniform national derivatives market and that major disruptions threaten orderly trading and price discovery. CFTC Chair Michael Selig said Congress did not intend derivatives exchanges to face a “patchwork of state gaming laws.”

The confrontation is part of a broader national fight over whether the Commodity Exchange Act preempts state gambling laws as applied to event contracts traded on federally regulated exchanges.

CFTC challenges state oversight of prediction markets

In the lawsuit filed on July 31, New York alleges Kalshi runs an illegal, unlicensed gambling business by offering contracts tied to sports, elections, culture and other events. The state is seeking restitution, disgorgement, damages and penalties, including a penalty equal to three times Kalshi’s alleged gains and $100,000 for each unauthorized sports wagering offer or attempt in New York.

Kalshi says states cannot shut down a federally licensed exchange, while the CFTC argues that the Commodity Exchange Act gives it exclusive jurisdiction over transactions involving swaps traded on designated contract markets, including event contracts Kalshi lists as swaps.

A federal judge in a separate New York case denied Kalshi’s request for a preliminary injunction on July 7, finding at that stage that New York gambling laws were not preempted by the Commodity Exchange Act as applied to Kalshi’s sports-event contracts.

Related: Judge stays CFTC’s case against US soldier over prediction market bets

In a separate federal case, the CFTC sued New York in federal court in April to block the state from applying its gambling laws to CFTC-registered contract markets. Judge Jed Rakoff denied without prejudice the agency’s emergency request for a temporary restraining order, finding that the CFTC had not established a high likelihood of success on the merits or a likelihood of irreparable harm.

The latest CFTC order directs Kalshi to continue operating but does not end New York’s lawsuit or resolve the underlying jurisdictional dispute. It is not a judicial ruling on whether federal law preempts state gambling enforcement.

The dispute extends beyond New York. The CFTC said it has sued eight other states, along with New York, to defend its congressionally granted jurisdiction.