On Tuesday afternoon, the Commodity Futures Trading Commission (CFTC) issued an emergency order that forces Kalshi to continue its normal operations in the state of New York. The mandate, issued in response to a notification by Kalshi that New York had filed a $36B suit against the prediction exchange in state court, represents the federal agency’s most aggressive action to date concerning state enforcement against prediction market platforms.
“The Commodity Futures Trading Commission today exercised its emergency authority in response to KalshiEX, LLC’s notification of a market emergency and ordered the exchange to continue to operate in accordance with the Commodity Exchange Act’s Core Principles,” reads the August 11th press release.
“KalshiEX, LLC notified the Commission of the emergency after New York Attorney General Letitia James filed a complaint against the exchange in state court. In the lawsuit, filed on July 31, New York seeks a temporary restraining order prohibiting KalshiEX, LLC from offering all event contracts nationwide and more than $36 billion in damages.”
In its official statement, the CFTC says that it is required, by the CEA, to “provide a uniform national market in derivatives transactions.” Recent legal actions by multiple states to prevent Kalshi and other prediction platforms from offering their full line of derivatives products “hamper these efforts,” says the agency.
“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” said CFTC Chairman Michael Selig on Tuesday. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines.”
Chairman Selig continued by stating that financial exchanges like Kalshi “match the bid from a resident of one state with the offer of a resident from another state and submit the trade to a clearinghouse that backstops the transactions of customers throughout the country. 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 today.”
Unlike a separate (but related) emergency action that was taken by the CFTC one month ago concerning Michigan’s state enforcement actions, Kalshi is expected to fully comply with the federal agency’s mandate and continue to offer its full services within the Empire State. In mid-July, Kalshi decided to liquidate pending contracts held by Michigan residents and visitors, claiming it had complied with a state court order before learning about the CFTC’s intentions to force Kalshi to leave those contracts intact.
Tuesday’s emergency mandate, issued by the CFTC, could potentially halt geofencing measures that have been ordered by state courts in Nevada, Michigan, and Washington. The federal agency’s action could also result in Kalshi’s sports event contracts being reinstated within Massachusetts. However, it remains to be seen exactly how Kalshi (and other prediction markets) will navigate state court geofencing orders between now and the time that related cases are ruled on by federal courts or SCOTUS.
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