TL;DR:
- The CFTC invoked emergency powers to order Kalshi to continue operating, amid a legal dispute with the state of New York.
- New York accuses Kalshi of operating an illegal gambling business and claims at least $36 billion in compensatory damages pending an audit.
- The confrontation is part of a national battle over whether the Commodity Exchange Act federalizes the regulation of prediction markets.
The Commodity Futures Trading Commission (CFTC) invoked its emergency powers to order prediction market Kalshi to continue operating, amid a jurisdictional escalation with the state of New York. The federal agency determined that the state’s enforcement action and its request for a temporary restraining order themselves constituted a market emergency, and instructed Kalshi to maintain its operations in accordance with its usual practices and the core principles of the Commodity Exchange Act.
The restraining order sought by New York would prevent Kalshi from offering contracts linked to sports, culture, elections and other events in the state or directed at its residents. The CFTC warned that the measure could disrupt the offering of contracts at the national level, given that the company is headquartered in New York. The agency indicated that the state claims at least $36 billion in compensatory damages pending an audit.
The CFTC and the Regulatory Monopoly Over Prediction Markets
CFTC Chairman Michael Selig argued that Congress did not intend to expose derivatives markets to a “patchwork of state gambling laws.” According to the agency, the Commodity Exchange Act requires it to ensure a uniform national derivatives market, and disruptions threaten orderly trading and price discovery.
In the lawsuit filed on July 31, New York accused Kalshi of operating an illegal and unlicensed gambling business. The state seeks restitution, disgorgement, damages and penalties, including a sanction equivalent to triple Kalshi’s profits and $100,000 for each unauthorized sports betting offer within its territory.
Kalshi argues that states cannot shut down a federally licensed platform, while the CFTC maintains that the law grants it exclusive jurisdiction over swap transactions on designated contract markets, including the event contracts that Kalshi lists as swaps.
The dispute extends beyond New York’s borders. The CFTC reported that it has already sued eight other states to defend the jurisdiction granted to it by Congress. The agency’s latest order does not end New York‘s lawsuit or resolve the underlying jurisdictional conflict, nor does it constitute a judicial ruling on whether federal law preempts state enforcement of gambling laws.
