The US Commodity Futures Trading Commission (CFTC) has ordered the prediction market platform Kalshi to keep operating across the country, directly overriding an attempt by New York State to shut the company down. The order, issued on Tuesday, is one of the clearest examples yet of a federal regulator using emergency powers to shield a company from state law.
The clash began on 31 July, when New York Attorney General Letitia James sued Kalshi in state court, arguing that its sports-related event contracts amount to unlicensed gambling. According to Yahoo Finance, James sought a restraining order that would stop Kalshi offering event contracts anywhere in the country, alongside more than $36 billion in damages.
Kalshi responded by notifying the CFTC that the lawsuit had created what the agency called a market emergency, warning that a court-ordered shutdown could hit its exchange without warning. The CFTC said it acted after Kalshi told it that a temporary restraining order sought by James could effectively halt its designated contract market, according to Gambling Insider.
Federal power against state gambling law
In its order, the CFTC directed Kalshi to continue operating in accordance with the Commodity Exchange Act's core principles, the federal rules that govern regulated derivatives exchanges. CFTC Chairman Michael Selig framed the intervention as protecting a national market from being disrupted by a single state before courts settle the underlying legal question.
“Selig said the commission would not allow states or state courts to "bully registered entities into violating the Commodity Exchange Act and CFTC regulations."”
Selig also argued that Kalshi's model, matching a buyer's bid in one state against a seller's offer in another and clearing the trade centrally, makes it an interstate financial market rather than a local betting shop. New York's case rests on the opposite premise: that these contracts function exactly like sports wagers and therefore fall under state gambling law, which only licensed operators may offer within the state.
Not the first standoff this year
This is not the CFTC's first intervention on Kalshi's behalf. In July, the agency stayed an emergency rule Kalshi had proposed to comply with a Michigan court order, which would have force-liquidated open sports-related positions held by residents of that state. Instead of allowing the trades to be unwound, the CFTC ordered Kalshi to fulfil them as normal, citing the same emergency authority it has now used against New York.
Kalshi has so far had a mixed record in the courts themselves. A judge in the Southern District of New York denied the company a preliminary injunction against the state's gaming regulator on 7 July and refused it protection pending appeal later that month, according to Yahoo Finance. Washington state, meanwhile, has already won a preliminary injunction of its own against the platform.
For European and other international readers, the fight illustrates a distinctly American regulatory quirk: gambling law is set state by state, while derivatives trading is regulated federally, and prediction markets sit awkwardly across both. Platforms such as Kalshi and its rival Polymarket have expanded rapidly by letting users trade contracts on sports outcomes, elections and other events, a business model that has no direct equivalent under the EU's more centralised gambling and financial-markets rules, or the UK's Gambling Commission framework, which draws a firmer line between wagering and regulated exchanges.
The underlying legal question, whether event contracts are derivatives subject to federal oversight or gambling products subject to state licensing, remains unresolved. Until a court rules definitively, the CFTC's emergency orders mean Kalshi can keep trading nationally even in states actively suing to stop it.
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