CFTC Uses Emergency Powers to Keep Kalshi Operating in New York

The order intensifies the jurisdictional dispute over whether federally regulated event contracts can be classified by states as illegal gambling.

The US Commodity Futures Trading Commission (CFTC) exercised its emergency authority on Tuesday, directing prediction market Kalshi to continue its operations.

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

New York’s proposed temporary restraining order would prevent Kalshi from offering contracts linked to sports, culture, elections and other events within the state or to New York residents. The CFTC warned that the order could effectively stop Kalshi from offering event contracts nationwide because the company is based in New York. The state is also seeking at least $36 billion in compensatory damages, according to the CFTC, with the final amount to be determined after an accounting.

The CFTC said the Commodity Exchange Act requires a consistent national derivatives market, warning that major disruptions could undermine orderly trading and reliable price discovery. CFTC Chair Michael Selig said Congress did not intend derivatives exchanges to operate under a “patchwork of state gaming laws.”

The dispute forms part of a wider national battle over whether the Commodity Exchange Act overrides state gambling laws when they are applied to event contracts traded on federally regulated exchanges.

CFTC Challenges State Authority Over Prediction Markets#

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

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

In a separate New York case, a federal judge rejected Kalshi’s request for a preliminary injunction on July 7, finding at that stage that the Commodity Exchange Act did not preempt New York gambling laws as they applied to Kalshi’s sports-event contracts.

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

The latest CFTC order directs Kalshi to keep operating but does not dismiss New York’s lawsuit or settle the broader jurisdictional dispute. It also does not constitute a judicial ruling on whether federal law overrides state enforcement of gambling laws.

The dispute reaches beyond New York, with the CFTC saying it has also sued eight other states to defend the jurisdiction granted to it by Congress.