The U.S. Commodity Futures Trading Commission announced it had ordered prediction market operator Kalshi to continue operating in New York after the state filed a lawsuit seeking to shutter the platform.
The CFTC used its "emergency authority" to require Kalshi to continue operating after Kalshi asked for help following New York State Attorney General Letitia James' lawsuit against the company at the end of July, the federal regulator said in a Tuesday press release.
The action sets up the latest clash between the federal commodities regulator and state regulators over prediction markets. States have argued that prediction markets — at least sports-related markets — are gambling platforms that infringe on state regulations, while the CFTC has maintained it has authority over all prediction markets because they offer federally regulated swaps.
CFTC Chairman Mike Selig reiterated that stance in a statement Tuesday, saying, "Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws."
"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," he said. "These are financial exchanges that offer financial instruments and operate across state lines. They 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 CFTC had previously sued New York over its stance on prediction markets.
New York sued Kalshi on July 31 after a federal judge ruled against Kalshi's bid to block the state from filing a lawsuit. New York alleged that Kalshi was violating its state gambling laws by offering sports prediction markets.
"Kalshi has failed to obtain a license from the New York State Gaming Commission (Gaming Commission), sidestepping its obligation to pay taxes like licensed casinos and mobile sports gambling platforms do," a press release from the state said. "This tax revenue from gambling regulation funds public schools, sports programs for underserved youth, and problem gambling education and treatment."
Kalshi moved to transfer the case to federal court; New York moved to transfer the case back. The motions are currently awaiting a judge's ruling.
The CFTC had previously intervened to try and help Kalshi continue operating in the state of Michigan after a judge ruled in the state's favor. However, Kalshi Head of Enforcement Robert Denault said in a post on social media that the company had already "unwound the trades" required by a Michigan court.