The U.S. Commodity Futures Trading Commission (CFTC) has invoked emergency powers to require the prediction market platform Kalshi to continue trading. This action follows Kalshi’s notification to regulators of a “market emergency,” amid recent litigation by the New York State Attorney General seeking to halt the platform’s offering of event contracts.
Continuing operations after being sued in New York
Pursuant to the CFTC’s order, KalshiEX must continue operating in accordance with the core principles of a designated contract market under the Commodity Exchange Act. The regulator’s statement effectively affirms support for the platform to maintain trading during the ongoing litigation.
On July 31, New York Attorney General Letitia James sued Kalshi in state court, seeking an injunction to halt the offering of event contracts nationwide and demanding over $36 billion in damages.
The key issue is regulatory jurisdiction.
CFTC Chair Michael Selig stated that New York State’s action is an attempt to prematurely stifle this market before a final court ruling. He believes the state is trying to use state gambling laws to restrict the development of event contract derivatives.
According to him, when an exchange matches a buy order from one state with a sell order from another state and settles the transaction through central clearing, such activities should be classified as interstate financial markets rather than local gambling.
Federal and state lawsuits continue to expand.
The CFTC has sued nine states to date on issues related to the regulation of event contracts and has filed amicus briefs in the Sixth Circuit Court of Appeals, the Ninth Circuit Court of Appeals, and the Massachusetts Supreme Judicial Court.
However, Kalshi has not had as much success in certain cases as the CFTC. The U.S. District Court for the Southern District of New York denied its requests for temporary restraining orders twice in July; Michigan restricted its sports markets in June, and Washington State obtained a preliminary injunction in July.
Additional information: This New York State lawsuit classifies Kalshi as an unlicensed gambling operation, listing eight charges and seeking treble damages on its profits, plus a $100,000 fine for each sports betting offering. The complaint also cites Kalshi’s own data, stating that the platform has an estimated valuation of approximately $22 billion and an annualized trading volume of about $178 billion.