The U.S. Commodity Futures Trading Commission (CFTC) has stepped in to keep prediction market operator Kalshi running, citing an “emergency” created by New York’s enforcement action and its request for a temporary restraining order. In an order issued Tuesday, the regulator directed Kalshi to continue operating under its normal practices and in line with the Commodity Exchange Act’s Core Principles.
The CFTC warned that an abrupt disruption to event-contract trading could undermine the goal of maintaining a uniform, national derivatives market—something it says is critical for orderly trading and price discovery. The dispute is also framed as part of a wider federal-versus-state battle over whether federal commodities law preempts state gambling rules when event contracts are traded on federally regulated exchanges.
Key takeaways
- The CFTC invoked emergency authority to require Kalshi to keep operating while New York pursues a temporary restraining order.
- New York’s proposed order could restrict Kalshi’s event-contract offerings tied to sports, elections, culture, and other events occurring in or connected to New York residents.
- The CFTC argues the Commodity Exchange Act requires a consistent national derivatives market and cautions against a “patchwork” of state gaming laws.
- The latest CFTC order does not resolve whether federal law preempts state enforcement; it mainly addresses operational continuity.
- The CFTC says it has taken similar actions against multiple states beyond New York to defend its jurisdiction.
Emergency order keeps Kalshi trading as the legal fight escalates
In its statement, the CFTC said New York’s move—both the state’s enforcement action and its request for a temporary restraining order—amounts to a market emergency. The agency referenced the risk that the temporary restraining order could effectively prevent Kalshi from offering event contracts nationwide, given the company’s New York ties.
According to the CFTC, New York is seeking at least $36 billion in compensatory damages while also pursuing a damages accounting. The state’s requested relief is designed to bar Kalshi from offering a broad set of contracts—spanning sports, cultural events, elections, and other event categories—when those contracts are offered in, from, or to people located in New York.
CFTC Chair Michael Selig said Congress did not intend derivatives exchanges to operate under a fractured set of state gaming rules. The commission’s position is that major disruptions to regulated derivatives markets can harm orderly trading and impede the price discovery function the framework is meant to support.
How New York describes the case—and what Kalshi disputes
New York’s lawsuit, filed on July 31, alleges Kalshi runs an illegal, unlicensed gambling operation by offering contracts tied to sports, elections, culture, and other events. The state says it is seeking restitution, disgorgement, damages, and penalties—describing potential penalties that include a figure equal to three times Kalshi’s alleged gains, plus $100,000 for each unauthorized sports-wagering offer or attempt in New York.
Kalshi’s core argument is that states cannot effectively shut down a federally licensed exchange. The conflict centers on legal jurisdiction: New York frames its position as state regulation of gambling and wagering, while the CFTC argues that the Commodity Exchange Act provides it with exclusive jurisdiction over transactions involving swaps traded on designated contract markets, including event contracts Kalshi lists as swaps.
That difference matters because it determines which regulator—state authorities or the CFTC—has the power to restrict or condition Kalshi’s product offerings. It also shapes whether event-contract trading will be governed uniformly across state lines or subject to multiple state-by-state enforcement theories.
Preliminary rulings have not ended the jurisdiction dispute
There have already been setbacks for Kalshi in some respects, but also legal findings that keep the dispute alive. In a separate New York case, a federal judge denied Kalshi’s request for a preliminary injunction on July 7. At that stage, the court found that New York’s gambling laws were not preempted by the Commodity Exchange Act as applied to Kalshi’s sports-event contracts.
Meanwhile, the CFTC has also attempted to prevent New York from applying its gambling laws to CFTC-registered contract markets. In April, the CFTC sued New York in federal court for that purpose, seeking to stop the state’s enforcement. Judge Jed Rakoff denied—without prejudice—the CFTC’s emergency request for a temporary restraining order. The denial was tied to the court’s view that the agency had not shown, at that early stage, a high likelihood of success on the merits or a likelihood of irreparable harm.
According to the CFTC, Tuesday’s order is intended to keep trading functioning while the underlying jurisdictional conflict continues. The agency emphasized that its action is not a final judicial determination of whether federal law preempts state gambling enforcement.
Federal-state clash over event contracts spans more than one state
This confrontation is not confined to New York. The CFTC said it has sued eight other states, along with New York, to defend the jurisdiction it says Congress granted it. The underlying legal theory is that event contracts falling under the federal derivatives framework should not be subjected to state gambling restrictions in ways that fragment the market.
For market participants, the practical implication is straightforward: even when a product is traded on a federally regulated exchange, the business model can still face state-level disruption. The CFTC’s emergency order suggests the regulator views that risk as severe enough to justify immediate intervention to avoid shutdown-by-injunction dynamics.
What remains uncertain is whether courts will ultimately treat the relevant Commodity Exchange Act provisions as preempting state gambling enforcement in the context of event contracts described as swaps. Tuesday’s order does not settle that question, and the dispute is likely to continue through further motions and rulings.
Investors, traders, and builders using prediction markets should watch how courts assess the preemption question in the ongoing cases and whether additional states face similar CFTC action. The timing and scope of any eventual injunction—or the lack of one—could determine how consistently event-contract trading can operate across the U.S. while the federal jurisdictional argument plays out.
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