CFTC Orders Kalshi to Stay Open Amid New York's $36B Lawsuit
The CFTC has issued an emergency order requiring Kalshi to continue operations, countering New York's attempt to shut down the prediction market as illegal gambling. The state seeks $36 billion in damages, but the CFTC argues that federal regulation preempts state gaming laws.
The Commodity Futures Trading Commission (CFTC) has ordered Kalshi, a CFTC-designated contract market, to keep its exchange operating despite New York state's attempt to shut it down. The CFTC declared the situation a market emergency under Section 8a(9) of the Commodity Exchange Act, citing potential disruption to prices and liquidity if Kalshi were forced to liquidate positions immediately.
New York filed a lawsuit on July 31, alleging Kalshi runs an illegal gambling operation through its event contracts. The state is seeking a temporary restraining order and up to $36 billion in damages. Attorney General Letitia James argues that Kalshi's products fall under New York's gambling laws, which set minimum ages and require licenses. The lawsuit also claims Kalshi allowed users under the age of 21 to trade sports contracts.
CFTC Chairman Michael Selig countered that states have no authority to regulate federally licensed derivatives exchanges. 'New York has no business regulating these interstate financial markets,' he said. The CFTC's emergency order directs Kalshi to continue its normal functions, arguing that a sudden closure could force liquidation of open positions, spreading risk across other trading venues.
In its decision, the CFTC highlighted a hypothetical trader using Kalshi's Bitcoin price contract as part of a broader hedging strategy. Forced liquidation could leave the trader with unintended exposure, the agency said. The federal order does not dismiss New York's lawsuit but places a direct federal command against the requested shutdown. Legal experts note that emergency orders are subject to review only by federal appeals courts, potentially delaying state enforcement.
Kalshi called the lawsuit political theater, insisting it operates under federal law. The platform has been CFTC-regulated since November 2020. The outcome could set a precedent on the balance between federal and state oversight of financial markets.
This is information, not investment advice.
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