CFTC Orders Kalshi to Keep Operating as New York Seeks Shutdown
The regulator says New York’s attempt to stop Kalshi from offering event contracts threatens to disrupt derivatives markets nationwide.
The Commodity Futures Trading Commission (CFTC) has issued an emergency order to require Kalshi to continue operating in New York, even if a state court rules that the platform must shut down operations in the state.
The agency exercised its emergency authority under the Commodity Exchange Act (CEA) after Kalshi notified the regulator that a temporary restraining order (TRO) sought by New York Attorney General Letitia James could effectively halt its designated contract market (DCM).
In its Aug. 11 order, the CFTC found the threat of a “sudden, unpredictable shut down” of Kalshi posed an “existential threat” to the Commission’s registrants, marketplaces and regulatory jurisdiction.
Put simply, New York’s lawsuit threatens to prevent a CFTC-registered DCM from offering event contracts to anyone in the world,” the Commission wrote.
The CFTC ordered Kalshi to “continue to perform its functions as an exchange in accordance with the CEA’s Core Principles and its normal practices.”
CFTC: New York Action Could Disrupt Markets
New York filed suit against Kalshi on July 31, following a federal court’s denial of Kalshi’s motion for a preliminary injunction against state officials. New York argues that Kalshi’s event contracts meet the state’s legal definition of gambling. The exchange, therefore, has operated without the required sports wagering license.
The lawsuit seeks a TRO and permanent injunction, along with restitution, disgorgement, damages and financial penalties. The Commercial Division filing values the action at $36 billion before punitive damages, costs and attorneys’ fees.
The CFTC argues that the action could have nationwide consequences because Kalshi is headquartered in New York.
The state’s proposed TRO seeks to prohibit Kalshi from offering contracts relating to sports, culture, elections and other events “within or from New York or to persons in New York.” The CFTC said that language could prevent the exchange from offering event contracts outside the state.
The Commission found that the enforcement action qualifies as a “major market disturbance” under the CEA.
If New York’s lawsuit, with the extreme relief it seeks, is permitted to continue, then a single State will effectively become the nationwide regulator of event-contract swaps on DCMs,” the order states.
CFTC Chairman Michael Selig said in a statement:
New York has no business regulating these interstate financial markets. The Commission is required by law to ensure order in these markets, and that is what we have done today.”
The CFTC said a Kalshi shutdown could force the liquidation of open positions. It could also shift activity to competing exchanges and distort event-contract prices.
CFTC Previously Intervened in Michigan’s Dispute With Kalshi
The order marks the second time in less than a month that the CFTC has invoked its emergency authority. In July, the Commission intervened after a Michigan court ordered Kalshi to void, cancel and refund certain trades involving Michigan residents following the court’s grant of a TRO to the state.
After the order, Kalshi submitted an emergency rule change. The request would have allowed it to comply with the court order by force-liquidating affected positions. The CFTC then invoked its emergency authority to require the exchange to fulfill already-executed trades instead.
At the time, Selig said the Commission would not allow states or state courts to “bully registered entities into violating the Commodity Exchange Act and CFTC regulations.”
The New York intervention is broader. Rather than directing Kalshi to preserve a specific set of existing trades, the CFTC has ordered the company to continue operating as normal.
The Commission explicitly cited its Michigan intervention in the New York order as an example of its authority to direct Kalshi to fulfill its obligations when state enforcement threatens the operation of CFTC-regulated markets.
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