CFTC Uses Emergency Powers to Keep Kalshi Operating Amid New York Dispute

• The CFTC ordered Kalshi to continue operating after calling New York’s enforcement action a market emergency.
• The dispute centers on whether federal derivatives rules override New York gambling laws governing event contracts.

The CFTC invoked emergency powers to keep Kalshi operating amid its legal dispute with New York. The commission classified New York’s enforcement action and temporary restraining order request as a market emergency. It directed Kalshi to continue operations under the Commodity Exchange Act and its Core Principles. New York seeks to block Kalshi from offering sports, election, cultural, and other event contracts statewide. The state also seeks at least $36 billion in compensatory damages, according to the CFTC. Chair Michael Selig said federal derivatives markets require uniform rules, warning against conflicting state gambling laws. 

New York Challenges Kalshi’s Event Contracts

New York filed its lawsuit against Kalshi on July 31, accusing the company of operating an illegal gambling business without state authorization. The state seeks restitution, disgorgement, damages, and penalties connected with Kalshi’s event contracts. New York also seeks penalties equal to three times Kalshi’s alleged gains and $100,000 for each unauthorized sports wagering offer. Kalshi argues that states cannot shut down an exchange registered under federal derivatives regulations.

 The CFTC similarly argues that federal law grants it exclusive jurisdiction over swaps traded through designated contract markets. A federal judge previously rejected Kalshi’s request for preliminary relief in a separate New York case. That ruling found New York gambling laws could apply to Kalshi’s sports contracts at that stage. The CFTC also faces a separate federal lawsuit against New York involving similar jurisdictional questions.

Federal Authority Faces Broader State Challenges

The CFTC filed a federal case in April after New York continued enforcing gambling laws against federally registered contract markets. Judge Jed Rakoff denied the agency’s emergency request for temporary relief without prejudice, citing insufficient evidence of likely success and irreparable harm. 

The latest CFTC order allows Kalshi to continue operating but does not resolve the underlying jurisdictional dispute. It also leaves unanswered whether federal derivatives law overrides state gambling rules. The CFTC said it has sued eight other states alongside New York. The broader litigation could shape regulatory authority over prediction markets and event contracts nationwide. 

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