- The CFTC ordered KalshiEX LLC to keep operating under the Commodity Exchange Act’s Core Principles and its normal practices.
- KalshiEX notified the commission of a market emergency on Aug. 1, and that notification triggered the federal order.
- New York’s July 31 complaint seeks to bar all Kalshi event contracts nationwide and more than $36 billion in damages.
- The CFTC has now sued nine states, including New York, over enforcement actions against federally regulated exchanges.
WASHINGTON – The Commodity Futures Trading Commission ordered KalshiEX LLC on Aug. 11 to keep its exchange running under the Commodity Exchange Act’s Core Principles, invoking the emergency power Congress gave it. The order followed a complaint New York Attorney General Letitia James filed on July 31 seeking to stop the exchange from offering event contracts.
What The Order Requires
KalshiEX told the commission it was facing a market emergency, and the commission answered by directing the exchange to stay open, running its markets by its normal practices and the Core Principles the act sets for designated contract markets. Kalshi said a restraining order would shut the exchange down entirely rather than close one category of contracts, and would force it to refund customers and hand back profits on trades already completed.
Its emergency authority comes from Section 8a(9) of the Commodity Exchange Act, which lets it direct a registered entity, whenever it has reason to believe an emergency exists, to take the action the commission judges necessary to maintain or restore orderly trading. The statute’s definition of an emergency is not limited to manipulation. It reaches any major market disturbance that prevents a market from accurately reflecting the forces of supply and demand.
That is the second time in a month the commission has reached for that power. On July 14 it put a stay on an emergency rule the exchange itself had filed and told Kalshi to make good on trades already open with Michigan residents.
The Complaint That Triggered It
James filed at 12:01 a.m. on July 31 in the Supreme Court of the State of New York for the County of New York. The case was removed to federal court in the Southern District of New York.
New York moved for a temporary restraining order that would prohibit Kalshi from “operating a business that offers contracts relating to sports, culture, elections, and other events” within or from the state or to persons in New York. The state set no limit on “other events,” which the commission reads as an attempt to prohibit all of the exchange’s event contracts.
New York also seeks disgorgement of all profits from event contracts plus a penalty of three times that amount, and $36 billion in compensatory damages “at minimum pending accounting,” excluding punitive damages and costs. Kalshi’s publicly reported valuation is $22 billion, a figure the state cited in its own verified petition, so the damages demand alone runs well past what the exchange is said to be worth.
Kalshi’s contracts are listed on a CFTC-designated contract market and regulated as derivatives rather than under the state licensing structure that governs the gambling sites Americans can legally reach, and the two proceedings are applying different bodies of law to the same instruments. What the state is asking for would reach beyond its own borders: anyone weighing New York Gambling Sites is looking at a market where the exchange is headquartered, and the requested order covers customers everywhere.
Chairman Says States Cannot Regulate Interstate Markets
Chairman Michael S. Selig said New York “intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” and that “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws.”
Selig also described the mechanics the commission is protecting. The exchanges “match the bid from a resident of one state with the offer of a resident from another state and submit the trade to a clearinghouse that backstops the transactions of customers throughout the country,” he said, adding that “New York has no business regulating these interstate financial markets.”
The commission grounded the order in its statutory obligations rather than in the merits of New York’s case. Its reasoning rests on three duties the act assigns it, maintaining one national derivatives market rather than fifty, keeping trading resilient and orderly enough to hold public confidence, and protecting the price discovery that competitive and fair markets produce. Disruptions on a large scale, the commission said, work against all three.
Nine States, Two Circuits And A State High Court
States have brought enforcement actions against CFTC-regulated designated contract markets in both state and federal courts. To defend the jurisdiction Congress gave it, the commission has sued Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin. The commission sued New Mexico in June, as Nevada moved to have Kalshi held in contempt.
The commission has also filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and in the Supreme Judicial Court of Massachusetts. The question in those forums is the one the Aug. 11 order raises, and it applies to Prediction Markets as a category rather than to any single contract.
What Is Unresolved
The commission does not say whether any court has ruled on New York’s restraining order motion, and its order notes the enforcement action may be delayed by proceedings to send the case back to state court. Neither document addresses what happens to the exchange if a court grants New York relief that conflicts with the federal order. That question is before the courts hearing the nine federal suits and the appeals in the Sixth and Ninth Circuits.
Review of the emergency order itself is narrow. The act sends any challenge to one of two places, the appeals court for the circuit covering the challenger’s home or main place of business, or the District of Columbia Circuit.