Key highlights:
- The CFTC has invoked emergency powers to keep Kalshi running amid efforts by New York to shut down its event contracts
- The commodities regulators leaned on their expansive powers under the CEA while bringing lawsuits against nine US states
- New York regulators say Kalshi is running an unlicensed gambling operation disguised as financial derivatives
The Commodity Futures Trading Commission (CFTC) has ordered prediction market platform Kalshi to continue operating after New York launched a legal effort to shut it down. While state regulators are keen on banning prediction marketplaces, branding them as unlicensed gambling, the CFTC has drawn a hard line.
CFTC tells Kalshi to defy New York’s regulators
The brewing war between the CFTC and state regulators has reached a boil, with the commodities regulator forced to use its emergency authority. In a press release, the CFTC disclosed that it invoked its emergency powers to order Kalshi to keep up its operations after authorities in New York attempted to shut down its event contracts business.
On July 31, New York Attorney General Letitia James filed a complaint against Kalshi, seeking a temporary nationwide ban on Kalshi’s event contracts. In response, Kalshi notified the CFTC of the development, with the commodities regulator wading in with the rulebook.
Particularly, the CFTC cited provisions in the Commodities Exchange Act (CEA) requiring the CFTC to provide a uniform national market for derivatives transactions. To fulfill its legal duty, the CFTC says Kalshi has to keep its operations, noting that “major market disruptions” will affect the price discovery process of trading in centralized derivatives markets.
Source: CFTC
“New York has no business regulating these interstate financial markets,” said CFTC Chair Michael Selig. “The Commission is required by law to ensure order in these markets, and that is what we have done today.”
Selig slammed New York’s move as an attempt to smother prediction markets before the courts issue final rulings. However, New York regulators argue that Kalshi is offering unlicensed sports betting while disguising it as financial derivatives, running afoul of its state gambling laws.
During the FIFA World Cup, prediction markets saw a 75% uptick in trading volume, with users betting on a range of outcomes across soccer markets.
CFTC launches campaign against states to protect prediction markets
While states are vilifying prediction marketplaces for promoting unlicensed gambling, the CFTC is tagging them as federally regulated designated contract markets. According to the CFTC, federal derivatives law preempts state attempts to regulate event contracts.
To protect its jurisdiction over the sector, the CFTC said it has filed lawsuits against nine US states encroaching on its turf. The affected states include Arizona, Connecticut, Illinois, Kentucky, Minnesota, New York, Rhode Island, Wisconsin, and New Mexico.
The CFTC disclosed that it has filed amicus briefs in US courts to back prediction market platforms defending lawsuits from state regulators. Meanwhile, US President Donald Trump has sided with the CFTC, branding state officials who oppose prediction markets as “SCUM”.
Across the Atlantic, the Czech Republic has banned Polymarket for unlicensed gambling as EU regulators tighten the screws on prediction marketplaces.
