Summary
- The CFTC has activated its emergency powers to mandate that Kalshi continues its trading operations after the exchange declared a market emergency.
- This declaration was made following a lawsuit filed by New York Attorney General Letitia James on July 31.
- The agency has initiated legal action against nine states concerning their regulation of event contracts.
The Commodity Futures Trading Commission (CFTC) has exercised its emergency powers to require Kalshi to maintain its trading activities. This decision came after Kalshi itself informed the CFTC of a market emergency on Tuesday.
The order mandates KalshiEX to continue its operations in accordance with the Commodity Exchange Act's fundamental principles, which establish federal standards for designated contract markets. Kalshi's notification to the CFTC was prompted by a lawsuit from New York Attorney General Letitia James, who filed on July 31. The suit seeks a restraining order to prevent the platform from offering event contracts nationwide, along with over $36 billion in damages.
CFTC Chairman Michael Selig characterized the state's legal action as an attempt to undermine the market before judicial decisions are made, asserting that New York aims to suffocate event contract derivatives under its stringent state gaming regulations prior to any final judgment. He emphasized that exchanges facilitating trades across state lines should not be classified as gambling operations, stating, "New York has no business regulating these interstate financial markets," and highlighted that Congress did not intend for derivatives exchanges to be subject to a hodgepodge of state gaming laws.
Federal Action Against State Regulations
The CFTC has now filed lawsuits against nine states and submitted amicus briefs in both the Sixth and Ninth Circuits, as well as with the Supreme Judicial Court of Massachusetts.
This number has increased throughout the year, initially including states like Illinois, Arizona, and Connecticut, and later expanding to include Wisconsin and Minnesota, which was sued shortly after implementing its ban. Former President Donald Trump has voiced support for the CFTC, calling state officials opposing prediction markets "SCUM."
In contrast to the CFTC's legal efforts, Kalshi has faced setbacks in court. A judge in the Southern District of New York denied Kalshi a preliminary injunction against the state gaming regulator on July 7 and also rejected its request for protection pending appeal on July 27. Meanwhile, Michigan restricted its sports markets in June, and Washington secured a preliminary injunction in July, contrasting with rulings favoring Kalshi in the Third Circuit regarding New Jersey and Minnesota.
James' lawsuit categorizes Kalshi as an unlicensed gambling entity, presenting eight counts and seeking triple damages along with $100,000 for each sports wagering offer. The petition cites Kalshi’s reported valuation of $22 billion and an annual trading volume of $178 billion.