The Commodity Futures Trading Commission ordered Kalshi on Tuesday to honor trades involving Michigan residents despite the state's attempt to force the prediction markets platform to cancel them. About two weeks ago, a Michigan state court ordered Kalshi to stop offering sports-related event contracts and to unwind certain existing trades. The CFTC's directive escalates a jurisdictional clash between federal regulators and states over authority to oversee prediction markets, with Michigan arguing Kalshi provides unlicensed gambling venues while the CFTC asserts its regulatory primacy under the Commodity Exchange Act.
Michigan Court Ordered Kalshi to Cancel Sports Contracts
About two weeks ago, a Michigan state court issued a 14-day restraining order requiring Kalshi to stop offering sports-related event contracts and to unwind certain existing trades. Michigan Attorney General Dana Nessel stated at the time, "Our gambling laws exist to protect Michiganders from unlicensed, predatory operations, and failing to comply with them carries serious legal consequences." The state's action directly targeted trades already executed on the platform.
CFTC Chairman Cited Marketplace Stability Risks
CFTC Chairman Michael Selig said Tuesday in a statement, "A state cannot force a Designated Contract Market to violate its obligations, and federal law does not permit a DCM to discriminate against a state's residents." Selig added, "Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market." The Chairman also stated, "The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations." Kalshi operates as a CFTC-registered Designated Contract Market regulated under the Commodity Exchange Act.
CFTC Filed Lawsuits Against Nine States
The CFTC noted that although Michigan was the first state that tried to interfere directly with transactions from a DCM, the regulator has also filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The lawsuits aim to protect the jurisdiction the CFTC says it has been granted by Congress, according to Tuesday's statement. The disputes center on whether prediction markets platforms fall under federal commodity market regulation or state gambling laws.
FAQ
What did the CFTC order Kalshi to do on Tuesday?
The CFTC ordered Kalshi on Tuesday to honor trades involving Michigan residents despite Michigan's attempt to force the platform to cancel them.
Why did Michigan order Kalshi to unwind trades?
About two weeks ago, a Michigan state court ordered Kalshi to stop offering sports-related event contracts and to unwind certain existing trades, with Michigan Attorney General Dana Nessel citing state gambling laws designed to protect residents from unlicensed operations.
How many states has the CFTC sued over prediction markets jurisdiction?
The CFTC has filed lawsuits against nine states: Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin, in addition to the dispute with Michigan.
