CFTC Invokes Emergency Powers to Keep Kalshi Trading Even if New York Wins a Restraining Order

The Commodity Futures Trading Commission ordered Kalshi on Tuesday to continue operating its exchange in line with its normal practices and the Commodity Exchange Act’s core principles, using the emergency authority in Section 8a(9) of the act. The order responds to a notice Kalshi filed on August 1 warning of “an imminent market emergency” if New York obtained a temporary restraining order against it.

Attorney General Letitia James filed New York’s complaint on July 31 in state court in Manhattan, and the case has since been removed to federal court. The state’s proposed order would stop Kalshi from offering contracts tied to sports, culture, elections and other events within or from New York, which the CFTC reads as a nationwide shutdown because Kalshi’s principal place of business sits there. New York is also seeking disgorgement plus a penalty of three times profits, and at least $36 billion in compensatory damages pending an accounting, against a company its own petition values at $22 billion. Kalshi has been a CFTC-designated contract market since November 3, 2020.

The commission’s reasoning leans on price discovery. It argues that if a single state can dissolve a market, every event contract carries a legal risk premium, that traders would shift toward exchanges headquartered outside New York, and that a forced liquidation of open positions would ripple into other assets, citing contracts on Federal Reserve rate moves, bitcoin’s year-end price, drought conditions and shipping traffic through the Strait of Hormuz.

Selig said New York “has no business” regulating interstate financial markets and that Congress did not design derivatives regulation around state gaming laws. The agency has sued nine states, including Arizona, Illinois and New York, and filed amicus briefs in two federal appeals circuits and the Supreme Judicial Court of Massachusetts. In July it ordered Kalshi to honor trades a Michigan court told it to cancel, and in May it sued Minnesota over an outright ban.

Related Listen: DEX in the City: How Kalshi’s Rough Week Became a Federal Fight for Prediction Markets

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