The Commodity Futures Trading Commission (CFTC) has ordered prediction-market exchange Kalshi to continue operations following the exchange’s declaration of a market emergency related to enforcement actions by New York. This directive comes as New York authorities escalate their scrutiny of prediction markets, asserting that Kalshi’s offerings constitute illegal gambling.
What Happened
The Commodity Futures Trading Commission (CFTC) intervened on August 11, directing KalshiEX LLC to maintain operations under the Commodity Exchange Act’s Core Principles (CryptoSlate). This action was prompted by Kalshi’s declaration of a market emergency, which the exchange linked to enforcement efforts initiated by New York authorities (CryptoSlate).
New York Attorney General Letitia James filed a lawsuit on July 31, alleging that Kalshi offers sports prediction markets without the requisite license from the New York State Gaming Commission (CryptoSlate, CNBC). The lawsuit asserts that Kalshi is operating an unlicensed gambling business, thereby avoiding obligations imposed on regulated casinos and sportsbooks, including taxes and consumer protection requirements (CryptoSlate).
Key Details
- The CFTC ordered Kalshi to continue operating, stating that New York’s actions could prevent Kalshi from offering event contracts nationwide and potentially expose the exchange to over $36 billion in damages (CryptoSlate, CoinDesk).
- New York’s lawsuit seeks to compel Kalshi to surrender gains from alleged violations, provide restitution to affected consumers, and pay penalties three times the amount of those gains (CryptoSlate).
- CFTC Chairman Michael Selig stated that Congress did not intend federally regulated derivatives exchanges to be subject to state gambling laws, arguing that the CFTC is legally mandated to maintain order in these interstate financial markets (CryptoSlate).
Why It Matters
This situation represents a significant federal intervention in the ongoing dispute regarding whether states can apply gambling laws to event contracts offered on CFTC-regulated exchanges (CryptoSlate). The CFTC argues that preventing Kalshi from operating could disrupt a federally regulated derivatives market and expose it to substantial damages, thereby threatening its mandate to maintain a uniform national derivatives market (CryptoSlate).
The dispute extends beyond Kalshi’s legal status, with New York authorities broadening their scrutiny of the entire prediction-market industry (CryptoSlate). On August 12, New York City Council Speaker Julie Menin announced the Council had been investigating allegations of “false, deceptive, unconscionable, and objectionable marketing practices” across the prediction-market industry, particularly concerning marketing tactics that might mislead younger consumers (CryptoSlate).
What’s Next
The emergency order issued by the CFTC does not resolve the fundamental question of whether federal derivatives law preempts state gambling rules (CryptoSlate). The New York City Council plans to hold a hearing to consider whether current consumer protection rules are adequate or if new legislation, enforcement measures, or other safeguards are necessary (CryptoSlate). The outcome of these legal and regulatory challenges will influence the operational framework for prediction markets and other federally regulated derivatives exchanges operating across state lines (CryptoSlate).
Originally reported by CryptoSlatePublished
Sources & References
Primary source
- CryptoSlatecryptoslate.com
Additional references
- CFTC orders Kalshi to continue offering prediction markets in New York after state lawsuitcoindesk.com
- July 12, 2026 SUBMITTED VIA CFTC PORTAL Secretary of the Commission Office of the Secretariat U.S. Commodity Futures Trading Commission Three Lafayette Centre 1155 21st Street, N.W. Washington, D.C. 20581 Re: DCM Notice of Market Emergency and Emergency Rule Filing Pursuant to CFTC Regulation 40.6(a), Follow-Up to July 6, 2026 Notice Dear Sir or Madam, KalshiEx LLC (“Kalshi” or the “Exchange”) respectfully submits this follow-up notice to the Commodity Futures Trading Commission (“CFTC” or the “Commission”) and its Division of Market Oversight (“DMO”), supplementing the Exchange’s correspondence filed on July 6, 2026 (the “Prior Notice”). As set forth below, the Exchange has determined that the Emergency described in the Prior Notice requires the immediate adoption of emergency rules (the “Emergency Rules”) under Commodity Exchange Act (“CEA”) Section 5c(c), CFTC Regulation 40.6(a), and Kalshi Rule 2.8. I. Background As described in the Prior Notice, the Exchange is subject to a Temporary Restraining Order (“TRO”) entered by the Circuit Court for the 30th Judicial Circuit, Ingham County, Michigan (State of Michigan v. KalshiEx LLC, Case No. 26-1087-CZ, Hon. Rosemarie E. Aquilina presiding), obtained ex parte by the State of Michigan. In a July 6, 2026 correspondence to the parties, the Court clarified that certain trades entered into by Michigan-based users must be “voided, cancelled and refunded.” The Exchange is continuing its best efforts to implement the TRO’s requirements and assess their implications for Kalshi’s operations, market integrity, and the interests of its participants.cftc.gov
- New York sues Kalshi, claims it is ‘illegal gambling operation’cnbc.com
- New York Seeks at Least $36 Billion From Kalshi as CFTC Moves to Block Lawsuit – DeFi Ratedefirate.com