CFTC Emergency Order Blocks NY Bid to Shut Kalshi

The Commodity Futures Trading Commission used its emergency authority Tuesday to order prediction market Kalshi to keep operating under federal rules, escalating a dispute with New York over who regulates federally registered event-contract markets.

The intervention followed a lawsuit filed in July by New York Attorney General Letitia James. Her office accused Kalshi of running an illegal gambling business in the state and sought a temporary restraining order that would stop the company from serving New York users. The state also demanded restitution, disgorgement of profits and civil penalties that could total at least $36 billion.

Kalshi contacted the CFTC the next day and warned that granting the restraining order could create an “imminent market emergency.” The federal regulator has now directed the platform to stay open, relying on its authority over derivatives markets.

“New York has no business regulating these interstate financial markets,” CFTC Chair Michael Selig said. “The Commission is required by law to ensure order in these markets, and that is what we have done today.”

New York argues that contracts allowing users to bet on event outcomes meet the state’s legal definition of gambling. The attorney general also alleged that Kalshi exposed New York residents, including people below the state’s legal gambling age of 21, to “serious personal and financial risk.” The lawsuit further claims the company avoided taxes that would apply to regulated gambling businesses.

Kalshi rejects that classification. A company spokesperson compared shutting the platform in one state with restricting access to a national securities exchange. “If Nasdaq shut down in New York: liquidity would dry up, prices would spike, and trading stocks and other instruments would become harder–sometimes impossible–for people everywhere across the country,” the spokesperson said. “That’s why financial markets are regulated at the federal level.”

The dispute is testing whether federally regulated prediction markets can operate nationwide under one CFTC framework or must also comply with separate state gambling laws. The outcome could determine how easily platforms like Kalshi and Polymarket scale across the U.S.

Selig has argued repeatedly that the CFTC has broad statutory authority over these markets. Over the past year, the agency has taken legal action involving New York, Illinois, Arizona, Connecticut and other jurisdictions as it seeks exclusive federal control, particularly for contracts linked to sporting events.

The CFTC is also working on new rules for prediction markets, giving the dispute consequences beyond Kalshi’s New York operations. If federal courts accept the agency’s interpretation, state gambling regulators could have limited ability to block event contracts offered through federally registered exchanges.

A ruling in favor of the states could create a more fragmented system. Prediction platforms might have to determine separately whether contracts are permitted in each jurisdiction, potentially restricting products, excluding users or obtaining additional approvals.

That distinction matters most for sports contracts. States already regulate sports betting through licensing systems that generate tax revenue and impose local consumer protection requirements. Prediction markets argue that event contracts traded on federal exchanges are derivatives rather than conventional sportsbook wagers.

The jurisdiction battle is also moving into Congress. Senators and tribal gaming regulators have renewed efforts to add provisions to the Digital Asset Market Clarity Act that would preserve state authority over sports betting and prevent prediction markets from moving into areas traditionally controlled by state gaming regulators.

Such language could narrow the CFTC’s ability to treat all event contracts as federally regulated financial products. Without congressional intervention, courts may have to define the boundary between federal derivatives law and state gambling rules through the growing number of lawsuits involving prediction platforms.

The stakes have increased as Kalshi, Polymarket and other prediction markets attract more users, trading activity and investment. Both Kalshi and Polymarket have supported federal oversight, which offers the prospect of operating through a single regulatory framework rather than dealing with dozens of separate state regimes.

The CFTC order gives Kalshi immediate protection against a sudden shutdown in New York. The underlying lawsuit remains unresolved. Until courts or Congress answer the question of whether federal registration can shield prediction markets from state gambling enforcement, every new state challenge could become another test of how far the CFTC’s authority extends.