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The Commodity Futures Trading Commission has ordered Kalshi to continue operating its exchange after New York sought an injunction that the regulator says could shut down the prediction market from its Manhattan headquarters. The August 11 order invokes the CFTC’s statutory emergency authority under the Commodity Exchange Act.
The action follows a July intervention in Michigan, where the CFTC used the same emergency authority to require Kalshi to fulfill already executed trades. The New York order goes further by directing Kalshi to continue performing its functions as an exchange while the state’s case proceeds.
Section 8a(9) Gives CFTC Emergency Authority Over Kalshi
The CFTC relied on Section 8a(9) of the Commodity Exchange Act, which allows the commission to direct a registered entity to take action it considers necessary to maintain or restore orderly trading when it has reason to believe an emergency exists.
Kalshi notified the regulator on August 1 that New York’s pending temporary restraining order threatened its ability to comply with multiple designated contract market core principles.
The CFTC determined that the threatened shutdown constituted a major market disturbance and could disrupt price discovery, force liquidation of open positions and shift trading abruptly to other exchanges. It ordered Kalshi to continue operating under its normal practices and the Commodity Exchange Act’s core principles.
New York Seeks at Least $36B in Compensatory Damages
Attorney General Letitia James sued Kalshi on July 31, alleging that the company operates an illegal, unlicensed gambling business in New York. The state is seeking injunctive relief, restitution, disgorgement, damages, and penalties.
The proposed temporary restraining order would bar Kalshi from operating a business offering contracts on sports, culture, elections and other events “within or from New York or to persons in New York.” Because Kalshi’s principal place of business is in New York, the CFTC says that language could effectively prevent the exchange from offering event contracts anywhere.
The CFTC order says New York is seeking at least $36 billion in compensatory damages pending an accounting, separate from disgorgement and additional penalties.
July Michigan Order Forced Kalshi to Honor Executed Trades
The CFTC previously invoked Section 8a(9) in July after a Michigan court required Kalshi to cancel certain already executed trades involving state residents. The commission instead ordered Kalshi to fulfill those positions under its normal practices.
The August 11 order does not resolve whether federal derivatives law preempts New York gambling law. A federal court in New York rejected Kalshi’s preliminary preemption arguments in July, while courts in other jurisdictions have reached differing conclusions.
For now, Kalshi remains operational under the CFTC emergency order while the New York litigation proceeds.
