The U.S. Commodity Futures Trading Commission (CFTC) has ordered prediction market platform Kalshi not to cancel trades placed by Michigan users, setting up a fresh clash between federal regulators and state authorities over the regulation of sports-related event contracts.
The dispute follows a Michigan circuit court order issued in June directing Kalshi to stop offering sports-related event contracts to residents of the state after the Michigan attorney general argued the company was violating state gaming laws. The court also ordered certain customer transactions to be voided, cancelled and refunded.
Kalshi submitted an emergency request to the CFTC on July 2 seeking guidance on complying with the court order. The federal regulator responded by staying the company’s emergency rule application, arguing that complying with the state court’s directive would conflict with the Commodity Exchange Act and regulations governing federally designated contract markets.
A state cannot force a registered contract market “to violate its obligations,” CFTC Chairman Mike Selig said in a statement. “The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations,” Selig added.
According to the CFTC, Michigan is the first state to attempt to directly interfere with transactions that have already been executed on a federally regulated exchange.
Selig warned that reversing completed trades could have broader consequences for financial markets.
“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,” he said.
The CFTC’s order also stated that allowing the reversals “would risk shattering public confidence by giving traders cause to worry that the trades they execute today may be unwound a week — or a year — later.”
The case marks the latest confrontation between federal regulators and nearly two dozen states seeking to block prediction market operators from offering sports-related event contracts, with the CFTC maintaining that it has exclusive authority to regulate federally registered exchanges such as Kalshi.
The agency has also filed lawsuits against several states that have sought to halt or penalize prediction market businesses on the grounds that they constitute illegal gambling.
The list of states the CFTC has filed lawsuits against includes Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The Commission has also filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts.