CFTC Emergency Order Aids Kalshi in New York Appeal

_{The CFTC's emergency order allows prediction market Kalshi to continue operations in New York. (Photo: JHVEPhoto / Alamy)}

The Commodity Futures Trading Commission (CFTC) exercised its emergency authority on Tuesday to order Kalshi to continue operating “in accordance with the Commodity Exchange Act’s Core Principles,” an order made in response to New York’s lawsuit against the prediction market filed on July 31.

The CFTC order was immediately seized upon by Kalshi in a filing with the Second Circuit Court of Appeals on Wednesday, where the company sought to use the order as a shield to prevent New York from obtaining a temporary restraining order that would stop Kalshi from offering at least some of its event markets.

Kalshi: Federal Order Leads to ‘Irreconcilable Conflict’

The extraordinary turn of events came after the Second Circuit earlier denied Kalshi’s request for an injunction in late July. That allowed New York Attorney General Letitia James to file a lawsuit against Kalshi on July 31, a complaint that sought not only to shut down Kalshi in the state but impose financial penalties against the company, including recovery of profits earned in New York.

Kalshi then told CFTC Chairman Michael Selig – currently the only member of the commission – that the New York lawsuit could cause a market emergency by forcing it out of a major market. That seemingly led Selig to invoke the agency’s emergency powers on Tuesday.

“The CEA requires the Commission to provide a uniform national market in derivatives transactions,” Selic wrote in the order. “As part of this obligation, the CFTC ensures public confidence in its markets by safeguarding market resilience and orderliness. The Commission is also tasked with providing competitive, fair, and efficient markets that protect the price discovery process of trading in the centralized derivatives markets. Major market disruptions hamper these efforts.”

The move allowed Kalshi to argue to the Second Circuit that it was now facing conflicting orders from state and federal officials, with the federal order taking precedence.

“The Order highlights the irreconcilable conflict between federal and state law,” Kalshi attorney Will Havemann said in a letter to the Second Circuit Court of Appeals. “Pursuant to federal law, it orders Kalshi not to follow a state-court order.”

Selig Blasts ‘Iron Curtain’ of New York Gaming Laws

While the CFTC hasn’t said it made its emergency order specifically to help Kalshi in its legal battles, comments by Selig certainly appeared to suggest that was the motive.

“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” Selig said in a statement. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines…The Commission is required by law to ensure order in these markets, and that is what we have done today.”

The CFTC has been friendly to prediction markets under the Trump administration,interjecting itself on their behalf in court cases across the country. While courts have differed in their rulings on whether state regulations apply to prediction markets, state officials have received a couple of key wins in federal courts in recent days, with both Utah and Connecticut receiving rulings that give the states the green light to enforce their state gaming regulations against prediction markets.