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Key Takeaways
- The CFTC stayed Kalshi’s emergency rule to void Michigan trades, ordering normal settlement instead after a state court demanded the trades be canceled.
- CFTC Chairman Michael Selig called the jurisdictional fight “existential” and said the agency would defend its authority up to the Supreme Court if necessary.
- The dispute is part of a broader CFTC effort against nine other states over jurisdiction on registered prediction market platforms.
The Commodity Futures Trading Commission moved on July 14 to stop Kalshi from canceling prediction market trades held by Michigan residents, staying an emergency rule the exchange had filed to comply with a state court order. The action deepens a legal standoff over whether the CFTC or individual states hold jurisdiction over prediction markets, and follows similar disputes the agency has pursued against nine other states.
How The Dispute Reached The CFTC
The conflict began June 29, when Ingham County Circuit Court Judge Rosemarie Aquilina issued a temporary restraining order barring Kalshi from offering sports-related event contracts to Michigan residents and requiring the exchange to use a state-licensed geolocation provider, under threat of a $120,000 daily fine for noncompliance. Michigan Attorney General Dana Nessel’s office had argued that Kalshi’s sports contracts amounted to unlicensed gambling under state law.
After Kalshi asked the court to dissolve or modify the order, Aquilina verbally directed the exchange to close out certain Michigan customer positions. A July 6 communication clarified that the affected trades had to be voided, canceled and refunded. Kalshi filed an emergency rule petition with the CFTC proposing to comply through geofencing and forced liquidation, covering any resulting customer losses from its own funds. Rather than approving that plan, the CFTC stayed the rule and ordered Kalshi to process the trades through normal settlement instead.
At a July 13 hearing, Aquilina extended her order and gave Kalshi until August 12 to implement state-compliant geofencing, with fines of $500,000 per day beginning August 13 if it fails to do so. Kalshi now faces an August 12 deadline from the state court and a separate directive from its federal regulator.
CFTC Chairman Defends Federal Authority
CFTC Chairman Michael Selig said in a press release that a state cannot force a designated contract market to violate its obligations under federal law, and that federal rules bar registered exchanges from discriminating against customers based on their state of residence.
“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.
Selig added that the Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.
Speaking separately at an industry event the same day, Selig described the jurisdictional fight as “existential” for the CFTC and said the agency would defend its authority over prediction markets up to the Supreme Court if necessary, framing the dispute as a broader test of whether states can override federal derivatives law.
Kalshi Says It Is Caught Between Conflicting Orders
Robert DeNault, Kalshi’s head of enforcement and legal counsel, said in a statement on X that the company was disappointed with the CFTC’s decision and considered it unfair. He noted that Kalshi had already unwound the affected trades to comply with the Michigan court’s order before the federal directive arrived.
“We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations,” DeNault wrote. “We did not have a choice.”
A Kalshi spokesperson said separately that the company was reviewing the CFTC’s order and weighing its next steps. Representatives for the Michigan Attorney General’s office did not immediately respond to requests for comment cited in coverage of the dispute.
A Fight Spreading Well Beyond Michigan
The CFTC said Michigan is the first state to attempt to interfere directly with already-executed derivatives transactions, distinguishing it from other states’ enforcement efforts that focus on whether Kalshi can offer sports contracts at all. The agency has also filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin as part of its broader effort to defend what it describes as Congress’s grant of exclusive federal jurisdiction over registered derivatives exchanges.
Kalshi, a CFTC-registered designated contract market, has continued expanding its product lineup even as the legal disputes play out. The company has reported $16.1 billion in trading volume on its regulated perpetual crypto futures product since launching it earlier this year and is reportedly in talks to extend the perpetual futures format to metals, foreign exchange and energy contracts. How the Michigan dispute is resolved could shape whether states retain any enforcement leverage over federally registered prediction market platforms going forward.
