CFTC flexes emergency authority to keep Kalshi operating amid New York lawsuit

The Commodity Futures Trading Commission flexed its emergency authority and ordered Kalshi to keep operating after the prediction market platform was sued last month in New York.

On Tuesday, the CFTC said Kalshi should keep operating under its rules, marking CFTC Chair Michael Selig's latest move to assert jurisdiction over the ever-expanding prediction markets.

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

In July, New York Attorney General Letitia James sued Kalshi, alleging it was operating an illegal gambling business. She requested a temporary restraining order to stop the company from operating in New York, along with restitution for users, disgorgement of profits, and civil penalties that could total at least $36 billion.

The New York Attorney General argued that prediction markets meet the legal definition of gambling and alleged that Kalshi has exposed New York residents — including individuals under the state’s legal gambling age of 21 — to “serious personal and financial risk.” The lawsuit also alleges that Kalshi has avoided paying applicable taxes.

The next day, according to the CFTC, Kalshi contacted the agency and warned that an “imminent market emergency” would occur if a temporary restraining order were issued.

The New York Attorney General's office did not immediately respond to a request for comment. 

Financial exchanges depend on liquidity, a Kalshi spokesperson said in an emailed statement, pointing to Nasdaq. 

"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.”

Over the past year, the CFTC has sued New York, Illinois, Arizona, Connecticut and others in a push to get "exclusive jurisdiction" over federally-registered prediction markets, particularly when it comes to sports betting. 

Chair Selig has also launched a rulemaking process and has maintained that the CFTC’s statutory authority is broad enough to regulate the prediction market industry, even as some states object that these platforms violate state gaming and gambling laws — especially those covering sports betting.

Meanwhile, prediction market platforms such as Polymarket and Kalshi have seen rapid growth in popularity and reached multibillion-dollar valuations. Both companies have supported CFTC oversight of their businesses.

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More recently, senators and tribal gaming regulators have renewed efforts to add language to the Clarity Act, a broad crypto bill,  that would preserve states’ authority over sports betting and prevent prediction markets from encroaching on that jurisdiction.

Updated at 10:45 p.m. UTC to include comments from Kalshi