The U.S. Commodity Futures Trading Commission (CFTC) has mandated that the prediction market platform Kalshi cancel trades made by users in Michigan. This decision has sparked a new conflict between federal regulators and state authorities regarding the oversight of sports-related event contracts.
This issue arose following a June ruling from a Michigan circuit court, which instructed Kalshi to cease offering sports-related event contracts to state residents. The Michigan attorney general contended that the platform was breaching state gaming regulations. Consequently, the court ordered the cancellation and refund of specific customer transactions.
In response, Kalshi filed an emergency request with the CFTC on July 2, seeking clarification on how to adhere to the court's ruling. The federal agency responded by putting a hold on Kalshi's emergency rule request, arguing that following the state court's order would conflict with the Commodity Exchange Act and the regulations governing federally recognized contract markets.
CFTC Chairman Mike Selig stated, “A state cannot compel a registered contract market to breach its obligations.” He emphasized that the Commission would not permit states or state courts to intimidate registered entities into violating the Commodity Exchange Act and CFTC regulations.
The CFTC noted that Michigan is the first state attempting to directly interfere with transactions that have already taken place on a federally regulated exchange.
Selig cautioned that reversing completed trades could have significant repercussions for financial markets. He remarked, “Canceling trades that have already been executed is an unprecedented action that risks triggering a domino effect across the entire marketplace and undermines the certainty in contracting, which is essential for a functioning market.”
Furthermore, the CFTC's order indicated that permitting such reversals could severely damage public trust, as it would lead traders to worry that their executed trades could be undone at any time.
This case highlights the ongoing tension between federal regulators and numerous states that are trying to prevent prediction market operators from offering sports-related event contracts. The CFTC asserts that it holds exclusive authority to oversee federally registered exchanges like Kalshi.
Additionally, the agency has initiated legal actions against several states that have attempted to obstruct or penalize prediction market businesses, claiming they amount to illegal gambling. States facing lawsuits from the CFTC include Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The Commission has also submitted amicus briefs to the U.S. Court of Appeals for the Sixth and Ninth Circuits, as well as the Supreme Judicial Court of Massachusetts.