The Commodity Futures Trading Commission (CFTC) has taken decisive action to ensure that Kalshi can continue its operations in New York, despite a legal challenge from the state. This intervention comes after New York Attorney General Letitia James sought a temporary restraining order (TRO) that could potentially halt Kalshi's designated contract market (DCM).
In an emergency order issued on August 11, the CFTC expressed concerns that a sudden shutdown of Kalshi would pose a significant threat to its registrants and the broader derivatives market across the nation. The agency emphasized that New York's lawsuit could prevent a CFTC-registered DCM from offering event contracts globally.
The CFTC mandated that Kalshi must continue to operate as an exchange, adhering to the Core Principles set forth in the Commodity Exchange Act (CEA). This legal battle began when New York filed a lawsuit against Kalshi on July 31, claiming that the platform's event contracts fall under the state's gambling laws, thus operating without the necessary sports wagering license.
The lawsuit seeks not only a TRO but also a permanent injunction, restitution, and financial penalties, with the total value of the action estimated at $36 billion, excluding punitive damages and legal fees.
The CFTC warned that the proposed TRO could have far-reaching implications, effectively allowing New York to regulate event contracts across the country. CFTC Chairman Michael Selig stated that New York should not have the authority to oversee these interstate financial markets, asserting the Commission's responsibility to maintain order in the markets.
Additionally, the CFTC noted that a shutdown of Kalshi could lead to the liquidation of open positions and disrupt pricing in the event-contract market.
This marks the second instance in a month where the CFTC has exercised its emergency powers, having previously intervened in a dispute involving Kalshi and Michigan.