A regulatory clash has intensified after the U.S. Commodity Futures Trading Commission instructed prediction market Kalshi to continue operating in Michigan despite a state court order banning sports event contracts. Kalshi says it faces conflicting legal directives and has already unwound trades to comply with the Michigan ruling. The CFTC argues federal law overrides state action and has sued nine states to defend its jurisdiction. The dispute could set a precedent for how prediction markets are regulated nationwide.
The Kalshi rule controversy escalated after the CFTC told the platform to keep working in Michigan despite a state court ban. On June 29, Ingham County Circuit Court Judge Rosemarie Aquilina issued an injunction prohibiting Kalshi from offering sports event contracts to Michigan customers until legal issues are resolved.
Kalshi stated it complied by cancelling and unwinding those trades. But the CFTC told the firm not to follow the Michigan ruling and to continue operations.
Robert DeNault, Kalshi’s head of enforcement and legal counsel, said on X: “We are disappointed by this decision and believe it is unfair to Kalshi. We already acted and unwound the trades, as the Michigan court order required us to do. We are being put in an impossible position, looking to follow state court orders that may contradict our federal…” The firm now faces demands from both the state court and the federal regulator.
The CFTC stated Michigan was the first state to intervene in existing derivatives contracts. Michael Selig, CFTC chairman, argued that contract cancellations could undermine market confidence.
Selig added that the CFTC will not allow states to force registered exchanges to violate the Commodity Exchange Act. He sees federal supremacy as essential in the Kalshi rule case.
A Kalshi spokesperson said the firm is evaluating the CFTC’s order. On Fox Business, Michael Selig stated that defending jurisdictional control over prediction markets is a top priority.
The CFTC has initiated lawsuits against nine states and will pursue any other state that tries to bring civil or criminal cases against CFTC-registered exchanges. The Kalshi rule case may establish an important precedent for regulation of prediction markets in the U.S.
