Key Insights:
- Kalshi faced conflicting federal and Michigan compliance orders.
- The CFTC blocked the cancellation of executed sports contracts.
- The dispute widened the jurisdictional fight in the prediction market.
Kalshi said conflicting federal and Michigan orders placed the exchange in an “impossible position” after the Commodity Futures Trading Commission blocked it from canceling trades that a Michigan court had ordered unwound.
The conflict could determine whether states can require federally regulated prediction markets to void executed contracts, a question that reaches beyond Kalshi’s Michigan operations.
Kalshi Rule Change Blocked by Federal Regulator
The Commodity Futures Trading Commission stayed the exchange’s emergency rule amendment on July 14. The agency also ordered it to fulfill open trades through normal procedures.
Chair Michael Selig said Michigan could not force a designated contract market to breach federal obligations. He argued federal law prohibited registered exchanges from discriminating against one state’s residents.
Selig warned that canceling completed trades could damage contractual certainty across derivatives markets. He said the commission would defend the Commodity Exchange Act and its regulations.
Company legal counsel Robert DeNault said the platform had already unwound affected trades. He said the Michigan order required that action before the federal regulator intervened.
DeNault described the resulting conflict as unfair and said the platform lacked another practical option. Reuters reported that the company was reviewing the federal order and considering further action.
CFTC News Deepens Conflict With Michigan Court
Ingham County Circuit Court Judge Rosemarie Aquilina issued a temporary restraining order on June 29. The order barred sports-event contracts for users located within Michigan.
Aquilina also required a state-licensed third-party geolocation provider. Her order threatened a $120,000 daily fine for noncompliance with those restrictions.
Michigan Attorney General Dana Nessel sought the order after alleging violations of state gaming law. Michigan treated the contracts as sports wagering offered without required local authorization.
The platform argued that its contracts fell under exclusive federal derivatives oversight. It relied on its registration as a designated contract market.
The Commission’s official registry showed the designation took effect on Nov. 3, 2020. Regulators approved intermediated futures trading through an amended designation order in January 2025.
That status supported the platform’s federal preemption argument. Michigan’s case instead centered on gambling controls, consumer safeguards, and state licensing authority.
Federal Preemption Mechanism Faces Court Test
The Commodity Exchange Act grants federal jurisdiction over commodity derivatives transactions. The Commission said that framework supported uniform national markets and impartial access.
Its July 14 action relied on two regulatory mechanisms. First, it stayed the proposed emergency rule responding to Michigan’s court order.
Second, regulators invoked emergency authority requiring fulfillment of open trades. That intervention directly opposed the state court’s cancellation requirement.
The Commission said Michigan became the first state to interfere with completed derivatives transactions. It distinguished that conduct from lawsuits restricting future contract offerings.
In February, regulators filed an appellate brief supporting exclusive federal authority over prediction markets. That filing concerned Nevada but advanced the same preemption theory.
The federal position remained contested. Reuters reported that nearly two dozen states and Native American tribes sought sports-contract restrictions.
CFTC News Signals Wider Industry Exposure
The conflict extended beyond one platform or state. The Commission said it had sued nine states over registered prediction exchanges.
Those cases involved Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. Regulators also filed appellate briefs in other state disputes.
The fight also carried implications for crypto-linked derivatives venues. Several federally registered platforms offer event-based or digital asset contracts.
Coinbase Derivatives and Crypto.com operate designated contract markets under the same federal framework. The Commission’s registry also listed Polymarket US as a designated market.
The dispute could affect how these venues enforce state access restrictions. Courts may also decide whether states can alter completed federally regulated transactions.
However, the July order did not resolve the underlying preemption dispute. Separate courts continued reviewing whether state gambling laws applied to sports-linked event contracts.
The next milestone will be Kalshi’s response to the federal directive and any further action by the Michigan court. The broader preemption dispute will continue through separate state and federal proceedings.
