Kalshi can keep operating for now after the Commodity Futures Trading Commission (CFTC) invoked its emergency powers, warning that an effort by New York to restrict the prediction-market exchange could disrupt derivatives markets in the United States and internationally if the platform were forced to shut down.
The CFTC issued its emergency order on August 11 after Kalshi notified the regulator on August 1 that New York’s pending request for a temporary restraining order had created what it described as an imminent market emergency. The order directs Kalshi to continue operating under its normal business practices and the Core Principles of the Commodity Exchange Act while the legal dispute continues.
The latest development comes less than two weeks after New York Attorney General Letitia James filed a lawsuit alleging Kalshi is operating an illegal gambling business by offering contracts tied to sports, elections, culture and other future events without a New York gaming license. The lawsuit seeks a permanent injunction blocking the company from operating in the state, along with restitution, disgorgement of alleged profits, civil penalties and a full accounting of customer activity.
In its request for emergency relief, New York also sought a temporary restraining order preventing Kalshi from offering contracts involving sports, culture, elections and “other events” within or from New York or to people in the state.
According to the CFTC, that wording is so wide-ranging that it would effectively prohibit Kalshi from listing any event contracts because the state did not define or limit what qualifies as “other events.” The regulator also pointed out that New York is seeking Kalshi’s profits from event contracts, a penalty equal to three times those profits and at least $36 billion in compensatory damages, excluding punitive damages and costs. The order also points out that New York’s verified petition referenced Kalshi’s publicly reported $22 billion valuation.
CFTC argues lawsuit risks consequences beyond the prediction market
The commission’s 10-page order lays out why it believes immediate intervention was necessary, arguing that a sudden shutdown would harm Kalshi, its customers and the agency’s authority to regulate federally designated derivatives exchanges.
“Put simply, New York’s lawsuit threatens to prevent a CFTC-registered DCM from offering event contracts to anyone in the world,” the commission said in its order. “That unprecedented assertion of state authority cuts at the very heart of the Commission’s jurisdiction and would have significant adverse ramifications for national and international financial markets.”
The CFTC said Kalshi’s contracts are used to hedge or speculate on events ranging from Federal Reserve interest-rate decisions and cryptocurrency prices to drought conditions, recession risks and shipping traffic through the Strait of Hormuz. Removing access to those contracts, the agency said, could alter the financial risk profiles of market participants across the United States and abroad.
The regulator also warned that an abrupt halt could distort pricing as traders rapidly shift positions to competing exchanges, creating unusual trading activity unrelated to the underlying events. It added that markets could begin pricing in the possibility that individual states could shut down federally regulated exchanges.
Another concern raised by the commission involves forced liquidation. The order describes an arbitrage trader holding a Kalshi position alongside an offsetting position on another platform. If the Kalshi position had to be liquidated unexpectedly, the trader could be left with a one-sided exposure.
“As a result of dynamics of this variety, there may be significant price volatility in derivatives markets and other markets, threatening systemic harm,” the commission said.
CFTC Chairman Michael S. Selig separately criticized New York’s legal strategy.
“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” said Chairman Michael S. Selig. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines.
“They match the bid from a resident of one state with the offer of a resident from another state and submit the trade to a clearinghouse that backstops the transactions of customers throughout the country. New York has no business regulating these interstate financial markets. The Commission is required by law to ensure order in these markets, and that is what we have done today.”
New York escalates pressure on Kalshi
On August 6, state investigators with the New York State Gaming Commission issued document subpoenas to Kalshi Inc. and KalshiEX LLC seeking records related to sports-event contracts, including transactions involving people under the age of 21. According to legal analyst Daniel Wallach, the subpoenas are limited to sports contracts and represent the first known government subpoena directed at Kalshi.
Wallach said the requests seek records concerning Kalshi’s sports offerings, corporate structure and ownership, and suggested they help explain why the company quickly removed New York’s lawsuit to federal court after it was filed on July 31.
The subpoenas require Kalshi to produce the requested records by August 14 as the Gaming Commission continues its investigation.
New York maintains that Kalshi’s products are gambling rather than federally protected financial derivatives and argues the company has ignored state gaming laws despite earlier enforcement efforts, including a cease-and-desist order issued in 2025.
Kalshi removed the case to federal court on the same day the lawsuit was filed. A New York judge later ruled the state’s request for immediate injunctive relief was moot because of the removal, leaving the federal court to determine the next steps while the Gaming Commission’s separate investigation continues.
The CFTC’s August 11 emergency order remains in effect while the litigation proceeds and directs Kalshi to continue performing its exchange functions under its normal practices and the Commodity Exchange Act’s Core Principles.
Featured image: Kalshi / Canva
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