The Commodity Futures Trading Commission has invoked its emergency authority to order Kalshi to continue operating, acting on Tuesday after the exchange itself notified the agency of a market emergency.

The order directs KalshiEX to keep functioning in accordance with the Commodity Exchange Act's core principles, the federal standards governing designated contract markets—exchanges registered with the CFTC that are authorized to list derivative products. That DCM registration is the legal foundation both the agency and the exchange now rely on: it permits Kalshi to offer event contracts, derivative instruments whose payouts settle based on the outcome of real-world events including elections, economic data releases, and sporting events. Kalshi filed its emergency notification following a lawsuit brought by New York Attorney General Letitia James in state court on July 31, which seeks a restraining order to halt the platform from offering event contracts nationwide and demands more than $36 billion in damages.

CFTC Chairman Michael Selig characterized New York's action as an attempt to destroy the market before judges can issue rulings, stating that the state wanted event contract derivatives to "waste away under its iron curtain of state gaming laws" ahead of any final judicial determination.

Selig argued that exchanges matching a bid in one state against an offer in another, then clearing the trade centrally, constitute interstate financial venues rather than gambling operations. "New York has no business regulating these interstate financial markets," he said, adding that Congress never intended derivatives exchanges to be subject to a patchwork of state gaming laws.

Washington Versus the States

The CFTC says it has now sued nine states over their attempts to police event contracts, and has filed amicus briefs in the Sixth and Ninth Circuits as well as before the Supreme Judicial Court of Massachusetts. The spread of state-level enforcement actions reflects the rapid growth of prediction markets, which has drawn increasing scrutiny from state gaming regulators who view the contracts as unlicensed gambling rather than federally overseen derivatives.

That tally has grown throughout the year, spanning Illinois, Arizona, Connecticut, Wisconsin, and Minnesota—the latter sued within hours of its ban taking effect. President Donald Trump has directly backed the agency, describing state officials who oppose prediction markets as "SCUM."

Kalshi has encountered greater difficulty in court than the CFTC. A judge in the Southern District of New York denied the exchange a preliminary injunction against the state gaming regulator on July 7 and again refused protection pending appeal on July 27. Michigan restrained Kalshi's sports markets in June, and Washington secured a preliminary injunction in July. These setbacks came alongside victories in the Third Circuit over New Jersey and in Minnesota.

James' petition treats Kalshi as an unlicensed gambling business across eight counts, seeking treble damages and $100,000 for each sports wagering offer. The filing cites the exchange's own figures, placing its valuation at $22 billion and its annualized trading volume at $178 billion.