The US Commodity Futures Trading Commission (CFTC) invoked its emergency authority on Tuesday, ordering prediction market platform Kalshi to maintain normal operations despite New York state's legal efforts to shut it down.

The federal derivatives regulator determined that New York's enforcement action and its request for a temporary restraining order constituted, in themselves, a market emergency. The CFTC directed Kalshi to continue operating in accordance with its established practices and the Core Principles of the Commodity Exchange Act.

New York's proposed temporary restraining order would prohibit Kalshi from offering contracts tied to sports, culture, elections, and other events in or from New York, or to residents of the state. The CFTC warned that such an order could effectively bar Kalshi from offering any event contracts nationwide, given that the company is headquartered in New York. According to the commission, New York is seeking at least $36 billion in compensatory damages, pending an accounting.

The CFTC emphasized that the Commodity Exchange Act obligates the commission to maintain a uniform national derivatives market, and that significant disruptions threaten orderly trading and price discovery. CFTC Chair Michael Selig stated that Congress did not intend for derivatives exchanges to navigate a "patchwork of state gaming laws."

The clash is part of a wider national dispute over whether the Commodity Exchange Act preempts state gambling laws when applied to event contracts traded on federally regulated exchanges. The outcome could shape the operating environment for the broader prediction market industry, which has expanded rapidly as platforms like Kalshi, Polymarket, and PredictIt have attracted users seeking to wager on outcomes ranging from elections to economic indicators.

CFTC Challenges State Oversight of Prediction Markets

In a lawsuit filed on July 31, New York alleges that Kalshi operates an illegal, unlicensed gambling business by offering contracts tied to sports, elections, culture, and other events. The state is pursuing restitution, disgorgement, damages, and penalties, including a penalty equal to three times Kalshi's alleged gains and $100,000 for each unauthorized sports wagering offer or attempt within New York.

Kalshi maintains that states lack the authority to shut down a federally licensed exchange. The CFTC, for its part, argues that the Commodity Exchange Act grants it exclusive jurisdiction over transactions involving swaps traded on designated contract markets, which includes the event contracts that Kalshi lists as swaps.

In a separate New York case, a federal judge denied Kalshi's request for a preliminary injunction on July 7, finding at that stage that New York gambling laws were not preempted by the Commodity Exchange Act as applied to Kalshi's sports-event contracts.

In another federal proceeding, the CFTC sued New York in April to prevent the state from applying its gambling laws to CFTC-registered contract markets. Judge Jed Rakoff denied without prejudice the agency's emergency request for a temporary restraining order, concluding that the CFTC had not demonstrated a high likelihood of success on the merits or a likelihood of irreparable harm.

The CFTC's latest order directs Kalshi to continue operating but does not terminate New York's lawsuit or resolve the underlying jurisdictional dispute. It is not a judicial determination on whether federal law preempts state gambling enforcement. The competing rulings and ongoing litigation suggest the question may ultimately require appellate review or congressional clarification.

The conflict extends beyond New York. The CFTC stated that it has sued eight other states, in addition to New York, to defend its congressionally granted jurisdiction.