The Commodity Futures Trading Commission has invoked emergency authority to protect a federally regulated prediction market exchange from a New York state legal challenge.
The CFTC exercised its powers under Section 8a(9) of the Commodity Exchange Act, ordering the exchange to continue operating in line with the Act’s core principles and normal practices.
The action followed notification from the exchange that a lawsuit filed by the New York Attorney General threatened to halt its continued operation across the country.
New York filed its lawsuit on July 31, alleging that the exchange’s event-contract offerings violate state gambling laws and seeking a temporary restraining order against the platform.
The state is pursuing at least $36 billion in damages from Kalshi, accusing the company of running an unlicensed gambling operation within New York.
The CFTC concluded that the requested legal relief represented a genuine market emergency, warning that a shutdown could severely disrupt existing open positions held by traders.
Because Kalshi is headquartered in New York, the Commission determined that the requested restraining order could effectively prevent the exchange from offering event contracts anywhere in the United States.
The regulator also raised concerns about pricing distortions, warning that legal uncertainty could cause traders to factor shutdown risk into contract pricing, thereby impairing price discovery.
The CFTC’s order stated it “agrees that the threat facing Kalshi and the markets that the commission regulates compels the exercise of emergency power and directs Kalshi to continue to operate its exchange in accordance with its normal practices and the Commodity Exchange Act’s core principles.”
CFTC Chairman Michael Selig issued a pointed statement alongside the order, declaring that “New York has no business regulating these interstate financial markets.”
Selig added that “the commission is required by law to ensure order in these markets, and that is what we have done today,” framing the action as a necessary federal intervention.
He argued that Kalshi and similar platforms function as interstate financial exchanges because they match bids and offers from customers across different states and clear transactions centrally.
The use of emergency powers marks a significant escalation in the ongoing federal-state dispute over the regulatory status of prediction markets and event contracts.
Notably, the CFTC had previously exercised its emergency authority only six times, and never since 1980, with prior instances involving physical commodity crises such as grain and silver delivery risks.
Applying the same provision to prevent a state attorney general from enforcing gambling law against a prediction market represents an entirely new application of the regulatory tool.
Firms operating in the event-contract space are being advised to monitor the litigation closely, review contingency plans for potential market disruptions, and update their state-by-state regulatory risk assessments.