CFTC Invokes Emergency Powers, Orders Kalshi to Keep Operating Amid New York Lawsuit

The Commodity Futures Trading Commission invoked its emergency powers on Tuesday and ordered Kalshi to continue operating normally as the prediction market exchange faces a New York lawsuit that it says could potentially shut down its operations nationwide.

“invoked its emergency powers Tuesday and orderedKalshito continue operating normally”

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The CFTC said it acted after Kalshi notified it that a temporary restraining order sought by New York Attorney General Letitia James threatened the functioning of its federally regulated designated contract market.

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In a 10-page emergency order, the Commission formally found that New York’s enforcement action and TRO request constitute a "major market disturbance" under the Commodity Exchange Act and directed Kalshi to continue performing its exchange functions under its normal practices and the CEA’s Core Principles.

CFTC Chairman Michael Selig said, "Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws," framing the dispute as a federal jurisdiction issue over derivatives traded on designated contract markets.

The CFTC order notes that the case could be delayed by remand proceedings over whether it should return to state court, but said the possibility of a sudden shutdown still justified immediate emergency action.

New York is seeking to bar Kalshi from offering various event contracts "within or from New York," language the CFTC says could effectively prevent the New York-based exchange from offering contracts anywhere.

The CFTC said the wording goes well beyond sports contracts, because New York did not define or limit "other events," and the Commission interpreted the request as an attempt to prohibit Kalshi from offering all event contracts.

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In the state case filed on July 31, New York sought a temporary restraining order and at least $36 billion in compensatory damages, and Kalshi removed the case to federal court the same day it was filed.

Kalshi warned that a TRO could shut down the exchange completely, require refunds and disgorgement from completed trades, and expose traders to losses and broader market disruptions.

The CFTC’s order states, "Put simply, New York’s lawsuit threatens to prevent a CFTC-registered DCM from offering event contracts to anyone in the world," while also directing Kalshi to "continue to perform its functions as an exchange" under the Commodity Exchange Act’s Core Principles.

The CFTC said shutting Kalshi down could immediately redirect trading activity to competing exchanges and force the liquidation of existing positions, including a scenario described as an arbitrage trader holding a position on Kalshi with an offsetting position elsewhere.

“The Commission concluded that threshold had been met.”

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The Commission also warned that traders could perceive Kalshi contracts as carrying additional legal risk if New York can force the exchange to cease operations, creating what it called a "risk premium" on Kalshi markets and potentially producing inter-exchange arbitrage based on regulatory exposure rather than developments related to the underlying event.

While the emergency directive does not itself dismiss New York’s case or prevent a court from considering the state’s requested relief, it places Kalshi in an unusual position because New York is seeking an order that could force the exchange to stop operating while the federal regulator has directed it to continue.

The CFTC order gives the example that a court order aimed at one exchange could alter prices, liquidity and hedges across other venues before the underlying legal dispute is resolved, turning a jurisdictional lawsuit into a market-structure question.

The dispute remains unresolved over whether the Commodity Exchange Act preempts state gambling enforcement, with the CFTC continuing to argue it has exclusive jurisdiction over derivatives traded on designated contract markets while New York frames Kalshi’s products as subject to state gambling laws.