WASHINGTON, August 11, 2026 — The Commodity Futures Trading Commission invoked its emergency authority and ordered KalshiEX LLC to continue operating its exchange under normal practices and the Commodity Exchange Act’s Core Principles, escalating a jurisdictional dispute over New York’s attempt to apply state gambling laws to the federally regulated prediction-market operator.
The CFTC acted after Kalshi, a designated contract market, notified the Commission of what it said would be an imminent market emergency if New York obtained a temporary restraining order against the company. The Commission concluded that the threat posed by the state’s enforcement action justified the use of its emergency powers.
New York Attorney General Letitia James filed a complaint against Kalshi on July 31 alleging that its operations violate state gambling laws. The state also sought a temporary restraining order that would prohibit Kalshi from operating a business offering contracts tied to sports, culture, elections and other events “within or from New York or to persons in New York,” according to the CFTC order.
The CFTC said the requested relief would effectively prevent New York-headquartered Kalshi from offering event contracts to anyone, including customers outside the state. New York is also seeking disgorgement of profits associated with Kalshi’s event-contract business, a penalty equal to three times its profits and at least $36 billion in compensatory damages pending an accounting, according to the order.
Federal derivatives jurisdiction at the center of the dispute
The Commission based its action on Section 8a(9) of the Commodity Exchange Act, which allows it to direct a registered entity to take action it considers necessary when it has reason to believe an emergency exists. The CFTC found that New York’s enforcement action and request for a temporary restraining order constituted an emergency because they posed what the Commission characterized as a major market disturbance capable of interfering with the supply-and-demand forces reflected in event-contract markets.
Kalshi was designated as a CFTC-regulated contract market in November 2020. The Commission said event contracts traded on the exchange fall within its exclusive jurisdiction under the CEA and argued that allowing a single state to prevent a federally regulated exchange from offering them could effectively give that state nationwide authority over such derivatives, contrary to the federal regulatory structure established by Congress.
“Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws,” CFTC Chairman Michael S. Selig said in a statement accompanying the order.
The dispute is part of a broader conflict between the Commission and states seeking to apply gambling laws to event contracts offered by federally regulated designated contract markets. The CFTC said it has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin to defend what it views as the jurisdiction granted to it by Congress, and has also filed amicus briefs in the U.S. Courts of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts.
Market disruption concerns extend beyond event contracts
The Commission’s order also outlines potential consequences for market participants if Kalshi were forced to halt operations. According to the CFTC, a shutdown could shift trading activity abruptly to other exchanges, distort event-contract prices and require the liquidation of open positions, with potential effects extending into other markets when traders use event contracts as part of broader trading or risk-management strategies.
The order specifically cites cryptocurrency markets as an example. The CFTC said a crypto asset trader could hold a Kalshi position tied to the price of Bitcoin at the end of 2026 and make subsequent trading decisions in Bitcoin or other assets based partly on that position. If the Kalshi position were forcibly liquidated, the Commission said the trader could be required to unwind other positions.
The CFTC also described a scenario in which an arbitrageur holds a position on Kalshi and an opposite position on another trading platform. Liquidating the Kalshi position could leave the trader with unintended one-way exposure, a dynamic the Commission said could contribute to significant price volatility in derivatives and other markets and threaten systemic harm.
The Commission further argued that the implications of New York’s enforcement efforts are not limited to event contracts. In the CFTC’s view, if state gambling laws could be used to prohibit federally regulated event contracts, similar reasoning could potentially be applied to other derivatives products under its jurisdiction.
Kalshi operations under the CFTC emergency order
The CFTC ultimately directed Kalshi to continue performing its exchange functions in accordance with its normal practices and the CEA’s Core Principles. The Commission said exercising its emergency authority would give market participants assurance that a CFTC-registered designated contract market could not be shut down by a single state and that executed trades would continue to be cleared and fulfilled.
The action follows another use of the Commission’s emergency authority involving Kalshi in July. In that case, the CFTC stayed an emergency rule filed by the exchange and directed Kalshi to fulfill open trades involving Michigan residents after a state court ordered restrictions affecting certain event contracts.
Why it matters
The order marks a significant escalation in the widening dispute over whether states can use gambling laws to restrict event contracts offered by federally regulated derivatives exchanges. Rather than limiting its response to litigation or court filings, the CFTC has used its statutory emergency authority to direct Kalshi to continue operating while asserting that disruption of the exchange could interfere with federally regulated markets.
The Commission’s discussion of Bitcoin positions also illustrates how it views event-contract markets as potentially connected with trading activity elsewhere in the financial system. By linking forced liquidation of event contracts to possible adjustments in crypto and other positions, the order frames the federal-state jurisdictional dispute not only as a question of prediction-market regulation, but also as one with potential consequences for broader derivatives and trading activity.
