WASHINGTON, July 14, 2026 — The U.S. Commodity Futures Trading Commission has stayed an emergency rule filed by KalshiEX LLC that would have resulted in the forced liquidation of certain previously executed event-contract positions involving Michigan residents. The Commission also exercised its emergency authority to direct the CFTC-regulated exchange to fulfill the affected open trades in accordance with its normal practices.
Kalshi filed the emergency rule on July 12 after a Michigan state court instructed the company to cancel certain previously executed trades involving Michigan residents. Under the proposed rule, the affected positions would have been force-liquidated on Kalshi’s central limit order book at their current market value.
Where the liquidation value was lower than a user’s original cost of entry, Kalshi proposed paying the difference from its operational funds and absorbing the entire shortfall. The exchange told the Commission that the number of affected positions was limited.
Michigan court order
Kalshi’s filing followed a temporary restraining order issued on June 29 by the Circuit Court for Michigan’s 30th Judicial District in Nessel v. KalshiEX LLC. The order prohibited Kalshi from offering or facilitating products constituting internet sports betting under Michigan law to people located in the state or through platforms accessible there.
The court also required Kalshi to use a third-party geolocation provider licensed by the Michigan Gaming Control Board and capable of meeting the board’s technical specifications. According to the CFTC order, Kalshi faced a fine of $120,000 for each day it failed to comply with the geolocation requirements.
After Kalshi sought to dissolve or modify the temporary restraining order, the state court verbally directed the exchange to close out certain trades entered into by Michigan-based users. In correspondence dated July 6, the court clarified that the trades were to be “voided, cancelled and refunded.”
Emergency authority
The CFTC stayed Kalshi’s emergency rule under Commission Regulation 40.6(c)(1). The regulation permits the Commission to stay a rule filed under Regulation 40.6(a) when it presents novel or complex issues or may be inconsistent with the Commodity Exchange Act or CFTC regulations.
The stay initiates a review period of up to 90 days, including a 30-day public comment period. If the Commission objects during that period on the grounds that the rule is inconsistent with the Commodity Exchange Act or CFTC regulations, the rule will not become effective.
Separately, the Commission invoked Section 8a(9) of the Commodity Exchange Act, which authorizes it to direct a registered entity to take action the Commission considers necessary to maintain or restore orderly trading or liquidation when it has reason to believe an emergency exists.
Using that authority, the CFTC directed Kalshi to fulfill the affected open trades in accordance with its normal practices.
Market integrity concerns
The Commission found that the proposed forced liquidation constituted an emergency because it represented what the Commodity Exchange Act describes as a major market disturbance preventing the market from accurately reflecting supply and demand.
According to the order, permitting previously executed derivatives transactions to be unwound could undermine certainty in contracting, distort price discovery and weaken public confidence in regulated derivatives markets. The Commission said traders could otherwise be left uncertain whether transactions executed today might be reversed later.
The CFTC also said the effects could extend beyond the limited number of positions covered by the Michigan court’s instructions. Market participants may hold related contracts, and forced liquidation could produce price volatility, unexpected exposure and additional trading intended to offset positions affected by the cancellations.
The Commission argued that allowing state courts to unwind executed event contracts could also create uncertainty for other CFTC-regulated derivatives, including futures, options and forward contracts. It concluded that simply staying Kalshi’s emergency rule would not fully address the identified market emergency and that the affected trades therefore had to be fulfilled in the normal course.
Federal and state authority
The order also advances the Commission’s position that it has exclusive jurisdiction over swaps traded on designated contract markets such as Kalshi. Event contracts are treated as swaps under the Commodity Exchange Act, according to the order.
CFTC Chairman Michael S. Selig said canceling trades that had already been executed could undermine contractual certainty and create cascading effects across the market. He also said federal law does not permit a designated contract market to discriminate against residents of an individual state.
The Commission noted that it has brought legal actions against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin to defend what it considers its congressionally granted jurisdiction. It has also filed amicus briefs in proceedings before federal appellate courts and the Massachusetts Supreme Judicial Court.
Why it matters
The order represents an unusually direct intervention by the CFTC in the legal conflict between Kalshi and state authorities over sports-related event contracts. Rather than addressing only whether particular contracts may be offered to residents of a state, the action focuses on whether positions already executed on a federally regulated derivatives exchange may subsequently be cancelled.
The order also establishes the Commission’s current position that preserving executed trades is necessary to protect contractual certainty, price discovery and orderly market operations. The underlying litigation in Michigan remains separate from the CFTC proceeding, and the Commission’s conclusions concerning the division of federal and state authority may continue to be contested in court.
