The Commodity Futures Trading Commission invoked its emergency authority this week to order prediction market operator Kalshi to keep operating in New York, directly overriding a state effort to shut the platform down. The order came after Kalshi notified the CFTC of a market emergency following New York's lawsuit against the company.
The CFTC directed Kalshi to continue normal operations in line with the Commodity Exchange Act's Core Principles, effectively telling New York that federal law, not state gambling statutes, governs the exchange's event contracts. CFTC Chair Michael Selig said Congress did not intend derivatives exchanges to face a "patchwork of state gaming laws," arguing the agency has exclusive jurisdiction over swaps traded on designated contract markets like Kalshi.
A $36 Billion Lawsuit Triggered the Standoff
New York Attorney General Letitia James and Governor Kathy Hochul filed suit against Kalshi on July 31, alleging the company runs an unlicensed gambling business in violation of state law. The CFTC's own account of the dispute confirms New York sought a temporary restraining order barring Kalshi from offering event contracts nationwide, alongside damages the state pegged at more than $36 billion. New York's complaint also demands restitution, disgorgement, penalties equal to three times Kalshi's alleged gains, and $100,000 for every unauthorized sports-wagering offer made to a New York resident.
Part of a Wider, Longer-Running Fight
Wednesday's order is not the first round in this contest. A federal judge denied Kalshi's request for a preliminary injunction against New York on July 7, and Judge Jed Rakoff separately denied the CFTC's own emergency restraining order request back in April. The CFTC has now sued nine states in total, including New York, arguing that federally regulated event contracts cannot be unilaterally reclassified as illegal gambling by state regulators. The friction traces back to Kalshi's 2025 expansion into sports-event contracts, which pulled the platform into gambling regulators' territory for the first time.
Related: SEC Sets August 14 Vote to Propose Its Own Crypto Rules
Jurisdiction, Not Guilt, Is Still Undecided
The emergency order keeps Kalshi's markets live in New York for now, but it does not resolve the underlying jurisdictional question of whether federal derivatives law preempts state gambling statutes — that fight will play out in court over months, not days. For an industry watching prediction markets edge closer to the crypto and traditional finance space, the outcome will help determine how much room federally regulated platforms have to operate in states that classify their products differently.
