The Commodity Futures Trading Commission (CFTC) ordered Kalshi to keep running its exchange after finding that New York’s attempt to stop the platform presented a market emergency. The commission cited a hypothetical bitcoin position to argue that forced liquidation could spread losses well beyond prediction markets. Its premise, that the contracts are swaps, was rejected by a federal judge days earlier.
Key Takeaways
CFTC ordered Kalshi to keep operating after its Aug. 1 market-emergency notice.The order says forced liquidation of a bitcoin position could trigger other unwinds.A Connecticut judge rejected the swaps premise in a ruling docketed a day earlier.The commission said New York’s enforcement action amounted to a “major market disturbance,” calling the threat of a sudden shutdown “existential” for regulated markets, traders, and its own jurisdiction. Because Kalshi is headquartered in New York, the CFTC said a ban on operating “within or from” the state could stop the exchange from serving anyone, anywhere.
The commission also warned that shutdown risk would price a premium into every event contract, and a further premium into those listed by a New York exchange, creating arbitrage driven by enforcement risk rather than the events being traded. If New York could use gambling law to ban these products, it argued, it could target any CFTC-regulated derivative, futures included.
“We already acted and unwound the trades, as the Michigan court order required us to do. We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations. We did not have a choice.”
Aquilina’s order also set a geofencing deadline that falls today, Aug. 12, carrying fines of $500,000 a day from tomorrow. The Aug. 11 order settles none of New York’s eight claims, and the commission conceded the case has moved to federal court, where remand fights may drag. Gambling attorney Daniel Wallach has noted that the expected Tenth Circuit appeal in the Utah case would put prediction markets before seven of the 13 federal appellate circuits, the kind of spread that typically produces a split ripe for Supreme Court review.
