Two CFTC orders involving Kalshi in four weeks account for one-third of the regulator's six documented uses of emergency market powers, a review by The Coinformer found.
The Commodity Futures Trading Commission on Tuesday declared New York's lawsuit against Kalshi a market emergency and ordered the prediction market platform to continue operating normally.
- Kalshi had asked the regulator to intervene after New York Attorney General Letitia James sought a temporary restraining order against the company.
- The commission said a sudden shutdown could force the liquidation of open positions, divert trading to other exchanges and distort event-contract prices.
- It directed Kalshi to continue performing its exchange functions under the Commodity Exchange Act.
The action came exactly 28 days after the CFTC used the same emergency authority to intervene in a separate dispute between Kalshi and Michigan.
Two Kalshi orders follow four earlier interventions
Before the two Kalshi orders, the CFTC had used the authority only four times since the agency was established in 1974.
- Then-Commissioner Dan Berkovitz said in a 2020 statement that all four interventions occurred between 1976 and 1980.
- Legal experts told Bloomberg Law that the July Kalshi order marked the first use of the power since 1980.
The regulator's last intervention before Kalshi followed President Jimmy Carter's embargo on agricultural exports to the Soviet Union. In January 1980, the CFTC suspended futures trading in wheat, corn, oats, soybean meal and soybean oil for two days.
The Kalshi orders mark a departure from those earlier responses to disruptions in commodity markets. In both cases, the CFTC classified state legal action against a regulated exchange as a threat to orderly trading.
- Michigan's dispute involved a state court order requiring Kalshi to cancel certain trades involving residents.
- The CFTC stayed an emergency rule that Kalshi proposed to comply with the ruling and instead ordered the exchange to fulfill the trades normally.
- The New York order goes further by directing Kalshi to keep operating before the state court has ruled on its request to stop the company.
New York seeks to stop Kalshi's operations
New York sued Kalshi on July 31, alleging that its contracts tied to sports, elections, culture and other events amount to illegal gambling offered without a state license.
The state asked the court to prevent Kalshi from offering the contracts "within or from New York or to persons in New York."
- Because Kalshi is headquartered in New York, the CFTC said the proposed restriction would effectively stop the exchange from offering any event contracts nationwide.
- The regulator's order also says New York is seeking at least $36 billion in compensatory damages, excluding punitive damages and costs.
CFTC Chair Michael Selig said Congress didn't intend federally regulated derivatives exchanges to face a "patchwork of state gaming laws."
- The Commodity Exchange Act allows the commission to issue emergency directions when it believes a major market disturbance threatens orderly trading.
- The authority can be used to suspend trading, change margin or position requirements and order the liquidation of contracts.
Tuesday's order doesn't dismiss New York's lawsuit or decide whether federal derivatives law overrides state gambling rules.
Earlier, a federal judge denied Kalshi's request to block New York's enforcement efforts in July. Kalshi subsequently moved the state's lawsuit to federal court, where New York is seeking to have it returned to state court.
The CFTC has now ordered Kalshi to continue operating, but the courts have yet to determine whether New York can force it to stop.