The U.S. Commodity Futures Trading Commission stepped directly into the middle of a state court order Tuesday, using its emergency authority to block prediction market platform Kalshi from canceling trades made by Michigan customers — even though a Michigan court had ordered the company to do exactly that.
How the Standoff Started
The dispute traces back to June 29, when a circuit court in Michigan issued a temporary restraining order against KalshiEX LLC at the request of state Attorney General Dana Nessel, barring the company from listing, trading, clearing, or settling any contracts the state considers sports betting. The court later extended that order, directing Kalshi to have certain Michigan users' trades "voided, cancelled and refunded." Nessel defended the action at the time, saying "our gambling laws exist to protect Michiganders from unlicensed, predatory operators."
To comply, Kalshi submitted an emergency rule proposal to the CFTC on July 12 that would have force-liquidated the affected Michigan positions, layered in geofencing controls to block future access, and covered any resulting customer losses out of its own operational funds.
The CFTC's Intervention
Rather than allowing that plan to move forward, the CFTC exercised its emergency authority on July 14 to stay Kalshi's proposed rule, directing the company to instead fulfill the open Michigan trades through its normal settlement process while the agency reviews the matter — a review period that can run up to 90 days and include a public comment window. CFTC Chairman Michael Selig framed the intervention squarely as a jurisdictional matter: "A state cannot force a DCM [designated contract market] to violate its obligations, and federal law does not permit a DCM to discriminate against a state's residents," he said in a statement. "Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market. The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations."
In its formal order, the CFTC went further, warning that Michigan's approach amounted to a "major market disturbance" and that allowing already-executed trades to be unwound "would risk shattering public confidence by giving traders cause to worry that the trades they execute today may be unwound a week — or a year — later."
Why Michigan's Case Is Different From Other State Fights
The Michigan dispute stands out from the CFTC's broader campaign against state-level prediction market restrictions in one key respect: while the agency has filed lawsuits against roughly nine other states — including Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin — seeking to block future enforcement actions, Michigan is the first state to attempt to directly unwind trades that had already been executed and cleared. That distinction is central to the CFTC's argument: the agency isn't just contesting Michigan's underlying authority to restrict sports-related event contracts going forward, but specifically pushing back on the idea that a state court can retroactively void completed federal derivatives transactions.
The Core Legal Question
At the heart of the fight is a jurisdictional dispute that has played out repeatedly across the prediction market industry: whether sports-related event contracts listed on CFTC-registered exchanges are federally regulated derivatives, or whether they're functionally identical to sports wagering, which states have had authority to regulate since the Supreme Court struck down the federal sports betting ban in 2018. The Commodity Exchange Act grants the CFTC what the agency describes as exclusive jurisdiction over swap contracts traded on registered exchange platforms, and Kalshi operates as one such platform — a position the CFTC has consistently pressed as it wages parallel legal battles with numerous states over how prediction markets should be regulated.
What's Next
Notably, the CFTC's Tuesday order does not challenge the underlying Michigan restraining order that continues to bar Kalshi from offering new sports-related contracts to state residents — the agency's intervention is narrowly focused on preventing the retroactive cancellation of trades already made. A Kalshi representative said the company was reviewing the CFTC's order and considering its next steps, while representatives for the Michigan Attorney General's office did not immediately respond to requests for comment. With the CFTC now granted up to 90 days to review Kalshi's proposed rule, and with similar jurisdictional battles playing out in nearly a dozen other states, the standoff is likely to remain a closely watched test case for how far state authorities can go in regulating the fast-growing prediction market industry.