The Commodity Futures Trading Commission (CFTC) has invoked emergency powers to maintain orderly operations in regard to prediction markets. The action followed a formal alert from KalshiEX, LLC regarding an emerging market disruption. The move stems from a lawsuit initiated by New York Attorney General (NYAG) Letitia James. On July 31, her office filed a state court complaint seeking an immediate temporary restraining order that would bar KalshiEX from offering any event contracts across the entire United States.
The filing also demands more than $36 billion in damages.
The decision by the state of New York to challenge prediction markets is emblematic of the ongoing battle between the states, which desire greater regulatory control over these innovative platforms, while federal regulators fear innovation-crushing regulatory fragmentation and a challenge to federal oversight. Federal law assigns the CFTC the responsibility of fostering a consistent nationwide framework for derivatives trading.
Chairman Michael Selig addressed the situation by emphasizing that New York’s approach risks stifling event contract markets through restrictive state gaming statutes before judicial proceedings reach final conclusions. He noted that Congress designed the regulatory structure to avoid a fragmented system of state-level gaming rules governing derivatives platforms. The Commission’s statutory duty requires it to preserve market order, which guided the recent directive.
Multiple states have pursued enforcement efforts targeting CFTC-regulated designated contract markets in both state and federal courts. The agency has initiated legal actions against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin.
Additionally, the CFTC has submitted friend-of-the-court briefs in the US Court of Appeals for the Sixth and Ninth Circuits, as well as before the Supreme Judicial Court of Massachusetts.
In exercising its authority, the CFTC has reaffirmed its role as the primary regulator of U.S. derivatives markets. As the situation evolves, further developments in the New York case and parallel actions in other jurisdictions may clarify the boundaries of federal and state authority in this area. For now, the Commission’s order ensures that KalshiEX continues its operations under the national standards established by Congress.