CFTC orders Kalshi to honor Michigan trades over state ban
The federal derivatives regulator is intervening to block a state court order forcing the prediction market to unwind trades, escalating a legal battle over who controls the sector.
The Commodity Futures Trading Commission on Tuesday ordered prediction market Kalshi to honor trades placed by Michigan residents. The federal directive directly contradicts a recent state court ruling.
Roughly two weeks ago, a Michigan court issued a 14-day restraining order compelling Kalshi to halt its sports-related event contracts and unwind existing positions. The state effectively classifies these prediction markets as unlicensed online gambling operations rather than regulated financial derivatives.
CFTC Chairman Michael Selig pushed back against the state's intervention, framing it as a threat to federal market integrity. "A state cannot force a [Designated Contract Market] to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents," Selig stated. "The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations," he added.
For investors and market operators, the dispute centers on fundamental legal certainty. Selig warned that canceling executed trades 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." If states can successfully force platforms to void settled contracts, the operational and counterparty risk for federally registered exchanges would increase dramatically.
The confrontation represents the sharpest front in a wider jurisdictional war over the prediction sector. "Our gambling laws exist to protect Michiganders from unlicensed, predatory operations, and failing to comply with them carries serious legal consequences," Michigan Attorney General Dana Nessel said when the state order was issued.
The CFTC maintains that Congress granted it exclusive oversight over Kalshi as a registered Designated Contract Market operating under the Commodity Exchange Act. While Michigan is the first state to attempt to directly unwind transactions from a DCM, the federal regulator has already filed lawsuits against nine other states to protect its congressional mandate. Those states are Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin.
The ultimate resolution of this federal-versus-state dispute will dictate whether prediction markets can operate under a unified national regulatory framework. Otherwise, the industry faces a fragmented, state-by-state compliance burden that could limit its institutional growth.
