The Commodity Futures Trading Commission has directed Kalshi to complete pending trades that the prediction market operator had previously unwound after a Michigan state court order. This move has left Kalshi arguing that it is now trapped between conflicting legal demands from state and federal authorities.
The agency has stayed a Kalshi rule change and used its emergency authority to require the exchange to honor the affected trades. This decision effectively reverses Kalshi's earlier response to the Michigan court order and has prompted the company to express its concerns about being forced into an impossible position.
Kalshi has sharply criticized the regulator's action, stating that it was forced to reverse the trades due to a Michigan court order. The company's Head of Enforcement and Legal Counsel expressed disappointment with the decision, saying that Kalshi acted in compliance with the Michigan court's directive.
The company claims that the CFTC's order has left it caught between state and federal authorities, with conflicting obligations to follow state court orders and federal regulatory requirements. Kalshi maintains that it did not have a choice but to unwind the trades, and that the federal directive now conflicts with its obligations during the state court proceedings.
The dispute grows out of a lawsuit filed by the Michigan Attorney General, who alleges that Kalshi is operating an unlicensed sports betting business in the state under the appearance of a federally regulated prediction market. The complaint argues that Michigan residents can buy contracts tied to sporting events without approval from the Michigan Gaming Control Board, violating state gambling laws.
Michigan has argued that sports-based event contracts function as gambling, while Kalshi has consistently maintained that its products are financial instruments governed by federal commodities law rather than state gaming rules. A recent federal judge's ruling sent the case back to Michigan state court, clearing the way for Michigan's request for a preliminary injunction to continue.
The CFTC Chairman has stated that a state cannot force a designated contract market to violate its obligations, and that federal law does not permit a designated contract market to discriminate against a state's residents. The Commission has emphasized that it will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.
