Key Takeaways:
The CFTC ordered Kalshi to ignore a Michigan court ruling that would have forced the prediction market platform to void trades, escalating a federal-state conflict over who controls event contracts.
The Commodity Futures Trading Commission on Tuesday ordered Kalshi to disregard a Michigan court order requiring the platform to void and refund trades by state residents, asserting exclusive federal authority over the regulated exchange.
"The commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations," CFTC Chairman Mike Selig said in a statement accompanying the order.
A Michigan county circuit court in June ordered Kalshi to cease offering sports wagers in the state and unwind existing trades, a request the state's attorney general, Dana Nessel, said was necessary to enforce gambling laws. Kalshi submitted an emergency request to the CFTC on July 2 seeking guidance on how to respond. The agency's order blocks the company from complying, arguing that canceling executed trades "risks a cascading effect on the entire marketplace."
The dispute is the first time a state has attempted to force a federally regulated exchange to reverse completed transactions, the CFTC said. The agency has sued nine states — including Arizona, New York and Wisconsin — to defend its jurisdiction over prediction markets, a fight that will determine whether platforms like Kalshi can operate under a single federal rulebook or face state-by-state restrictions.
Contract Certainty at Stake
The CFTC's strongest objection centered on Michigan's demand to unwind trades that had already been executed. Contract certainty — the principle that trades executed under a regulated venue's rules will not be reversed — is fundamental to exchange-based markets, the agency said.
"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," Selig said.
The CFTC's order said allowing the reversals "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."
Broader Regulatory Battle
Michigan is one of several states where the CFTC is defending its authority over prediction markets. The agency has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin to block state-level enforcement actions against event contract platforms.
Michigan Attorney General Dana Nessel previously said the state's gambling laws "exist to protect Michiganders from unlicensed, predatory operations." A Kalshi representative said the company was reviewing the CFTC's order and considering its next steps.
The CLARITY Act, which would create a comprehensive regulatory framework for digital assets, is pending in the Senate with an Aug. 7 deadline before the next recess. Selig has urged passage, warning that without it, regulators would be "writing all the rules" without bipartisan approval.
For prediction market platforms, the CFTC's intervention removes a major legal overhang by protecting the finality of settlement on federally regulated exchanges. If the agency's view prevails, platforms registered as designated contract markets could offer event contracts nationally under a single set of rules. If states win more ground, platforms may have to restrict access by jurisdiction, fragmenting liquidity and product availability across the U.S.
This article is for informational purposes only and does not constitute investment advice.
