The Commodity Futures Trading Commission (CFTC) has instructed Kalshi to continue offering sports event contracts in Michigan, defying a court order that sought to block such activities. This directive represents a significant escalation in the ongoing conflict between federal authorities and state regulations surrounding prediction markets.
On June 29, a Michigan court issued a temporary restraining order (TRO) against Kalshi, banning the company from providing its sports event contracts, arguing that this constituted unlicensed sports betting. The court's initial ban was set for 14 days but was subsequently prolonged, mandating Kalshi to geofence the state and cease access to its sports contracts by August 12.
Under this ruling, Kalshi must also void, cancel, and refund specific trades made by users in Michigan. The court had warned of a potential daily fine of $120,000 for non-compliance, which could escalate to $500,000 if the geofencing requirement is not met by the specified deadline.
Initially, Kalshi appeared willing to comply. On July 12, the company filed an emergency rule proposal with the CFTC, signaling its intent to “force-liquidate” trades made by select Michigan users. However, on Tuesday, the CFTC rejected this emergency request, opting to exercise its authority to require Kalshi to maintain those trades despite the state court's injunction.
CFTC Chairman Michael Selig stated, “A state cannot force a DCM [designated contract marker] to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents.” He added that cancelling executed trades would have harmful implications for market stability and contracting reliability.
This episode represents a continuation of the CFTC’s assertive approach to defending prediction market platforms’ rights across several states, including Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The agency has also submitted amicus briefs to federal courts, arguing that its regulatory scope over sports event contracts overrides state gaming laws.
However, this marks the first occurrence of the CFTC overruling one of its own registrants' attempts to comply with state directives. The agency views this action as crucial, especially since Michigan is the first state to try to directly interfere with completed derivatives transactions.
Kalshi's leadership has expressed concern over this escalation, with Robert DeNault, the company’s Head of Enforcement, commenting on X that Kalshi feels it is caught in an untenable situation. He expressed disappointment regarding the CFTC's decision, emphasizing that the company had already taken steps to comply with the Michigan court's orders but was now facing conflicting obligations from both state and federal authorities. Kalshi is currently reviewing the CFTC’s order to determine its next steps.
