CFTC Orders Kalshi to Honor Trades a Michigan Court Told It to Cancel

The U.S. Commodity Futures Trading Commission ordered KalshiEX, LLC to fulfill trades that a Michigan state court had directed the prediction-market operator to cancel, escalating a fight over whether states can reach into federally regulated derivatives venues.

In Release Number 9267-26, dated July 14, the CFTC said it stayed an emergency rule change that KalshiEX had proposed in response to a Michigan court order directing the company to cancel certain previously executed trades involving Michigan residents. The agency said it also exercised its emergency authority to order KalshiEX to fulfill the open trades in accordance with its normal practices.

Kalshi operates as a designated contract market, or DCM, under CFTC oversight. The order pits the federal derivatives regulator against a state court that had told the exchange to unwind wagers.

"A state cannot force a DCM to violate its obligations, and federal law does not permit a DCM to discriminate against a state's residents," Chairman Michael S. Selig said in the release. "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. The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations."

The CFTC described Michigan as the first state to attempt to interfere directly with executed derivatives transactions. The agency said it has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin to protect the jurisdiction Congress granted it, and has filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts.

The Michigan dispute is part of a broader jurisdictional fight over prediction markets. The CFTC has sued Kentucky and New Mexico to assert exclusive authority over the sector, while the DOJ and CFTC have moved to block Arizona's enforcement action against Kalshi.

The outcome of the Michigan standoff bears on where the line falls between federal derivatives regulation and state gambling law for the prediction-market sector.