CFTC Uses Emergency Powers to Allow Kalshi to Continue Operating in New York, Predicting Market Federalism Conflict to Escalate

August 12, the U.S. Commodity Futures Trading Commission (CFTC) announced that it has invoked emergency powers to direct the prediction market platform Kalshi to continue its operations in New York State, directly challenging the New York State government's attempt to shut down the platform through litigation. New York State Attorney General Letitia James filed a lawsuit against Kalshi at the end of July, accusing it of offering sports-related prediction markets in violation of state law, and alleging that the platform operated without a license and evaded tax payments. Previously, a federal judge had rejected Kalshi's request to block the New York State lawsuit.

CFTC Chairman Mike Selig made it clear that Congress did not intend for derivative trading platforms to be subject to piecemeal state regulations, as prediction markets are considered federally regulated swap products that operate in interstate financial markets, where New York State has no authority to intervene with its state laws. Selig criticized New York State's attempt to stifle event contract derivatives before a final court ruling.

This conflict has further intensified the long-standing power struggle between the federal government and states over regulatory authority in the prediction market sector. States argue that at least sports-related prediction markets should be regulated by state law, while the CFTC maintains its position of comprehensive jurisdiction.