The CFTC invoked emergency powers unused since a 1980 Soviet grain embargo to keep Kalshi operating in New York despite the state’s gambling lawsuit.
When the Commodity Futures Trading Commission stepped in to keep Kalshi running in New York this week, it wasn’t just another regulatory skirmish. According to the agency’s own former general counsel, it’s the first time the CFTC has invoked this specific emergency authority in 46 years, dating back to President Carter’s grain embargo against the Soviet Union. The stakes are high on both sides: Kalshi and Polymarket posted a combined record $50.6 billion in trading volume in July alone, and neither the CFTC nor the states involved show any sign of backing down.
Key Takeaways
- The CFTC ordered Kalshi to keep operating in New York, calling any shutdown a threat to national derivatives markets
- It’s only the second time in a month the agency has used emergency authority to protect Kalshi, after a similar move in Michigan in July
- The CFTC has now sued nine states over their attempts to regulate prediction markets as gambling
What Happened
New York Attorney General Letitia James sued Kalshi on July 31, alleging the platform has been operating unlicensed sports betting and seeking a temporary restraining order along with more than $36 billion in penalties and other financial relief. According to the CFTC, Kalshi contacted the agency the following day warning that a shutdown in New York, where the company is headquartered, would trigger a broader market emergency.
The CFTC’s order, issued Tuesday under its statutory emergency powers, directs Kalshi to keep functioning as an exchange under normal rules regardless of the state lawsuit. The agency argued that allowing a single state to shut down a federally registered exchange would create an “existential threat” to its own regulatory jurisdiction, and warned that if New York’s case proceeds, “a single State will effectively become the nationwide regulator of event-contract swaps.” CFTC Chairman Michael Selig put it more bluntly in a statement: “New York has no business regulating these interstate financial markets.”
A Rarely Used Power, Twice in a Month
The CFTC used this same emergency authority in mid-July to override a Michigan state court order that had demanded Kalshi cancel trades placed by Michigan customers, the first time the agency had ever stepped in to block a state from unwinding trades on a federally regulated exchange. Robert Schwartz, the CFTC’s former general counsel, noted on social media that the agency’s last use of this specific authority was in 1980, when President Carter invoked it in connection with the grain embargo against the Soviet Union following the invasion of Afghanistan.
Notably, the Michigan intervention came after a court order had already taken effect, making Kalshi’s compliance largely a formality by the time the CFTC weighed in. Tuesday’s New York order is different: it arrived before any restraining order had been issued, based on the CFTC’s own assessment that the threat of enforcement alone qualified as an emergency.
The Broader Legal Map
New York is far from the only front in this fight. The CFTC has now filed lawsuits against nine states, including Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin, arguing that prediction markets are federally regulated derivatives that fall outside state gambling law entirely. That fight has also reached Congress: senators have reportedly discussed adding language to the pending Clarity Act, a broader digital asset bill, that would explicitly preserve state authority over sports betting and wall prediction markets out of that space, a move that could undercut the CFTC’s position if it becomes law.
Kalshi isn’t the only operator fighting this battle in the same courthouse. Novig, a smaller sports-only prediction market, took the opposite approach days earlier, suing four states pre-emptively rather than waiting to be sued, see Novig Sues Four States in First Week as Prediction Market Operator.
New York, for its part, isn’t backing down. Governor Kathy Hochul said in the state’s original lawsuit that Kalshi “has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules.” The state’s suit specifically raised concerns about underage users, noting that New York’s legal gambling age is 21, three years higher than Kalshi’s own minimum age requirement.
What’s Next
The CFTC’s order is only subject to review by a federal appeals court, a notably high bar compared to challenging a typical agency decision. Meanwhile, motions over whether New York’s case belongs in state or federal court remain pending, and the underlying question, whether prediction markets are financial products beyond state reach or gambling products subject to state licensing, still hasn’t been resolved by any court. With litigation now spanning nine states, that answer may ultimately need to come from a federal appeals court or the Supreme Court rather than any single lawsuit.