CFTC Orders Kalshi to Honor Michigan Trades, Escalating Fight With States Over Prediction Markets
The CFTC has ordered Kalshi to honor certain Michigan trades despite a state court directive to cancel and refund them. The move opens a new front in the federal regulator's fight with states over prediction markets.
The Commodity Futures Trading Commission (CFTC) has ordered Kalshi to fulfill certain trades involving Michigan residents after the prediction market operator sought permission to unwind the positions in compliance with a state court order.
The decision marks the first time the CFTC has used its emergency powers to counteract a state court-driven effort to unwind executed prediction market trades. The move opens a new front in its battle with states over sports event contracts.
On July 12, Kalshi submitted an emergency rule filing that would have forced liquidation of certain positions and refunded affected Michigan customers, in compliance with a state court order. However, the CFTC stayed the proposed rule and directed the exchange to fulfill the trades “in accordance with its normal practices.”
The agency has already sued multiple states over their efforts to regulate or ban federally designated contract markets. The CFTC has also filed amicus briefs supporting exchanges in several cases. The Michigan order marks the first time a state court has sought to unwind already executed prediction market trades.
CFTC Orders Kalshi to Honor Michigan Trades
The dispute stems from a June 29 temporary restraining order issued by the Ingham Circuit Court in Michigan. The order prohibited Kalshi from offering sports contracts in the state. On July 6, the court clarified that certain trades entered into by Michigan residents must be “voided, cancelled and refunded.”
In response, Kalshi proposed an emergency rule that would have forced the liquidation of the affected positions and reimbursed any customers who lost money because of the court-ordered closeout.
The CFTC rejected Kalshi’s filing. In announcing the decision, the Commission said federal law requires it to maintain “a uniform national market in derivatives transactions” and ensure market participants have “impartial access to CFTC-regulated markets.”
CFTC Chairman Michael Selig stated:
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.”
Selig added:
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 chairman further said that the Commission “will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.”
The Commission echoed those concerns in its order. It warned that:
If the Commission were to allow the Emergency Rule to take effect immediately, it 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.”
The agency further argued that “state courts cannot order the unwinding of executed swap transactions, whether it be a single contract or an entire class of trades.” The Commission described the Michigan court’s directive as an “unprecedented order requiring Kalshi to unwind open, previously executed trades.”
Kalshi Says It Was Caught Between State and Federal Orders
Kalshi’s emergency filing paints a different picture.
The exchange said it believed immediate action was necessary to “comply with the Court’s order, maintain orderly markets, protect the interests of all market participants, and preserve the financial integrity of the Exchange.”
According to the filing, the company understood the court’s order to apply only to “sports positions originally matched between Michigan traders and Kalshi Trading LLC.”
Kalshi described those positions as a “minute percentage” of its sports trading volume. The exchange proposed absorbing any losses itself rather than passing them on to customers or other market participants.
The exchange stated:
No other market participant will bear any loss arising from this specific forced liquidation. The Exchange will absorb the entire shortfall.”
However, shortly after the CFTC issued its order, Kalshi Head of Enforcement Robert DeNault said the exchange had already unwound the trades in accordance with the Michigan court’s instructions.
We are disappointed by this decision and believe it is unfair to Kalshi,” DeNault wrote on X. “We already acted and unwound the trades, as the Michigan court order required us to do.”
He added:
We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations.”
Order Opens New Front in CFTC’s Fight With States
The CFTC’s order goes well beyond the Michigan dispute itself. The Commission repeatedly emphasized that states cannot selectively exclude their residents from federally regulated derivatives markets.
Supporters of the Commission’s position argued on X that unwinding trades after execution could create significant market disruptions because every contract has two sides. They noted that canceling one side of a trade could expose the clearinghouse or require unwinding counterparties’ positions.
Others questioned whether the CFTC was effectively directing Kalshi not to comply with a lawful state court order. They argued that the agency appeared to be putting the exchange in an impossible position.
Some observers also noted that the order appears to expand the Commission’s use of “impartial access” principles.
For now, Michigan’s ban on Kalshi’s sports contracts and an Aug. 12 geofencing deadline remain in place. But by invoking its emergency powers and directly intervening in a state court-driven effort to unwind executed trades, the CFTC has opened a new front in its growing conflict with states over the future of prediction markets.
Gambling Insider delivers the latest industry news, in-depth features, and operator reviews that you can trust. Our team combines rigorous editorial standards with decades of specialized expertise to ensure accuracy and fairness. We are committed to delivering clear, impartial, and dependable coverage across the global gambling sector.
