The CFTC steps between Kalshi and a Michigan court

The U.S. Commodity Futures Trading Commission (@CFTC) has stepped directly into a standoff between prediction market platform @Kalshi and a Michigan state court, ordering the company to disregard a local judge's demand that it cancel and refund previously executed customer trades. The move marks a sharp escalation in the running battle between federal derivatives regulators and state authorities over who has the final say on prediction markets.

Federal Authority vs. State Courts

The CFTC's intervention amplifies its legal fight with state governments over what its chairman argues is its unbreakable and exclusive regulatory authority over trading at Kalshi, which it regulates as a designated contract market (DCM). CFTC Chair Mike Selig (@ChairmanSelig) was unambiguous in his response. "The commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations," Selig said in a statement alongside the agency's order.

On July 12, Kalshi submitted a proposed rule to the CFTC providing for the forced liquidation of certain event contracts, following a temporary restraining order entered against Kalshi on June 29 by a Michigan circuit court prohibiting the market from listing, trading, clearing, or settling any contracts that amount to sports bets. The CFTC moved swiftly to block that rule from taking effect, warning that allowing the reversals "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 noted that Michigan is the first state to attempt to interfere in transaction activity directly. The Commodity Exchange Act requires the CFTC to provide a uniform national market in derivatives transactions, and the regulator argued that state courts cannot override that mandate.

Michigan's Gambling Argument and the Wider Stakes

Michigan's position is that Kalshi's products are simply sports bets in disguise. The state's attorney general asserts that Kalshi operates an online platform enabling Michigan residents to engage in sports betting under the guise of trading event contracts, without licensing approval from the Michigan Gaming Control Board, in violation of the state's Lawful Sports Betting Act.

Michigan is far from alone in that view. The CFTC has already filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin in its effort to defend federal jurisdiction. Legal experts say the jurisdictional fight is likely headed to the Supreme Court within the next one to two years.

The outcome will carry consequences well beyond Kalshi alone. On-chain venues such as Polymarket are caught in the same regulatory crossfire. Polymarket filed suit against Michigan Attorney General Dana Nessel one day after Michigan sued Kalshi, making it the tenth state entangled in legal disputes over prediction markets within a single month. For the sector as a whole, the core question remains unanswered: are these federally regulated financial instruments or unlicensed sports wagers? The answer will set the rules for every platform operating in this space.

Sources:
CoinDesk: U.S. CFTC moves to stop Kalshi from canceling trades as ordered by Michigan court
Michigan Attorney General: AG Nessel Secures Order Temporarily Halting Unlawful Kalshi Michigan Operations
The Block: CFTC orders Kalshi to honor Michigan trades, escalating clash with state regulators