CFTC orders Kalshi to honor Michigan trades, escalating clash with state regulators

The Commodity Futures Trading Commission ordered Kalshi on Tuesday to honor trades involving Michigan residents despite the state's attempt to force the prediction markets platform to cancel them.

About two weeks ago, a Michigan state court ordered Kalshi to stop offering sports-related event contracts and to unwind certain existing trades.

"A state cannot force a [Designated Contract Market] to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents," CFTC Chairman Michael Selig said Tuesday in a statement. "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 CFTC's move is the latest development in a broader battle between federal regulators and states over who has authority to oversee prediction markets, particularly sports-related event contracts. Kalshi is a registered DCM regulated by the CFTC and the Commodity Exchange Act. Several states, including Michigan, have pushed back, essentially arguing that prediction markets platforms are providing venues for online gambling. 

At the time of Michigan hitting Kalshi with a 14-day restraining order, Michigan Attorney General Dana Nessel said, "Our gambling laws exist to protect Michiganders from unlicensed, predatory operations, and failing to comply with them carries serious legal consequences." 

"The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations," Selig said Tuesday.

The CFTC added that although Michigan was the first state that tried to interfere directly with transactions from a DCM, the regulator has also filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin in an effort to protect the jurisdiction it says it has been granted by Congress, according to Tuesday's statement.