Securities Regulation Daily Wrap Up, BLOCKCHAIN—S.D.N.Y.: CFTC directs Kalshi to defy N.Y. lawsuit, citing the CEA, (Aug 12, 2026)

By Suzanne Cosgrove

The Commission said it exercised its emergency authority when ordering KalshiEX LLC to continue operating despite a pending court ruling.

The CFTC has stepped up its defense of KalshiEX LLC and prediction markets generally, ordering Kalashi to continue trading even if the exchange receives a temporary restraining order (TRO) directing it to stop operating as an unlicensed business in New York (New York v. KalshiEx, No. 1:26-cv-06550-VSB (S.D.N.Y. July 31, 2026)).

The CFTC maintains that since Kalshi operates as a designated market (DCM), and lists CFTC-regulated event contracts for trading as swaps as defined by the Commodity Exchange Act, the agency has exclusive jurisdiction over Kalshi and its transactions.

Emergency claims. The CFTC’s order, dated August 11, follows its receipt of a notification of a market emergency the exchange sent to the Commission on August 1. The notice was a response to the State of New York’s pending July 31 motion for a temporary restraining order that would prohibit Kalshi from offering event contracts in New York (U.S. v. New York). Kalshi states the restraining order would risk the DCM’s ability to comply with Core Principles 2, 4, 6, 7, 9, 11, 12, and 21.

Under the CEA, DCMs and swap execution facilities (SEFs) must comply with specific Core Principles to ensure market integrity.

“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” said CFTC Chairman Michael Selig. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws,” he said. “These are financial exchanges that offer financial instruments and operate across state lines.” Selig added: “New York has no business regulating these interstate financial markets.”

Lawsuit’s details. As reported previously, the state of New York filed a lawsuit alleging KalshiEX LLC’s “prediction market,” which allows individuals to bet on the future outcome of sports and other events, is in fact an unlicensed gambling operation.

Kalshi accepts wagers from members of the public “in flagrant disregard” of New York’s State Constitution, penal laws, and other statutes, without a license from the New York State Gaming Commission in any capacity, the filing states.

The case was originally filed by New York’s attorney general in the Supreme Court of the State of New York, but it was moved to the United States District Court for the Southern District of New York on the same day.

Specifically, in the filing’s Prayer for Relief, Letitia James, attorney general of the State of New York, asked the court to issue an order and judgment against Kalshi, permanently enjoining the exchange and its principals, agents, and employees from operating an unlawful gambling business, or otherwise advancing gambling activity, or profiting from gambling activity, within or from New York or to persons in New York, without being licensed by the New York State Gaming Commission.

The lawsuit also asked the court to permanently enjoin Kalshi from permitting wagering by individuals under the age of 21 in connection with any contract on events, and advertising, promoting, marketing, or soliciting participation in its markets in college and university-owned news assets, such as school newspapers, radio, or telecasts. Although the CFTC states in its release that New York “seeks a temporary restraining order prohibiting KalshiEX, LLC from offering all event contracts nationwide, “the New York lawsuit is mainly focused on concerns about Kalshi’s lack of state licensing.

In its July 31 filing, the state noted Kalshi has reported a $22 billion valuation of its gambling business and an annualized transaction volume of $178 billion, “but the respondent seeks to avoid the legal and financial consequences of New York’s close regulation of gambling by offering what is quintessentially wagering under the guise of ‘event contracts’ on a ‘prediction market.”’

The rule of law. “This is not the first time the CFTC has directed Kalshi to violate a court order, “commented Benjamin Schiffrin, director of Securities Policy for Better Markets. “It did so after a Michigan state court ordered Kalshi to void, cancel, and refund some bets. The CFTC is now directing Kalshi to violate the orders of a federal court,” he added. “Its cheerleading for prediction markets truly knows no bounds.”

The CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin to assert its exclusive federal jurisdiction over DCMs that trade event contracts. The Commission has also filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts.

Companies: Kalshi EX LLC

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