Securities Regulation Daily Wrap Up, EXCHANGES AND MARKET REGULATION—CFTC stays KalshiEX rule change, exercises emergency authority to order fulfillment of open trades, (Jul 15, 2026)

By Suzanne Cosgrove

The Commission instructed the exchange to defy a Michigan state court’s order, the latest volley in a contest with various states over its preemptive authority over event contracts.

The CFTC on Tuesday exercised its authority to stay an emergency rule change proposed by KalshiEX, LLC, pushing back against a Michigan state court order directing the company to cancel certain previously executed trades involving Michigan residents. The CFTC also exercised its emergency authority to order Kalshi, a designated contract market registered with the CFTC, to fulfill the open trades in accordance with its normal practices.

“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,” said CFTC Chairman Michael Selig in a release.

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

Provocative action. Weighing in on the Commission’s move, Benjamin Schiffrin, director of securities policy for Better Markets, a nonprofit think tank, said “the CFTC reached a new milestone in its campaign to unleash nationwide gambling in contravention of state and tribal law by directing Kalshi to not comply with an order issued by a Michigan state court.

“The court’s order prevented Kalshi from offering event contracts on sporting events to Michigan residents after finding relief necessary to prevent ‘Michigan and its most vulnerable citizens... from being exploited by Kalshi’s sports betting operation masquerading as an investment opportunity,’” Schiffrin said, citing the court’s TRO.

“In March, the CFTC saw no problem with voiding bets when it permitted Kalshi to reimburse users for any bets, fees, or losses from an event contract on whether [Iran’s] Ayatollah Ali Khamenei would be ‘out’ by April 1,” he noted. “This came after public and trader backlash on the existence and marketing of the ‘death market’ and its resolution to ‘no’ by Kalshi after the Ayatollah’s assassination.

“Here, however, the CFTC says that similarly reimbursing users in Michigan who used Kalshi to bet on sports would lead to a market emergency.”

Background. According to the CFTC’s order, on July 12, 2026, KalshiEX LLC submitted notification to the CFTC of its adoption of an emergency rule providing for the forced liquidation of certain previously executed event contracts involving Michigan residents.

Kalshi’s action followed the issuance of a temporary restraining order (TRO) entered against Kalshi on June 29, 2026, by a Michigan circuit court. The order prohibited Kalshi from, among other things, “[o]ffering, listing, matching, executing, clearing, settling or otherwise facilitating any contract, instrument, or product that constitutes internet sports betting.”

The order also required Kalshi to “utilize a third-party geolocation services provider licensed by the State of Michigan Gaming Control Board capable of ensuring compliance with the geofencing specifications of the Michigan Gaming Control Board Technical Bulletin No. 2024-03.” The court ordered Kalshi fined $120,000 per day it failed to comply with its geolocation requirements.

After Kalshi filed a motion to dissolve or modify the TRO, the court issued a verbal modification requiring Kalshi to close out certain trades entered into by Kalshi traders located in Michigan. The court clarified in a July 6, 2026, correspondence that the trades must be “voided, cancelled and refunded.”

“Emergency” authority. In its order, the Commission noted Regulation 40.1 defines “emergency” as used in Regulation 40.6(a)(6) as “any occurrence or circumstance that, in the opinion of the governing board of a registered entity... requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of or delivery pursuant to, any... swaps or transactions or the timely collection and payment of funds in connection with clearing and settlement by a derivatives clearing organization.”

The agency added that Section 8a(9) of the CEA provides that whenever the Commission “has reason to believe that an emergency exists,” the Commission may “direct [a] registered entity … to take such action as in the Commission’s judgment is necessary to maintain or restore orderly trading in or liquidation of any futures contract.”

Mounting lawsuits. The Commission noted Michigan is the first state to try to intervene directly in executed derivatives transactions, but other states have attempted to bring enforcement actions against DCMs related to event contracts.

For its part, the CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin, arguing that the states' actions against federally regulated prediction and event markets are preempted by federal law.

MainStory: TopStory Blockchain CFTCNews ExchangesMarketRegulation