The Commodity Futures Trading Commission (CFTC) has formally instructed prediction market platform Kalshi to honor event contracts executed by Michigan residents, directly contradicting a state court order that sought to halt sports-related contracts and unwind existing trades. The CFTC’s move, announced Tuesday, deepens a jurisdictional clash between federal and state authorities over the regulation of prediction markets.
Approximately two weeks earlier, a Michigan state court issued a restraining order requiring Kalshi to cease offering sports event contracts and to cancel transactions already made by state residents. Michigan Attorney General Dana Nessel argued that such products violate state gambling laws designed to protect residents from unlicensed operators. “Our gambling laws exist to protect Michiganders from unlicensed, predatory operations, and failing to comply with them carries serious legal consequences,” Nessel stated during the earlier action.
The CFTC rejected the state court’s demand, emphasizing that Kalshi is a registered Designated Contract Market (DCM) operating under the Commodity Exchange Act and federal oversight. Chairman Michael Selig asserted, “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.” He 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 agency warned that reversing completed trades could destabilize market confidence and create a fragmented regulatory environment.
The Michigan case is part of a broader CFTC campaign to preserve its exclusive authority over derivatives markets. The commission has filed lawsuits against nine other states—Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin—that have attempted to impose their own restrictions on prediction platforms. The agency’s goal is to prevent a patchwork of state-level rules that could impair the uniform operation of federally regulated exchanges.
For Kalshi, the CFTC’s backing provides immediate support, allowing the platform to continue processing contracts without voiding trades. The outcome of parallel litigation in federal appeals courts, expected later this year, is likely to define how prediction markets evolve in the United States. If the federal view prevails, registered platforms may gain a clearer path to offering event contracts nationwide; if states gain ground, operators could face restrictive compliance burdens.
