CFTC Asserts Federal Supremacy, Blocks Michigan’s Bid to Cancel Prediction Market Trades

The regulatory tug-of-war between the U.S. Commodity Futures Trading Commission (CFTC) and various state governments over the oversight of prediction markets has reached a critical juncture. In a decisive move, the CFTC recently issued a formal order prohibiting Kalshi, a CFTC-regulated trading platform, from complying with a Michigan state court’s demand to revoke specific completed customer transactions. The Commission unequivocally stated that state courts lack the authority to compel federally regulated entities to violate the Commodity Exchange Act (CEA).

This action marks the CFTC’s direct intervention in the legal clash between Kalshi and the State of Michigan, vigorously defending the federal government’s exclusive jurisdiction over prediction markets. CFTC Chairman Mike Selig underscored the Commission’s resolve:

“The Commission will never allow state governments or state courts to coerce registered entities into violating the Commodity Exchange Act and CFTC regulations.”

Selig emphasized that Kalshi operates as a CFTC-approved Designated Contract Market (DCM), meaning its trading activities are subject solely to federal statutes. Since assuming his role, Chairman Selig has consistently championed the growth of prediction markets, advocating for a more accommodating regulatory environment while repeatedly asserting the CFTC’s sole jurisdiction, thereby precluding state-level intervention.

Escalating Federal-State Regulatory Clashes

In recent years, numerous U.S. state governments have challenged the legality of “event contracts” offered by prediction markets, categorizing them as illegal gambling. This stance has led to demands for platforms like Kalshi to cease operations, resulting in state-imposed bans or penalties. In response, the CFTC has initiated legal proceedings against several of these states.

However, Michigan’s recent actions represent an unprecedented escalation. It is the first state government to attempt direct interference with already executed market transactions. Chairman Selig highlighted the profound implications of such a move:

“Demanding the cancellation of already executed transactions is an unprecedented move that could not only have ripple effects across the entire market but also undermine ‘contractual certainty,’ which is an essential component for maintaining the normal functioning of markets.”

Kalshi’s Urgent Appeal and CFTC’s Firm Stance

The dispute originated in June when a Michigan circuit court, acting on a request from the state’s attorney general, issued an order compelling Kalshi to halt its online sports event prediction contract offerings within the state. Subsequently, the court escalated its demands, requiring Kalshi to “void, cancel, and refund” all completed transactions for certain Michigan users.

Faced with this extraordinary court order, Kalshi promptly filed an emergency application with the CFTC on July 2nd, seeking clarity on whether it should comply with the state court’s directive. The CFTC’s final ruling instructed Kalshi to stand firm, asserting that setting a precedent for revoking executed transactions “would undoubtedly undermine public confidence and throw traders into a panic, fearing that transactions executed today might be inexplicably revoked a week or a year later.” This strong position reinforces the CFTC’s commitment to protecting the integrity and stability of federally regulated markets.