The Commodity Futures Trading Commission has used emergency authority to direct prediction-market operator Kalshi to continue operating under federal rules, intervening after New York Attorney General Letitia James sought to stop the company from offering its markets in the state.
The order gives Kalshi a federal regulatory shield while a dispute over state gambling law and the Commodity Exchange Act moves through the courts. It does not resolve James’ July lawsuit, which alleges that Kalshi has been running an illegal gambling business in New York, but it places the company’s immediate operations under the CFTC’s supervision as the legal fight develops.
According to the CFTC, Kalshi contacted the agency the day after James filed for a temporary restraining order. The company warned that a court order restricting its New York business would create an “imminent market emergency,” prompting the regulator to act.
James’ office has asked the court to halt Kalshi’s operations in New York, require restitution for users, disgorge profits and impose civil penalties. The attorney general’s complaint said the combined penalties could reach at least $36 billion.
New York frames contracts as gambling products
The lawsuit argues that Kalshi’s event-based contracts meet New York’s legal definition of gambling. Kalshi lets users trade contracts tied to the outcome of real-world events, with contracts generally settling at $1 if a defined event occurs and at zero if it does not.
New York contends that this model exposes residents to gambling-related financial risks while operating outside the state’s licensed gaming structure. The complaint also alleges that people under New York’s legal gambling age of 21 could access the platform and that Kalshi avoided taxes applicable to gambling activity.
Kalshi has maintained that its products are federally regulated derivatives rather than gambling wagers. The company is registered with the CFTC as a designated contract market, a status that allows it to list certain event contracts under the federal commodities framework.
The disagreement turns largely on whether a federally regulated event contract can also be restricted under a state’s gambling laws. States argue that prediction markets offering sports-related and other event contracts can resemble unlicensed betting operations. The CFTC and market operators supporting its position argue that state-by-state restrictions could disrupt federally regulated markets whose participants and order books operate across state lines.
CFTC presses claim of exclusive jurisdiction
CFTC Chair Michael Selig has pursued a more assertive federal role in the prediction-market sector, particularly as platforms expand into contracts linked to sports, politics, economic data and other public events.
Over the past year, the agency has brought legal action involving New York, Illinois, Arizona and Connecticut, seeking recognition of what it describes as exclusive federal jurisdiction over federally registered prediction markets. Those disputes have focused heavily on contracts that states and gaming groups view as sports betting by another name.
Selig has also begun a rulemaking process covering the sector. He has said the Commodity Exchange Act provides the CFTC with broad authority over federally registered event-contract venues.
The CFTC’s emergency order reflects that interpretation in practical terms. If a state could quickly block access to a federally regulated exchange through a gambling-law enforcement action, operators could face different rules for identical contracts depending on where a user lives. That would pressure platforms to create state-specific access limits, even before courts fully determine the reach of federal preemption.
New York’s case tests whether the CFTC’s registration of an exchange is enough to displace state gambling restrictions, or whether states retain authority when contracts resemble activities that have traditionally been regulated as wagering.
Sports contracts remain the sharpest point of conflict
The clash has intensified as prediction markets have moved closer to the sports-betting business. Sports wagering is regulated through state licensing systems, and tribal gaming operators have argued that event-contract platforms could undermine agreements, exclusivity provisions and tax structures created under those systems.
Senators and tribal gaming regulators have recently pushed for language in the Clarity Act, a wide-ranging crypto bill, that would preserve state authority over sports betting and prevent prediction markets from expanding further into that area.
That effort connects a market-structure debate with a politically sensitive gaming issue. The Clarity Act is principally associated with digital-asset regulation, yet amendments concerning prediction markets would address a separate question: whether federal commodities law can be used to offer contracts that closely track wagers already regulated at the state level.
Kalshi and Polymarket, two of the most prominent platforms in the sector, have both supported CFTC oversight. Their preference for a federal framework reflects the operational challenge of maintaining nationwide markets under dozens of different state gambling regimes.
A nationally accessible order book can offer deeper liquidity than a fragmented state-by-state system, but that model also makes local regulators more likely to argue that platforms are bypassing rules applied to casinos, sportsbooks and other wagering businesses.
Court rulings could shape access by state
The immediate result of the CFTC order is that Kalshi can continue operating while the New York case proceeds under federal oversight. The agency’s intervention does not erase the attorney general’s allegations or determine whether New York may ultimately enforce its gambling laws against the company.
The outcome could influence how prediction-market platforms handle residents of states that have challenged their services. A court decision favoring New York could increase pressure for geographic restrictions and state licensing. A ruling supporting the CFTC’s position would strengthen the case for a single federal regime governing registered exchanges.
For crypto market participants, the dispute is relevant because event contracts increasingly sit alongside digital-asset products on platforms that market themselves as alternatives to conventional betting or financial trading venues. The legal classification of those contracts will determine which regulator sets the rules, what consumer protections apply and whether platforms can offer a uniform product across the United States.
Kalshi’s dispute with New York now stands as one of the clearest tests of whether federally registered prediction markets can operate nationally when states characterize the same contracts as illegal gambling.
Curious how regulation could reshape prediction markets? Explore future prediction-market shifts and protect yourself from costly errors.
Disclaimer: The content on this page is provided for general informational purposes only and does not represent the views or financial advice of Toobit. We make no guarantees regarding the accuracy or completeness of this information and shall not be held liable for any errors, omissions, or outcomes resulting from its use. Investing in digital assets involves risk; users should independently evaluate their financial situation and the risks involved. For further details, please consult our Terms of Service and Risk Disclosure.
