The U.S. Commodity Futures Trading Commission (CFTC) has invoked its emergency authority to stop Kalshi from canceling previously executed trades involving Michigan residents, ordering the prediction market operator to honor the contracts instead.
According to an official release, the regulator stayed Kalshi’s emergency rule, which sought to comply with a Michigan court order requiring the exchange to void certain event contracts. The CFTC said forcing the cancellation of completed trades could undermine confidence in regulated derivatives markets and conflict with federal law governing designated contract markets.
Kalshi ordered to honor open Michigan trades
In an order issued on July 14, the CFTC directed Kalshi to fulfill the affected contracts through its normal settlement process while the agency reviews the exchange’s proposed emergency rule.
Kalshi had submitted the rule after a Michigan state court instructed it to cancel and refund certain event contracts involving Michigan residents. The exchange also proposed force-liquidating the positions and covering any resulting losses from its own operational funds.
The CFTC, however, concluded that allowing the rule to take effect could create broader risks for the derivatives market.
Why the CFTC stepped in
According to the agency, unwinding already-executed derivatives contracts could undermine market certainty by raising concerns that completed trades may later be reversed through court action.
CFTC Chairman Michael S. Selig said a state cannot compel a federally regulated designated contract market (DCM) to violate its obligations under the Commodity Exchange Act. He added that canceling completed trades would be unprecedented and could have wider consequences for the functioning of regulated derivatives markets. The agency also argued that federal law grants the CFTC exclusive jurisdiction over swaps traded on registered exchanges such as Kalshi.
How the Michigan dispute began
The dispute stems from a temporary restraining order issued by a Michigan court on June 29, directing Kalshi to stop offering certain event contracts to Michigan residents and later requiring the exchange to void, cancel, and refund specific trades.
To comply, Kalshi notified the CFTC of an emergency and proposed operational changes, including geofencing controls and forced liquidation of affected positions.
Instead of allowing those changes to proceed immediately, the CFTC exercised its authority under the Commodity Exchange Act to stay the emergency rule for further review while directing Kalshi to process the open trades as usual.
Kalshi’s expansion plans continue
The CFTC’s decision comes as Kalshi is also seeking to expand beyond prediction markets. According to a report, the company is in advanced discussions with regulators to launch its perpetual futures contracts for additional asset classes, including metals, foreign exchange, and energy.
Kalshi introduced regulated perpetual crypto futures earlier this year and has since reported $16.1 billion in trading volume for the product. Unlike traditional futures, perpetual contracts do not expire, allowing traders to hold positions indefinitely. The planned expansion remains subject to CFTC approval.
What happens next
The CFTC said the proposed rule raises complex legal and regulatory questions that require additional analysis. Under the agency’s procedures, the stay allows up to 90 days for review, including a public comment period.
The commission also noted that it has challenged enforcement actions brought by several states against CFTC-regulated exchanges, maintaining that regulation of derivatives markets falls under federal authority rather than individual state governments.
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