The ongoing fight over prediction markets between U.S. federal derivatives regulators and various states has spread to New York, where the U.S. Commodity Futures Trading Commission (CFTC) is ordering KalshiEX, LLC to keep operating in the face of legal action by the state’s attorney general.
In a lawsuit that was filed July 31, the New York attorney general is seeking a temporary restraining order to block Kalshi from offering event contracts along with US$36 billion in damages, amid allegations that providing trading in event contracts violates state gambling laws.
Among other things, the lawsuit alleged that “Kalshi’s prediction markets meet the legal definition of gambling because the outcomes of the events on which its users are betting are uncertain and outside the control of the bettor or hinge on a game of chance.”
These markets are also exposing younger people to online gambling, the lawsuit alleged — given that prediction markets are available to anyone above the age of 18, while the minimum age for state-sanctioned gambling is 21 in New York.
In response to that suit, the exchange notified the CFTC of a “market emergency,” which has now prompted the regulator to exercise its emergency authority, ordering the exchange to keep operating.
In its order, the regulator said it “agrees that the threat facing Kalshi and the markets that the commission regulates compels the exercise of emergency power and directs Kalshi to continue to operate its exchange in accordance with its normal practices and the Commodity Exchange Act’s core principles.”
“New York has no business regulating these interstate financial markets. The commission is required by law to ensure order in these markets, and that is what we have done today,” CFTC chairman Michael Selig said in a statement accompanying the regulator’s action on Tuesday.
The emergency action in New York follows an assortment of legal actions by the CFTC against various states seeking to assert its jurisdiction over prediction markets, as those states have attempted to take enforcement actions of their own against these markets in various state and federal courts.