The U.S. Commodity Futures Trading Commission (CFTC) has ordered prediction market operator Kalshi to continue offering its markets in New York after the state filed a lawsuit seeking to stop the company's sports-related contracts.
The federal regulator used its emergency authority after Kalshi requested assistance following the lawsuit filed by New York Attorney General Letitia James in July.
The decision intensifies an ongoing dispute between federal and state authorities over whether prediction markets should be treated as federally regulated financial products or as gambling activities subject to state laws.
CFTC Orders Kalshi to Continue Operating
The CFTC said it issued an order requiring Kalshi to continue operating in New York after the company sought federal intervention.
The regulator said the action was taken under its emergency authority, highlighting the importance it places on maintaining federally regulated prediction markets.
The CFTC's official announcement said the agency continues to view event contracts offered through federally regulated exchanges as derivatives rather than traditional gambling products.
CFTC Chairman Mike Selig argued that derivatives exchanges should not be subjected to a different set of state gaming rules across the country.
New York Says Kalshi Is Operating as a Gambling Platform
New York has taken the opposite position.
The state sued Kalshi on July 31, arguing that its sports prediction markets violate New York gambling laws.
State officials said Kalshi should obtain the appropriate gaming license and comply with regulations that apply to other sports betting operators.
According to the New York Attorney General's office, the state believes Kalshi has avoided licensing requirements and associated taxes that apply to licensed casinos and mobile sports-betting platforms.
The dispute therefore centers on a fundamental question: Are sports prediction contracts financial derivatives or gambling products?
Federal and State Regulators Clash
The Kalshi dispute is part of a broader conflict between federal regulators and individual states over prediction markets.
The CFTC has maintained that federally regulated event-contract exchanges fall under its jurisdiction.
States, meanwhile, have argued that sports-related prediction markets can function similarly to gambling and therefore should remain subject to state gaming laws.
The disagreement could have major implications for the prediction-market industry if courts ultimately establish clearer boundaries between federal derivatives regulation and state gambling authority.
Kalshi's New York Case Remains in Court
The latest CFTC order comes while Kalshi's legal battle with New York continues.
New York filed its lawsuit after a federal judge rejected Kalshi's attempt to prevent the state from taking legal action against the company.
Kalshi subsequently moved to transfer the case to federal court, while New York sought to return the case to state court.
Those motions remain pending.
This means the CFTC's latest intervention does not necessarily resolve the underlying legal dispute. Instead, it allows Kalshi to continue operating while the broader jurisdictional questions work their way through the courts.
CFTC Previously Intervened in Michigan
The New York dispute is not the first time the CFTC has intervened in a state-level fight involving Kalshi.
The federal regulator previously attempted to help Kalshi continue operating in Michigan after a state court ruled against the prediction market company.
Kalshi's Head of Enforcement Robert Denault later said the company had already unwound the trades required by the Michigan court.
The Michigan and New York cases demonstrate the increasingly complicated regulatory environment surrounding prediction markets in the United States.
Why Prediction Markets Are Facing More Scrutiny
Prediction markets have expanded rapidly by allowing users to trade contracts tied to future events.
Sports markets have become particularly controversial because contracts tied to game outcomes can resemble traditional sports betting.
Regulators and lawmakers are now debating whether these products should be governed primarily through financial-market rules or gambling regulations.
For companies such as Kalshi, the outcome could determine where and how they can offer event contracts across the United States.
What the CFTC Decision Means for Kalshi
The CFTC's emergency order provides Kalshi with important federal backing as it continues its legal fight with New York.
However, the order does not eliminate the state's objections.
New York can continue pursuing its case, while courts may ultimately have to decide whether the federal government or states have primary authority over sports-related prediction markets.
The result could establish an important precedent for other prediction-market operators seeking to expand across the United States.
Prediction Market Regulation at a Turning Point
The conflict between Kalshi and New York highlights a broader regulatory question facing the rapidly expanding prediction-market industry.
If courts support the CFTC's position, federally regulated prediction markets could gain stronger protection from state gambling laws.
If states prevail, prediction-market operators could face different restrictions and licensing requirements depending on where their customers are located.
That uncertainty could become increasingly important as more platforms launch event contracts covering sports, politics, economics and other real-world events.
Conclusion
The CFTC's order requiring Kalshi to continue operating in New York represents another major development in the growing battle over prediction-market regulation in the United States.
The federal regulator considers Kalshi's event contracts to be federally regulated financial products, while New York argues that its sports markets fall under state gambling laws.
With the legal proceedings still ongoing, the dispute could ultimately determine how prediction markets operate across the country and how federal derivatives regulation interacts with state gaming laws.
