Key Takeaways
- Federal regulators instructed Kalshi to disregard a Michigan court order requiring trade cancellations
- Michigan county court previously mandated the platform void sports-related contracts and issue refunds
- CFTC Chairman Mike Selig warned states cannot intimidate federally regulated platforms
- Michigan represents the first state attempting to directly reverse transactions at a federally designated contract market
- Nine additional states face CFTC lawsuits in related prediction market regulatory battles
On Tuesday, the U.S. Commodity Futures Trading Commission directed prediction market operator Kalshi to disregard a Michigan county court directive requiring the cancellation of trades involving state residents. The state court had previously instructed the platform to void specific customer transactions related to sports event contracts and process refunds.
As a designated contract market (DCM) registered with the CFTC, Kalshi operates under federal jurisdiction, specifically the Commodity Exchange Act.
The Michigan judicial order originated in June following a petition from Michigan Attorney General Dana Nessel. Her office contended that Kalshi operated as an unauthorized gambling platform within state boundaries.
Kalshi submitted an urgent petition to the CFTC on July 2, seeking guidance on responding to the state court’s mandate requiring trades be “voided, cancelled and refunded.”
The federal regulator responded by directing Kalshi to reject the Michigan directive and maintain existing trades.
CFTC Chairman Mike Selig characterized the cancellation of completed transactions as “an unprecedented step” threatening marketplace integrity and investor confidence.
“The commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations,” Selig said in a statement.
Expanding Jurisdictional Conflict
Michigan’s actions represent just one front in a broader regulatory conflict. The CFTC has initiated legal proceedings against nine additional states: Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin.
Each lawsuit centers on identical questions of authority. State governments classify prediction markets as unlawful internet gambling operations. The CFTC maintains that Congress granted it exclusive regulatory jurisdiction over these platforms.
Michigan distinguished itself as the first state attempting to retroactively invalidate already-executed transactions.
Selig cautioned that permitting states to reverse finalized trades would trigger a “cascading effect on the entire marketplace.” He emphasized that market certainty forms the foundation of functional financial systems.
The CFTC further observed that federal regulations prohibit DCMs from discriminating against residents based on state of residence, preventing Kalshi from simply blocking Michigan users to appease state authorities.
The resolution of this jurisdictional battle will likely establish precedent for prediction market operations nationwide. Currently, the CFTC directive requires Kalshi to maintain all Michigan-based trades without cancellation.
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