CFTC steps in after Michigan tries to cancel Kalshi contracts

The Commodity Futures Trading Commission invoked its emergency authority on July 14 to stay a proposed emergency rule from KalshiEX that would have force-liquidated Michigan users’ trades. At the same time, the commission asked Kalshi to perform the open agreements through normal settlement during the process of reviewing.

The dispute stems from a temporary restraining order Michigan’s circuit court issued on June 29 at the state attorney general’s request. The court subsequently extended the order to unwind executed deals, and Kalshi itself filed for an emergency rule on July 12, which was to liquidate the positions, impose geofencing measures, and compensate for the losses out of its own operational funds.

Michigan tries to unwind trades that already cleared

The CFTC’s order names Michigan as the first state to attempt to interfere with executed derivatives transactions directly.

Chairman Michael Selig said in the release:

A state cannot force a DCM to violate its obligations. Federal law also does not permit a designated contract market to discriminate against a state’s residents.

The Commodity Exchange Act gives CFTC exclusive jurisdiction over swap contracts traded on exchange platforms, and Kalshi is an exchange platform operating within such a system. Selig called Michigan’s demand “an unprecedented step that risks a cascading effect on the entire marketplace,” per FX News Group’s reporting.

The commission’s order itself called the Michigan action a “major market disturbance” that would risk “shattering public confidence by giving traders cause to worry that the trades they execute today may be unwound a week, or a year, later.”

CFTC says states cannot rewrite federally regulated contracts

As Cryptopolitan earlier reported, the CFTC has now filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin in a campaign to assert exclusive jurisdiction over event contracts. Michigan is not on that list.

The state’s approach was different from the start. Instead of pursuing an enforcement action that could work its way through federal courts, Michigan Attorney General Dana Nessel secured a state court order requiring Kalshi to unwind trades that had already cleared.

Nessel said at the time that “our gambling laws exist to protect Michiganders from unlicensed, predatory operations.” The CFTC’s Tuesday order does not challenge the underlying restraining order preventing Kalshi from taking new Michigan trades. It challenges only the retroactive cancellation piece.

Kalshi must settle Michigan trades while review runs

The stay allows up to 90 days for CFTC review, including a public comment period. Kalshi must continue fulfilling its executed Michigan contracts under normal settlement procedures during that window.

Two parallel legal tracks remain live outside the CFTC’s stay. Polymarket lost a preliminary injunction bid in Michigan’s Western District earlier this year, where the court ruled sports event contracts fall outside CFTC swap jurisdiction. Polymarket has appealed to the Sixth Circuit, which also covers Kentucky, Ohio, and Tennessee.

Two district judges in that circuit have sided with state regulators. One has sided with the platforms. The Supreme Court is widely expected to take up the jurisdictional question if the circuit split persists.

Roughly 89% of Kalshi’s contract volume comes from sports, per Kentucky’s complaint, and Kalshi CEO Tarek Mansour has said the company will not go public before late 2027 or early 2028.

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