CFTC Takes Emergency Action Following New York Lawsuit Against Kalshi
The CFTC has ordered KalshiEX to continue operating under federal derivatives rules as the exchange faces a legal challenge from New York.
The Commodity Futures Trading Commission has exercised its emergency authority following notification from KalshiEX, LLC of a market emergency, ordering the exchange to continue operating in compliance with the Core Principles of the Commodity Exchange Act.
KalshiEX, LLC notified the Commission of the emergency after New York Attorney General Letitia James brought a complaint against the exchange in state court. Filed on July 31, the lawsuit seeks a temporary restraining order that would prevent KalshiEX, LLC from offering all event contracts nationwide, as well as more than $36 billion in damages.
Under the CEA, the Commission is required to maintain a uniform national market for derivatives transactions. In fulfilling this responsibility, the CFTC works to preserve public confidence in its markets by protecting market resilience and orderly operations. The Commission is also responsible for maintaining competitive, fair, and efficient markets that safeguard the price discovery process within centralized derivatives markets. Significant market disruptions interfere with these objectives.
“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” said Chairman Michael S. Selig. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines. They match the bid from a resident of one state with the offer of a resident from another state and submit the trade to a clearinghouse that backstops the transactions of customers throughout the country. 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.”
Across the country, states have sought to pursue enforcement actions against CFTC-regulated DCMs in both state and federal courts. To safeguard the jurisdiction Congress granted it, the CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The Commission has additionally submitted amicus briefs to the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts.