CFTC Overrules Michigan Court, Orders Kalshi to Honor Existing Prediction Market Trades

The U.S. Commodity Futures Trading Commission (CFTC) has formally directed prediction market operator Kalshi to disregard a Michigan state court order that required the company to cancel and refund trades placed by residents of that state. The federal regulator’s intervention escalates a widening legal battle over whether state gaming laws can override the CFTC’s exclusive authority over federally designated contract markets (DCMs).

Background of the Dispute

The conflict began in June 2026, when a Michigan circuit court—acting on a request from the state’s attorney general—ordered Kalshi to stop offering sports-related event contracts to Michigan residents and to void, cancel, and refund certain completed transactions, labeling the activity illegal gambling under state law. On July 2, Kalshi submitted an emergency request to the CFTC seeking guidance on how to comply with the conflicting directives. The CFTC responded by staying Kalshi’s proposed emergency rule change and ordering the company to execute all existing trades in accordance with its normal practices, effectively nullifying the state court’s mandate.

Federal Preemption and Market Certainty

CFTC Chairman Mike Selig justified the move by asserting that a state cannot force a DCM to violate its obligations under the Commodity Exchange Act. “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. He warned that canceling already-executed trades would set a dangerous precedent, “risking a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market.” The CFTC’s order further argued that allowing such reversals “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.”

Broader Regulatory Campaign

Michigan is the first state to attempt directly to interfere with completed transactions on a CFTC-registered exchange, but it is not alone in challenging the agency’s jurisdiction over prediction markets. The CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin—all states that have sought to halt or penalize event-contract businesses as illegal gambling. Additionally, the Commission has submitted amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts. Chairman Selig, who has publicly embraced prediction markets and pledged to pursue friendly regulations, is vigorously defending what he calls the CFTC’s “unbreakable and exclusive” regulatory authority over DCMs like Kalshi.

Implications for the Industry

The CFTC’s order underscores the tension between federal commodities oversight and state-level anti-gaming enforcement. By compelling Kalshi to honor contracts that a state court ruled unlawful, the agency is asserting that federal law preempts state courts from unwinding trades on regulated exchanges. Market participants and legal observers will watch closely as this confrontation potentially proceeds through federal courts, where the outcome could set a binding precedent for how prediction markets are regulated across the United States.