CFTC Steps In After Kalshi Already Cancelled Michigan Trades

The US Commodity Futures Trading Commission (CFTC) has ordered Kalshi to honor open trades involving Michigan residents. The regulator also blocked an emergency rule the prediction-market platform had used to unwind those same positions before the CFTC could act on it.

The decision puts the federal regulator in direct conflict with a Michigan court that wanted the trades voided, cancelled and refunded. However, the CFTC’s order does not overturn the state court’s decision or settle whether Kalshi may offer new sports-related contracts in Michigan.

How the dispute led to the unwind

Michigan Attorney General Dana Nessel sued Kalshi in March, alleging that its sports event contracts amount to unlicensed online gambling. In contrast, Kalshi describes the products as federally regulated derivatives.

On June 25, a federal judge returned the case to state court after finding that Michigan’s claims did not belong in federal court. The ruling rejected Kalshi’s argument that federal commodities law completely displaced the state’s causes of action.

On June 29, an Ingham County judge issued a temporary restraining order. It prohibited Kalshi from offering or facilitating products classified as internet sports betting for people in Michigan. The court also required state-compliant geolocation controls.

The court later instructed Kalshi to close certain positions held by Michigan traders. In July 6 correspondence, it clarified that those positions had to be voided, cancelled and refunded.

>>> Read more: Sports Prediction Markets Under Scrutiny in Ohio

Kalshi’s rule filing and the executed unwind

In response, Kalshi filed an emergency rule with the CFTC on July 12. As a designated contract market, the company can self-certify rule changes. That means these rules take effect immediately upon filing without prior approval, subject to later review. The proposed rule would have liquidated the affected positions at their current market value, with Kalshi covering any shortfall relative to customers’ original costs.

Kalshi proceeded to unwind and refund the affected Michigan trades under that self-certified rule in order to comply with the court’s directive. The company later said it faced potential contempt exposure under the court’s order if it failed to act.

>>> Read more: Kalshi Adds Solana Deposits to Prediction Market Platform

The CFTC steps in after the fact

On July 14, the CFTC stayed that emergency rule. It then used separate emergency authority to direct Kalshi to fulfill the positions through its normal process, effectively requiring the platform to restore trades it had already cancelled. Kalshi’s Head of Enforcement, Robert DeNault, said the company “already acted and unwound the trades, as the Michigan court order required us to do,” describing an “impossible position” between conflicting state and federal directives.

The regulator argued that cancelling executed trades could weaken confidence across derivatives markets. Traders need to know that a completed transaction will not be removed later because another authority objects to the product.

That concern sits at the center of the CFTC Kalshi order. The Commission said even a limited forced liquidation could distort prices and affect related positions. It also warned that allowing individual states to unwind federally regulated trades could create different outcomes for traders based on location.

Kalshi is a designated contract market (DCM) supervised by the CFTC. The agency treats its event contracts as swaps under federal commodities law. On that basis, the Commission says it has exclusive authority over those transactions.

For now, the order stays Kalshi’s emergency rule while the CFTC reviews it. The applicable process gives the Commission 90 days for that review and includes a 30-day public-comment period. Still, the separate direction to fulfill the trades applies during the dispute.

The jurisdiction question remains unsettled

Michigan takes a different position. The state says sports-related contracts offered without its approval violate state gambling laws, even when they trade on a federally registered market.

That disagreement reaches beyond one set of open positions. The CFTC says it has filed cases against nine states to defend its jurisdiction. Meanwhile, states and Native American tribes argue that platforms should not use federal derivatives regulation to bypass local gambling rules.

However, the remand did not decide the entire jurisdictional dispute. The federal judge noted that a state court can still consider federal-law defenses. As a result, the central question about the balance between CFTC authority and state gambling enforcement remains open.

>>> Read more: CFTC Defends Prediction Markets Against State Challenges

What the order changes for traders

Kalshi told Reuters it was reviewing the CFTC’s decision and weighing its next steps.

For Michigan users, the order settles the fate of trades already made, but little else. It doesn’t authorize new sports contracts in the state: the requirement to geofence Michigan out of new sports event contracts remains in place under the June 29 order, untouched by the CFTC’s intervention. Kalshi still has until Aug. 12 to implement state-compliant geofencing, after which non-compliance triggers daily fines rising from $120,000 to $500,000.

So, the effect of this CFTC order is narrower than many headlines suggests: Kalshi must keep honoring trades that were executed before the state ordered them cancelled, nothing more.