CFTC Blocks Kalshi From Cancelling Michigan Sports Trades Ordered Voided

The Commodity Futures Trading Commission (CFTC) has blocked Kalshi from liquidating sports event contracts that a Michigan court ordered cancelled and refunded, escalating a federal-state dispute over who controls transactions on regulated derivatives exchanges.

On Tuesday, the CFTC stayed an emergency rule Kalshi filed on July 12 after an Ingham County Circuit Court verbally ordered the prediction market to close certain positions. The court clarified in July 6 correspondence that the trades must be “voided, cancelled and refunded.” Kalshi had proposed selling the positions on its central order book at current market value and covering any shortfall from its own funds.

The dispute began in March when Michigan Attorney General Dana Nessel and the Michigan Gaming Control Board sued Kalshi, alleging its sports event contracts constitute unlicensed internet sports betting under state law. Kalshi maintains the products are federally regulated derivatives. Judge Rosemarie Aquilina issued a restraining order on June 29 prohibiting Kalshi from offering sports-related contracts to Michigan residents, requiring a third-party geolocation provider, and imposing a $120,000 daily fine for non-compliance.

The CFTC’s action does not reopen Kalshi’s sports markets to Michigan users. Instead, it targets the instruction to unwind executed positions, drawing a line between preventing new transactions and cancelling existing ones. The commission found that allowing forced liquidations could constitute a major market disturbance, weakening confidence in completed derivatives transactions and distorting prices across regulated products.

“A state cannot force a DCM to violate its obligations,” said CFTC Chairman Michael Selig, referring to Kalshi’s status as a designated contract market. He noted that cancelling previously executed trades was unprecedented and warned that the commission would not allow state courts to force registered exchanges to violate federal law.

Michigan’s court order rests on a competing view of the products, citing the state’s minimum betting age, responsible-gaming protections, and taxation system. The Michigan Gaming Control Board characterizes Kalshi’s contracts as sports betting presented as investment products, while Kalshi and the CFTC describe them as swaps under exclusive federal oversight.

The confrontation is part of a broader CFTC campaign to defend federal jurisdiction over prediction markets. The agency has sued nine states and filed appellate briefs in several disputes. Courts remain divided, with North Carolina taking the opposite approach by recognizing federal oversight and taxing prediction-market fees.

Michigan is the second state, after Nevada, to obtain a geolocation order against Kalshi. Nevada regulators have separately alleged Kalshi’s IP geofence allowed residents to continue buying prohibited contracts despite a court order. The CFTC’s latest order protects the Michigan positions from forced liquidation but does not resolve the underlying lawsuit or decide whether the state may block future sports event contracts.

Source: https://news.bitcoin.com/cftc-blocks-kalshi-from-cancelling-michigan-sports-trades-ordered-voided/