CFTC Blocks Kalshi From Voiding Michigan Sports Trades

The federal government’s top derivatives regulator has stepped directly between a state court and a prediction-market operator, telling Kalshi it may not cancel its Michigan customers’ trades — even though a Michigan judge ordered exactly that.

The Commodity Futures Trading Commission issued an order on July 14, 2026 staying an emergency rule that Kalshi had filed to comply with the state court, and separately directing the company to settle the affected contracts through its normal process. The decision leaves Kalshi — which the agency regulates as a federally registered exchange — pinned between two governments issuing opposite commands.

What the regulator ordered

Kalshi holds a federal license as a designated contract market, the category the CFTC uses for a regulated derivatives exchange. After a Michigan court forced changes to how it handles positions held by state residents, the company warned the agency of what it called an imminent market emergency, then on July 12, 2026 filed a proposed rule to force-liquidate the open positions of the Michigan traders the court had named.

The CFTC refused to let that rule take effect. It found that unwinding already-executed contracts at a state’s direction could undermine trader confidence and spread into other markets, since participants would have reason to fear that a trade cleared today might be reversed weeks or even years later. The agency also leaned on its duty to keep access to federally regulated markets uniform and non-discriminatory nationwide — a standard it said a state-specific cancellation would break.

Chairman Michael Selig cast the action as a jurisdictional line in the sand, calling the cancellation of already-executed trades “an unprecedented step that risks a cascading effect on the entire marketplace.” He added that the commission would not let states or state courts push registered firms into breaking federal rules.

It is a rare posture for a federal regulator. Rather than simply defending its jurisdiction in court, the CFTC has instructed a company it oversees to disregard part of a state judge’s order — sharpening a conflict that has so far played out mostly through dueling lawsuits.

Kalshi caught between two orders

The company says it had already done what Michigan demanded. Robert DeNault, Kalshi’s head of enforcement, said the platform unwound the affected trades because the court required it, only to be told days later by its own regulator to honor them. In a statement posted on X, DeNault said Kalshi was “being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations.”

The bind is real. The CFTC’s decision is not subject to judicial review, and failing to follow the agency’s rules can expose an exchange to enforcement, including the loss of its self-certification privileges or monetary penalties. Yet the Michigan order remains in force, backed by its own escalating fines. For now, the federal order shields the executed Michigan positions from forced liquidation without resolving which authority Kalshi must ultimately obey.

The Michigan order behind the clash

The conflict traces to a temporary restraining order that Attorney General Dana Nessel secured on June 29, 2026 in Ingham County Circuit Court. It bars Kalshi from offering, listing, or settling sports event contracts for Michigan residents, treating the products as unlicensed sports betting under the state’s sports-wagering law. Nessel first sued the company in March 2026, arguing it let residents bet on games under the guise of trading event contracts without a license from the Michigan Gaming Control Board.

A state judge later extended that order and gave Kalshi until August 12, 2026 to block Michigan access using a licensed geolocation provider, with fines of $500,000 a day if it misses the deadline. The same order required the company to void, cancel and refund certain trades already placed by Michigan users — the piece the CFTC has now frozen.

The federal order is narrow. It does not reopen Kalshi’s sports markets to Michigan bettors or lift the geofencing deadline; it addresses only the court’s demand to unwind trades that had already cleared.

A federal-state war headed higher

Michigan is one front in a widening fight over who governs prediction markets. The CFTC argues that event contracts on registered exchanges fall under its exclusive federal authority; states counter that wagers on sports outcomes are gambling, which they have policed since the 2018 Supreme Court decision that cleared the way for legal sports betting.

To defend its turf, the agency has sued nine states — among them New York, Illinois and Arizona — and filed supporting briefs in two federal appeals courts and Massachusetts’s highest court. Michigan is not on that list; rather than face the CFTC in federal court, it pursued Kalshi through its own state courts, and it became the first state to try to reverse completed trades outright. Similar clashes are playing out elsewhere, from a New York judge’s refusal to shield Kalshi from state gambling law to Nevada regulators pressing for tighter limits and Kalshi’s own state-court fight in Ohio.

The standoff is unlikely to settle quickly. The CFTC now has up to 90 days to review Kalshi’s proposed rule, including a public comment period, before issuing a final decision. With federal and state courts continuing to split on the core question, the dispute looks increasingly bound for the Supreme Court.