CFTC Overrides Michigan Court, Forces Kalshi to Settle Voided Trades Anyway
Federal regulator invokes emergency authority to block a state order unwinding executed Kalshi contracts, calling trade cancellation a systemic risk.
The Commodity Futures Trading Commission has stayed a Kalshi rule change and invoked emergency authority to stop the exchange from voiding and refunding prediction-market trades held by Michigan residents, overriding a state court order that had directed exactly that. The move, announced Tuesday, marks the first time a federal derivatives regulator has stepped in to preserve the settlement of trades a state court told an exchange to cancel.
CFTC Chairman Michael Selig framed the decision as a defense of market structure rather than a ruling on Kalshi’s underlying business. “Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market,” he said in a statement, adding that “the Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.”
Timeline: from geolocation order to voided trades
The dispute traces back to June 29, when Ingham County Circuit Court Judge Rosemarie Aquilina issued a temporary restraining order barring Kalshi from offering sports event contracts to Michigan residents and requiring the exchange to adopt geolocation controls licensed by the state’s gaming regulator, under threat of a $120,000-per-day fine for noncompliance, according to the CFTC’s order.
After Kalshi sought to have the order dissolved or narrowed, Aquilina verbally instructed the exchange to close out certain Michigan-held positions. A follow-up communication dated July 6 specified that the affected trades were to be “voided, canceled and refunded,” per the CFTC filing.
Kalshi’s own July 12 emergency rule filing said it interpreted the directive as covering a limited set of sports positions matched between Michigan-based traders and Kalshi Trading LLC, its affiliated market-making entity — describing the exposure as “a minute percentage” of total sports volume. The exchange warned that a broader liquidation covering all Michigan sports positions would “severely impact” market participants nationwide, and proposed instead to force-liquidate the positions at current order-book value while covering any shortfall from its own operating funds so other traders would not bear losses.
CFTC cites contagion risk, national uniformity
The CFTC’s stay blocks Kalshi’s compliance filing and instead orders the exchange to let the affected contracts settle through normal channels. The commission argued that allowing a state court to unwind already-executed trades — even a small subset — could “shatter public confidence” in derivatives markets, since traders would have no assurance that positions opened today wouldn’t be nullified “a week — or a year — later,” with downstream effects on pricing and hedging in related contracts.
The regulator also invoked the Commodity Exchange Act’s requirement for a single national derivatives market with impartial access, stating that “a state cannot force a DCM to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents.” The CFTC distinguished this case from other ongoing state actions against Kalshi’s sports contracts, which have generally challenged whether the exchange may offer such products at all rather than attempting to reverse trades already executed.
Kalshi caught between two orders
Kalshi’s Head of Enforcement, Robert Denault, said the exchange had already unwound the affected trades to comply with the Michigan court’s directive before the CFTC’s stay landed. “We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations,” Denault wrote on X, underscoring the jurisdictional bind now facing the exchange as state courts and gaming regulators continue to press separate enforcement actions over sports event contracts.
For traders, the episode sets a data point on settlement finality risk in regulated prediction markets: the CFTC has now signaled it will use emergency authority to preserve executed positions against state-level reversal, a precedent likely to be cited in Kalshi’s parallel disputes with other state regulators.