The Commodity Futures Trading Commission said it retains authority to keep exchange Kalshi operating even if a New York state court orders the company to cease activity. The letter was published Tuesday in response to a lawsuit filed by New York last month.
The state is seeking a temporary ban on Kalshi offering contracts on sports, culture, elections and other events within New York or to state residents. Kalshi, headquartered in New York, told the CFTC that such a ban would halt all its operations, not just sports contracts. The requested penalty is $36 billion — under state law, triple the operator's revenue plus $100,000 per bet placed from New York. Kalshi's total revenue since inception is less than $2 billion; the company's valuation after its last funding round stands at $22 billion.
CFTC chair Michael Selig called the lawsuit an attempt to destroy the event-contract industry before courts reach final rulings. 'Congress did not contemplate that derivatives exchanges would be regulated by a patchwork of state gambling laws', Selig said. The commission considers shutting down Kalshi an emergency because it would mean stopping a federally regulated contract market. The CFTC warned that allowing the ban would let one state effectively regulate a nationwide market.
The agency is prepared to use emergency powers and order Kalshi to continue operating if the ban takes effect. The CFTC believes even the threat of a ban distorts pricing in the event-contract market by introducing a risk premium unrelated to outcome probability. The state case is on hold while Kalshi attempts to move it to federal court, though similar attempts by the company have failed before. Beyond New York, Kalshi's sports contracts are restricted in Nevada, Washington and Michigan.
