Federal Regulators Invoke Emergency Powers to Shield Kalshi from New York Gambling Laws

The Trump administration has invoked emergency authority to permit prediction market Kalshi to continue operating in New York, directly overriding state gambling laws. The Commodity Futures Trading Commission (CFTC) announced the intervention on Wednesday, citing a "market emergency" triggered by a lawsuit filed by New York Attorney General Letitia James. The action was taken at the request of Kalshi to ensure market stability and prevent the enforcement of state gaming regulations on what the federal regulator classifies as an interstate financial exchange.

CFTC Chairman Michael Selig asserted that the commission has exclusive jurisdiction over designated contract markets under the Commodity Exchange Act. Selig argued that state regulation of these cross-border financial markets is unlawful and contrary to congressional intent. "Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws," Selig stated, adding that New York has no business regulating these financial instruments which match bids and offers across state lines before submitting trades to a national clearinghouse.

New York officials have firmly rejected the federal intervention, maintaining that Kalshi is operating an illegal, unlicensed gambling business. Attorney General James and Governor Kathy Hochul argue that the platform’s outcomes are uncertain and outside the bettor’s control, fitting the legal definition of gambling. They contend that Kalshi has sidestepped licensing requirements and failed to pay taxes that fund public schools, youth sports programs, and problem gambling treatment.

The legal dispute follows a ruling on July 7 by a federal judge who rejected Kalshi’s initial request to block New York from enforcing its gambling laws. The judge determined that the Commodity Exchange Act leaves room for states to regulate tangential issues arising from trading swaps. Kalshi has since appealed that decision to the US Court of Appeals for the 2nd Circuit and is attempting to transfer the lawsuit from state to federal court, a move New York is resisting to preserve its police powers.

This confrontation represents the latest in a series of legal battles between the Trump administration and state regulators over prediction markets. While Minnesota recently passed a law prohibiting prediction markets entirely, a federal court blocked the ban last month, though it noted states may still restrict wagers that do not meet the legal definition of swaps. The outcome of the New York appeal remains uncertain, with the state asserting that Kalshi’s federal claims constitute an overreach that disrupts the federal-state balance.