U.S. CFTC moves to stop Kalshi from canceling trades as ordered by Michigan court

The U.S. Commodity Futures Trading Commission threw itself in between Michigan courts and prediction market firm Kalshi on Tuesday, issuing an order to disallow the company from meeting a local court demand that it cancel previous customer transactions.

The CFTC move amplifies its legal fight with state governments and courts over what its chairman argues is its unbreakable and exclusive regulatory authority over trading at Kalshi, which it regulates as a designated contract market (DCM).

"The commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations," said CFTC Chairman Mike Selig in a statement alongside his agency's order. Selig has embraced prediction markets and promised to institute friendly regulations, and he's also vigorously defended his agency's authority to regulate them in a way that negates state powers.

The CFTC has sued a number of states that have sought to halt or penalize event contract businesses as illegal gambling. The agency noted Tuesday that Michigan is the first state to attempt to interfere in transaction activity directly.

"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," Selig said.

In June, a county circuit court in Michigan ordered Kalshi to cease online sports wagers in the state — a halt requested by the state's attorney general.

On July 2, Kalshi submitted an emergency request to the CFTC about responding to a court order to have certain Michigan users' trades "‘voided, cancelled and refunded." The CFTC ordered the company to stand down and said in its order that allowing the reversals "would risk shattering public confidence by giving traders cause to worry that the trades they execute today may be unwound a week — or a year — later."

Read More: Kalshi and prediction market sector embroiled in mixed bag of legal fights across U.S.