CFTC Blocks Kalshi’s Michigan Liquidation Rule, Invokes Emergency Authority

Published by James Harris on July 15, 2026July 15, 2026

The federal derivatives regulator stepped into a state-versus-platform standoff on July 14, invoking emergency authority to block a Kalshi rule that would have force-liquidated the positions of Michigan users. The Commodity Futures Trading Commission’s order requires Kalshi to honor those executed contracts through normal settlement while the commission conducts a review lasting up to 90 days, including a public comment period. The intervention puts the federal government directly between a state attorney general and a federally licensed exchange, on behalf of traders who had already settled their positions.

Michigan’s approach set it apart from the other states contesting prediction market platforms. Rather than filing an enforcement action through federal courts, Attorney General Dana Nessel obtained a state circuit court order on June 29 requiring Kalshi to unwind trades that had already cleared, citing the state’s gambling laws. Nessel said at the time that “our gambling laws exist to protect Michiganders from unlicensed, predatory operations.” Kalshi responded on July 12 by filing its own emergency rule to liquidate the positions, impose geofencing, and cover losses from its operational funds. The CFTC’s Tuesday order blocked that rule and named Michigan as the first state to attempt direct interference with executed derivatives transactions.

That distinction matters. The CFTC has already sued Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin in a broader campaign to assert exclusive federal jurisdiction over event contracts. Michigan is not on that list. Its tactic of reaching into already-cleared trades rather than blocking new ones is what drew the emergency response. CFTC Chairman Michael Selig, per FX News Group’s reporting, called the Michigan demand “an unprecedented step that risks a cascading effect on the entire marketplace.” The commission’s order itself described it as a “major market disturbance” that would give traders reason to fear that settled contracts could be reversed “a week, or a year, later.”

Why Retroactive Cancellation Is the Line the CFTC Won’t Let Pass

The CFTC is not contesting Michigan’s right to prevent Kalshi from taking new trades in the state. That portion of the restraining order stands. The commission’s objection is narrower and more consequential: a state court cannot retroactively void transactions that cleared on a federally designated contract market. If it could, every exchange operating under CFTC oversight would face the same vulnerability in every jurisdiction, regardless of federal registration.

That logic holds whether the contract is a sports event outcome or an interest rate swap. The Commodity Exchange Act grants the CFTC exclusive jurisdiction over swap contracts traded on designated exchanges, and Kalshi operates within that framework. Allowing a state court order to unwind cleared trades would effectively let any state attorney general rewrite the settlement finality that derivatives markets depend on.

A Circuit Split That Points Toward the Supreme Court

The legal terrain outside the CFTC’s stay is unsettled. Polymarket lost a preliminary injunction bid in Michigan’s Western District earlier this year, where the court ruled that sports event contracts fall outside CFTC swap jurisdiction. Polymarket has appealed to the Sixth Circuit, which also covers Kentucky, Ohio, and Tennessee. Two district judges in that circuit have sided with state regulators; one has sided with the platforms. A Supreme Court intervention becomes likely if that split persists.

The stakes are amplified by the composition of Kalshi’s business: roughly 89% of its contract volume comes from sports, per Kentucky’s complaint. That concentration means the jurisdictional question is not abstract. Kalshi CEO Tarek Mansour has said the company will not pursue a public offering before late 2027 or early 2028, and the outcome of this legal campaign will have a direct bearing on what that company looks like when it eventually files. For now, Kalshi settles Michigan trades on schedule and waits for a federal review process that could, depending on what the Sixth Circuit does, end up being the least important proceeding in the room.