The U.S. Commodity Futures Trading Commission (CFTC) issued an order on July 14, 2026 that both stays an emergency rule filed by KalshiEX LLC and directs Kalshi to fulfill certain open event contract trades involving Michigan residents in the ordinary course of business (Order, p. 1, p. 9).
Kalshi, a CFTC-regulated designated contract market (DCM), had filed the rule on July 12, 2026 to force-liquidate previously executed positions held by Michigan users, after a Michigan state court directed that those trades be voided, cancelled, and refunded (Order, p. 1, p. 3).
The order matters because the Commission used its federal authority to stop a state court from unwinding trades already executed on a federally regulated market. Relying on its exclusive jurisdiction over swaps traded on a DCM and on Section 8a(9) of the Commodity Exchange Act (CEA), 7 U.S.C. 12a(9), the Commission concluded that forcing the cancellation of settled contracts was itself a market emergency, and it stayed the rule under Commission Regulation 40.6(c) (17 CFR 40.6(c)) (Order, p. 1, pp. 6-7).
The practical effect is that the affected Michigan positions must be settled normally rather than reversed. The discussion below covers the Michigan proceedings that prompted the filing, the basis for the stay, the emergency finding under Section 8a(9), the Commission’s view of state authority over executed swaps, and the market risks it identified.
What led the CFTC to review KalshiEX’s emergency rule filing?
The filing grew out of a Michigan state court order that first barred Kalshi’s sports event contracts in the state and then directed the exchange to unwind trades already made by Michigan residents. On June 29, 2026, the Circuit Court for the 30th Judicial District, Ingham County, Michigan granted the State of Michigan’s motion for a temporary restraining order (TRO) against Kalshi in Nessel v. KalshiEX LLC, Case No. 26-1087-CZ (Order, p. 1, p. 2). The TRO barred Kalshi from facilitating any product “that constitutes internet sports betting as defined by MCL 432.403(s)” for persons in Michigan and set a fine of $120,000 per day for failing to meet its geolocation requirement (Order, p. 2).
After Kalshi moved to dissolve or modify the TRO, the court verbally modified it to require the close-out of certain Michigan traders’ positions, and a July 6, 2026 correspondence clarified that those trades had to be “voided, cancelled and refunded” (Order, p. 3). Kalshi notified the Commission of an “imminent market emergency” the same day, and on July 12, 2026 it filed the Emergency Rule to “force-liquidate the open positions” of the identified users at current market value, absorbing any shortfall below a user’s original cost from its own operational funds (Order, p. 3, p. 4).
Why did the CFTC stay Kalshi’s Emergency Rule under Commission Regulation 40.6(c)?
The Commission stayed the rule on the ground that it presents novel or complex issues that require more time to analyze (Order, p. 1, p. 9). Kalshi had submitted it through the emergency filing procedure of Commission Regulation 40.6(a)(6)(i) (17 CFR 40.6(a)(6)(i)), which lets a registered entity implement an emergency rule and file it with the Commission, and which Regulation 40.1 (17 CFR 40.1) ties to circumstances that threaten fair and orderly trading (Order, p. 4).
Regulation 40.6(c)(1) allows the Commission to stay the certification of a new rule that presents novel or complex issues or is potentially inconsistent with the Act (Order, pp. 4-5). The stay gives the Commission up to 90 days to review the filing, including a 30-day public comment period, and if the Commission objects during that period on the ground that the rule is inconsistent with the Act, the rule does not take effect (Order, p. 5).
How did the CFTC find that a market emergency existed under Section 8a(9) of the CEA?
The Commission found that Kalshi’s forced-liquidation rule was itself a market emergency, which let it use Section 8a(9) to direct Kalshi to fulfill the trades rather than unwind them (Order, pp. 6-7, p. 9). Section 8a(9) allows the Commission, when it has reason to believe an emergency exists, to direct a registered entity to act to maintain or restore orderly trading, and it treats a major market disturbance that keeps prices from reflecting supply and demand as an emergency (Order, pp. 5-6).
The Commission explained why letting the rule take effect immediately would harm the market:
Having reviewed the complete record in this matter, the Commission makes the following findings:
The Commission finds that the Emergency Rule, adopted in response to a Michigan circuit court’s unprecedented order requiring Kalshi to unwind open, previously executed trades constitutes an emergency because it is a “major market disturbance which prevents the market from accurately reflecting the forces of supply and demand” with respect to event contracts.
If the Commission were to allow the Emergency Rule to take effect immediately, it 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. Certainty in contracting is a necessary component of a functioning market, and “the rule of law . . . does not allow a contract fairly made to be annulled.”
Order Staying Emergency Rule Filed by KalshiEX LLC (pp. 6-7)
The order adds that the merits of an emergency determination are shielded from judicial review under 5 U.S.C. 701(a)(2), citing Board of Trade of City of Chicago v. Commodity Futures Trading Comm’n, 605 F.2d 1016 (7th Cir. 1979) (Order, p. 6).
Can a state court order a CFTC-regulated exchange to unwind executed swap transactions?
No. The Commission concluded that a state court cannot compel the unwinding of executed swap transactions on a CFTC-regulated market, because the Commodity Exchange Act gives the Commission exclusive jurisdiction over swaps traded on a DCM (Order, p. 2, p. 7). The Act confers that exclusive jurisdiction over transactions involving swaps traded on DCMs (7 U.S.C. 2(a)(1)(A)), event contracts are swaps under the Act (7 U.S.C. 1a(47)), and Kalshi has been a CFTC-regulated contract market since November 3, 2020 (Order, p. 2).
The order then applies that jurisdiction to the specific question of unwinding executed trades:
State courts cannot order the unwinding of executed swap transactions, whether it be a single contract or an entire class of trades. If they could, it would imply that they could also force the liquidation of executed trades involving forward contracts, futures, and options, not just certain kinds of event contracts.
Order Staying Emergency Rule Filed by KalshiEX LLC (p. 7)
In the accompanying press release, Chairman Michael S. Selig framed the dispute in jurisdictional terms: “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” (Press Release). The Commission noted that Michigan is the first state to try to interfere directly with executed derivatives transactions, and that it has sued Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin to protect its jurisdiction (Press Release).
For background on prediction markets and event contracts, and on the broader state-federal jurisdiction dispute, see our prediction markets resource center.
What market risks did the CFTC identify from forced liquidation of executed trades?
The Commission warned that unwinding settled contracts would distort prices, could spread to related contracts, and would undermine the market’s price-discovery function (Order, pp. 7-8). Forced unwinding risks financially damaging market participants, including the retail traders who make up a large part of Kalshi’s user base, who may have made budgeting and risk-management decisions based on expected outcomes (Order, pp. 7-8).
Participants may also hold contracts related to or corollary to the cancelled trades, and those contracts could see significant volatility, which the order describes as risking “a more systemic market issue affecting multiple exchanges” (Order, p. 8).
The order states that these distortions would violate CEA Core Principle 4 (CEA Section 5(d)(4), 7 U.S.C. 7(d)(4)), which requires DCMs to prevent manipulation, price distortion, and disruption of the cash-settlement process (Order, p. 8). For that reason, the Commission concluded that staying the rule alone would not remedy the emergency, because even a single forced liquidation risks distortion, and it directed that all executed trades be fulfilled in the normal course (Order, p. 8, p. 9).
For more on this topic and related developments, see our financial markets resource center, and prediction markets topic resource. If you have questions, you can request a consultation.
Frequently Asked Questions
What did the CFTC decide in its July 14, 2026 order involving Kalshi?
The CFTC stayed KalshiEX’s emergency rule and ordered Kalshi to fulfill the affected trades involving Michigan residents in the ordinary course rather than cancel them. Kalshi’s rule would have force-liquidated positions a Michigan court told it to void, and the Commission used Commission Regulation 40.6(c) to stay the rule and Section 8a(9) of the Commodity Exchange Act to direct fulfillment (Order, p. 1, p. 9).
Why did the CFTC stay Kalshi’s emergency rule under Regulation 40.6(c)?
The Commission stayed the rule because it presents novel or complex issues that require more time to analyze. The stay opens a review period of up to 90 days, including a 30-day public comment period, during which Kalshi must keep settling the affected trades normally (Order, p. 5, p. 9).
Can a state court order Kalshi to unwind executed event contract trades?
The Commission’s position is that it cannot. It concluded that a state court cannot order the unwinding of executed swap transactions on a CFTC-regulated market, because the Commodity Exchange Act gives the Commission exclusive jurisdiction over swaps traded on a designated contract market, and event contracts are swaps under the Act (Order, p. 2, p. 7).
What is Section 8a(9) of the Commodity Exchange Act, and why did the CFTC use it here?
Section 8a(9) (7 U.S.C. 12a(9)) lets the Commission direct a registered entity to act when the Commission has reason to believe an emergency exists. The Commission found that forcing the cancellation of settled trades was a major market disturbance and used the provision to direct Kalshi to fulfill the trades instead of unwinding them (Order, pp. 5-6, pp. 6-7).
What happens next after the CFTC stayed Kalshi’s emergency rule?
The stay is not a final decision. The Commission has up to 90 days to review the rule, with a 30-day public comment period, and Kalshi must fulfill the affected trades normally in the meantime; if the Commission objects during that window on the ground that the rule is inconsistent with the Act, the rule will not take effect (Order, p. 5).
How does this CFTC order fit into the broader fight over prediction markets?
It is the latest clash between the CFTC and states over whether sports-related event contracts are federally regulated swaps or state-regulated gambling. The Commission noted that Michigan is the first state to try to interfere directly with already-executed trades, and that it has sued nine states, including Illinois, to defend its jurisdiction (Press Release).