In a rare exercise of federal emergency authority, on July 14, 2026, the Commodity Futures Trading Commission (CFTC) did two things that, individually, would each be unusual and together are noteworthy: it stayed an emergency rule self-filed by a regulated exchange, and then affirmatively ordered that exchange to honor contracts it had already proposed to unwind. The target was KalshiEX LLC (Kalshi), a CFTC-designated contract market (DCM) for event contracts. The catalyst was a Michigan state court order that the CFTC determined raised questions of federal preemption under the Commodity Exchange Act (CEA) and the functioning of a federally regulated derivatives market.
Link to Background: A State Court Steps Into Federal Derivatives Markets Background: A State Court Steps Into Federal Derivatives Markets
The chain of events began on June 29, 2026, when the Circuit Court for Michigan’s 30th Judicial District, Ingham County issued a temporary restraining order (TRO) against Kalshi in the case of Nessel v. KalshiEX LLC, No. 26-1087-CZ. The court’s order prohibited Kalshi from “[o]ffering, listing, matching, executing, clearing, settling or otherwise facilitating any contract, instrument, or product that constitutes internet sports betting” accessible to Michigan residents. For every day Kalshi failed to comply with accompanying geolocation requirements, it faced a fine of $120,000 per day.
After Kalshi moved to dissolve or modify the TRO, the court verbally modified its order and later clarified in a July 6, 2026, correspondence that trades entered into by Michigan-based users must be “voided, cancelled and refunded.” That instruction—directing a federal derivatives exchange to retroactively unwind already-executed swap transactions—is what set the CFTC in motion.
That directive raises structural questions about how prediction markets operate differently from a traditional sportsbook or casino. In a traditional sportsbook, a “void” is conceptually straightforward: there is a single fixed counterparty, the house, standing behind every wager. Cancelling the bet reverses a bilateral transaction between two parties. Prediction markets operate differently. A Kalshi contract is a tradable binary option. Once issued, it can change hands many times on the central limit order book; each transfer creates a new buyer-seller relationship independent of the original trade. Directing those contracts to be “voided, cancelled and refunded” without accounting for this chain of transfers leaves open a significant question: what happens to the intermediary owners who purchased a contract and then sold it before the cancellation order arrived? Unlike a bilateral casino wager, those holders have no single counterparty against whom the trade can be reversed. It is this structural difference—between a fixed-counterparty wager and a multilateral, tradeable derivatives contract—that the CFTC’s Order identifies as central to its analysis.
Link to Kalshi’s Emergency Rule: Force-Liquidation on the Order Book Kalshi’s Emergency Rule: Force-Liquidation on the Order Book
Faced with a $120,000-per-day penalty exposure and a court mandate to cancel executed trades, on July 12, 2026, Kalshi filed an emergency rule with the CFTC under Commission Regulation 40.6(a)(6)(i)—a provision allowing registered entities to self-certify emergency rules in advance of CFTC review. Under the Emergency Rule, “[p]ositions of the identified Michigan-based users will be force-liquidated on the central limit order book at current market value as of the date of execution of this Emergency Rule.” Kalshi agreed to absorb any losses where “the liquidation value of a position is less than the user’s original cost of entry,” making affected users whole out of its own operational funds. Kalshi represented that it could bear this cost because “[t]he total number of positions impacted by the specific order is limited.”
Two things make this filing notable in itself: first, emergency rule filings by DCMs are rare; second, the CFTC declined to simply accept Kalshi’s self-certified rule and instead stayed it.
Link to The CFTC’s Response: A Stay and a Mandatory Direction The CFTC’s Response: A Stay and a Mandatory Direction
The CFTC’s July 14, 2026, Order Staying Emergency Rule Filed by KalshiEX LLC and Directing Kalshi to Fulfill Open Trades Involving Michigan Residents deployed two distinct legal tools simultaneously.
First, invoking Commission Regulation 40.6(c)(1), the CFTC stayed the Emergency Rule on the grounds that it “presents novel or complex issues that require additional time to analyze.” The stay triggers a 90-day review period with a mandatory 30-day public comment window.
Second the CFTC invoked Section 8a(9) of the CEA, 7 U.S.C. § 12a(9), to affirmatively direct Kalshi to fulfill the disputed trades “as it would in the ordinary course of business.” Section 8a(9) grants the CFTC emergency power to direct a registered entity to “take such action as in the [CFTC]’s judgment is necessary to maintain or restore orderly trading” whenever the CFTC “has reason to believe that an emergency exists.” Critically, the CFTC’s exercise of this authority is shielded from judicial review: under longstanding circuit precedent, “[t]he merits of the [CFTC]’s emergency determination are precluded from judicial review.” Board of Trade of City of Chicago v. Commodity Futures Trading Comm’n, 605 F.2d 1016, 1025 (7th Cir. 1979).
The CFTC’s invocation of Section 8a(9) in the Kalshi matter is rare, but it is not the first time the Commission has reached for this tool. Toward the end of the 1970s, the CFTC deployed the same emergency powers across a series of volatile commodity markets: it brought manipulation charges against traders on the New York Mercantile Exchange in connection with a defaulted Maine potato contract on May 25, 1976; declared a “market emergency” in response to concerns in the coffee futures market on November 23, 1977; ordered the Chicago Board of Trade March wheat futures contract closed on March 16, 1979—the first time the Commission ordered a market closed to prevent a price manipulation—and on January 6, 1980, ordered a two-day suspension of futures trading in wheat, corn, oats, and soybeans.
Notably, the CFTC did not invoke its Section 8a(9) emergency powers during perhaps the most dramatic commodity market crisis of the era: the Hunt Brothers’ attempted corner of the silver market. Beginning in earnest around September 1979, Nelson Bunker Hunt and William Herbert Hunt accumulated massive positions in silver, driving the price from roughly $11 per ounce to over $50 per ounce by January 1980. When the Hunts missed a margin call on March 27, 1980—a day that came to be known as “Silver Thursday”—the market collapsed. The following day, the CFTC, “[a]fter careful consideration of a host of market factors,” decided “not to use its emergency powers to order a suspension of trading in silver futures as prices plummet[ed].” On March 31, 1980, the “Rosenthal Subcommittee” held hearings on the Silver Thursday collapse, during which CFTC Chairman James Stone testified about the Commission’s decision not to intervene. That the CFTC’s deliberate choice not to exercise Section 8a(9) in the silver crisis was itself a subject of congressional scrutiny and underscores the weight that attaches to each occasion on which the Commission does invoke the provision and how seldom it has done so.
Link to Why the CFTC Called This an Emergency Why the CFTC Called This an Emergency
The history of the exercise of this authority and the CFTC’s findings here explain the stakes it saw in allowing even a limited forced unwind to proceed. The Order warned that allowing the Emergency Rule to take effect “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,” invoking the principle, drawn from Dermott v. Jones, 69 U.S. 1, 8 (1864), that “the rule of law… does not allow a contract fairly made to be annulled.”
The CFTC went further, describing the systemic risk it saw beyond Kalshi’s particular platform: “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.” The Order also warned that if derivatives contracts on federally regulated exchanges “must price in the possibility of being unwound by judicial order, then the market’s core price discovery function will be undermined.” Critically, the CFTC concluded that “the unprecedented forced liquidation of even one executed trade risks market distortions”—meaning even Kalshi’s modest, cost-absorbed plan to cancel a limited number of positions—was, in the CFTC’s view, too consequential to permit.
The tradeable nature of prediction market contracts is what distinguishes them from casino wagers and what makes a “void and refund” remedy structurally complex in this context. A wager has one counterparty. A binary event contract may pass through many hands between issuance and settlement, each transfer lawfully completed on a regulated exchange. A directive to “void” those contracts does not merely reverse a bilateral bet; it reaches back through a chain of independently completed transactions, potentially leaving unresolved the rights of buyers who purchased the contract in secondary trading and have since sold it on. No refund mechanism naturally exists for those intermediate holders. The CFTC’s emergency finding reflects its assessment that applying a wager-style remedy to a tradeable derivatives contract would inject retroactive uncertainty into markets that federal regulation is designed to keep stable and orderly.
Link to Broader Context: Michigan Is Not Alone Broader Context: Michigan Is Not Alone
The CFTC noted that “Michigan is the first state to attempt to interfere directly with executed derivatives transactions,” but it is far from the first state to challenge CFTC-regulated event contract markets. According to the CFTC’s press release announcing the Order, the CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin in connection with state-level enforcement actions against federally regulated DCMs. The CFTC has also filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts.
CFTC Chairman Michael S. Selig framed the Order in characteristically direct 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. 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. The CFTC will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.
Link to What Makes This Order Unusual What Makes This Order Unusual
Several features of the July 14 Order combine to make it a notable entry in CFTC enforcement history. Rather than assert preemption through litigation or file an amicus brief, the CFTC used its emergency powers to direct a regulated exchange to maintain its existing obligations notwithstanding the state court order. It stayed its own registrant’s emergency rule rather than permitting the registrant to self-certify compliance with a state court mandate. And it invoked emergency authority whose merits are, by design, unreviewable in federal court—insulating the directive from challenge. Whether the Michigan court will treat the CFTC Order as a defense to its own contempt proceedings, or whether the two sovereigns will find another path to resolution, will be the next chapter to watch.
At a deeper level, the Michigan episode highlights a structural question that recurs in state-level challenges to prediction markets: whether event contracts are appropriately analyzed under the same regulatory framework as sports wagers. The initial position in a prediction market and the opening wager at a sportsbook may look similar on their face, but they are different financial instruments. A wager fixes the bettor to the house as the sole counterparty from the moment it is placed to the moment it settles. A binary event contract is a tradeable asset: it can be bought, sold, and transferred many times before expiration, each transfer lawfully completed on a regulated exchange at market-clearing prices. That structural difference, which determines what remedies are practically and legally workable, is a central issue the ongoing litigation between the CFTC and the states will need to resolve.
Written with the assistance of C.J. Pfanstiel, summer associate in Husch Blackwell’s Kansas City office.