The conflict regarding the governance of new prediction markets has intensified, with Kalshi seeking a federal court order to stop Montana officials from enforcing state gambling regulations on its platform.

This legal dispute centers on whether federally regulated derivatives exchanges are entirely under national jurisdiction or can also face state-level limitations. Kalshi asserts that its activities, which involve trading event-based contracts, are solely regulated by the Commodity Futures Trading Commission (CFTC) pursuant to the Commodity Exchange Act.

Montana’s regulatory authorities disagree. After conducting an inquiry, the Gambling Control Division of the state determined that Kalshi’s offerings are classified as illegal gambling and issued a cease-and-desist order.

According to the agency, there was probable cause to believe that the activities fell within the legal definition of gambling “because participants wager money or other valuable items for a gain that depends in whole or in part upon chance, a lot, or the functioning of a gambling enterprise.”

In response, the company has filed a lawsuit against Attorney General Austin Knudsen and other state representatives, aiming to suspend enforcement while judicial proceedings clarify whether federal law overrides Montana’s regulations. The lawsuit seeks both declaratory and injunctive relief to prevent any regulatory measures.

Kalshi’s platform enables users to trade on the outcomes of real-life events by purchasing contracts linked to “yes” or “no” propositions. These contracts’ values vary before resolution, allowing users to exit their positions early based on market conditions. The contracts cover various categories, including economic indicators, electoral outcomes, and sports results.

In its complaint, Kalshi argues that these transactions do not represent bets against a central operator, but rather exchanges between traders. “Since traders don’t take positions against the exchange itself, their ability to manage risk necessitates having counterparties willing to take on the risk in pursuit of a return,” the company’s legal representatives noted.

The lawsuit also highlights what Kalshi describes as a breakdown in the previous agreement between the company and Montana authorities. The complaint states that both parties had consented in 2025 to pause enforcement while related legal matters in Nevada advanced. That litigation is still active, with hearings scheduled in a federal appeals court.

Despite this prior agreement, Montana issued a second cease-and-desist letter recently, indicating potential legal repercussions if Kalshi did not cease offering contracts within the state. This action has created an immediate enforcement threat and led Kalshi to file in federal court.

Kalshi’s legal position is heavily based on the concept of federal preemption. The complaint asserts that Congress established the CFTC to ensure uniform regulation of derivatives markets and to prevent conflicting state laws.

“One of Congress’s main objectives in forming the CFTC was to prevent the ‘chaos’ that would arise from subjecting exchanges to a disjointed array of 50 different—and potentially contradictory—state regulations,” the company’s legal representatives added.

The proceedings unfold amid a series of contradictory rulings in various jurisdictions. A federal judge in Nevada has prohibited Kalshi from offering contracts related to sports events, while a recent appellate ruling determined that New Jersey lacked jurisdiction over the platform. Moreover, the CFTC has initiated actions against states trying to impose similar restrictions on prediction markets.

Montana legislation categorically forbids unlicensed gambling and includes enforcement provisions that may lead to legal action, including injunctions. The state’s communications implied a desire for voluntary compliance but included warnings of possible legal consequences for non-compliance.

Kalshi contends that this enforcement would disrupt a federally regulated entity and jeopardize a framework meant to operate nationally. The company is seeking immediate judicial intervention to prevent Montana authorities from advancing their measures while the jurisdictional conflict is settled.