The Ustates Commodity Futures Trading Commission (CFTC) has directed the prediction market platform Kalshi to refrain from voiding trades placed by users from Michigan, prompting renewed tension between federal authorities and state officials regarding the oversight of contracts related to sports events.

This conflict arises from a directive issued by a Michigan circuit court in June, which mandated Kalshi to cease offering sports-related event contracts to state residents, based on claims from the Michigan attorney general that the firm was breaching local gaming regulations. The court further ordered the cancellation and reimbursement of specific customer transactions.

On July 2, Kalshi made an urgent request to the CFTC for clarification on how to align with the court’s order. In response, the federal agency paused the company’s emergency rule request, asserting that adherence to the state court’s order would contravene the Commodity Exchange Act and regulations pertaining to federally sanctioned contract markets.

CFTC Chairman Mike Selig emphasized that a state cannot compel a registered contract market to “breach its responsibilities.” “The Commission will protect registered entities from any attempts by states or state courts to coerce them into infringing upon the Commodity Exchange Act and CFTC regulations,” added Selig.

The CFTC indicated that Michigan is the first state attempting to interfere directly with transactions that have already been processed on a federally overseen exchange.

Selig cautioned that overturning completed trades could have significant ripple effects across financial markets.

“Voiding already executed trades is an extraordinary action that threatens to create a chain reaction across the entire marketplace and erodes the confidence necessary for efficient contracting,” he stated.

The CFTC’s directive also warned that permitting trade reversals “could severely undermine public trust,” as traders might fear that trades completed today could be undone in the future.

This situation highlights the latest standoff between federal regulators and nearly two dozen states aiming to prevent prediction market operators from offering contracts on sports events, with the CFTC asserting its exclusive power to supervise federally registered exchanges like Kalshi.

The agency has initiated legal actions against several states that have attempted to restrict or impose penalties on prediction market firms, arguing that they amount to illegal gambling.

The states involved in these lawsuits include Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The Commission has also filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits, as well as in the Supreme Judicial Court of Massachusetts.