The Commodity Futures Trading Commission CFTC) stayed an emergency rule change proposed by KalshiEX in response to a Michigan state court order directing the company to cancel certain previously executed trades involving Michigan residents.
The CFTC also exercised its emergency authority to order KalshiEX to fulfill the open trades in accordance with its normal practices.
The CFTC is required by the Commodity Exchange Act to provide a uniform national market in derivatives transactions. Market participants must have impartial access to CFTC-regulated markets and registered entities must adopt transparent access criteria that are applied in a non-discriminatory manner. Further, the Commission is also tasked with ensuring continued public confidence in derivatives markets by guaranteeing market resilience and predictability. That includes the execution and clearing of transactions.
“A state cannot force a DCM to violate its obligations, and federal law does not permit a DCM (designated contract market) to discriminate against a state’s residents,” CFTC Chairman Michael Selig said. “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 Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.”
Michigan is the first state to bring enforcement actions against CFTC-regulated DCMs but other states have followed. Consequently, the CFTC has filed lawsuits against 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 and the Supreme Judicial Court of Massachusetts.