After Michigan Court Orders Kalshi To Void Trades, CFTC Orders Prediction Platform To Honor Them

Kalshi is weighing its options after its regulator, the Commodity Futures Trading Commission (CFTC), Tuesday rejected an emergency rule change required by Michigan’s 30th District Court to unwind certain trades involving users based in Michigan. Instead, the CFTC said it will force Kalshi to honor the trades even though a state court said they must be voided.

The options available to Kalshi currently appear unclear. It appears at risk of facing action from the Michigan court if it fulfills those trades — specifically, those made between Michigan residents and Kalshi’s in-house market maker Kalshi Trading — or action from the CFTC if it cancels them.

Michigan bans Kalshi

On June 29, a Michigan court banned Kalshi’s sports event contracts within the state, initially for 14 days. That ban was later extended, with a requirement to geofence the state — rather than using users’ addresses — by the end of they day Aug. 12.

The order banned Kalshi from “offering, listing, matching, executing, clearing, or settling” any contracts that would be classed as sports betting  to anyone in Michigan.  

After the initial order, Kalshi asked for clarification on the status of existing trades involving parties from Michigan.

In a July 6, 2026 correspondence to the parties, the court clarified that trades between Michigan residents and Kalshi Trading, Kalshi’s in-house market making arm, must be “voided, cancelled and refunded.” 

On Sunday, Kalshi submitted a proposed emergency rule to the CFTC requiring that “the Exchange will force-liquidate the open positions of specific users identified and directed by the Court to have their trades ‘voided, cancelled and refunded.’”

Kalshi added that “a broader order (e.g., mandating the liquidation of all sports positions involving a single Michigan-based user) would necessitate more extreme measures than those contemplated by this Rule, and would necessarily severely impact Exchange Members nationwide.”

Kalshi Trading’s presence on the exchange has been subject to some controversy with critics arguing it interferes with Kalshi’s stated goal of being a neutral exchange. Its size is not known, but the emergency filing claims that it is only “a minute percentage of Kalshi’s sports trading volume.” 

In late November, Kalshi co-founder Luana Lopes Lara wrote that Kalshi Trading was “less than 6% of the making volume” for sports contracts during that month, which would have suggested sports volume of about $310 million in November 2025. Kalshi’s overall volume has grown by about five times since then, and it is not clear how Kalshi Trading’s volume may have changed over that time period. If it focuses on less liquid markets, its volume may not necessarily increase as overall volume on the exchange does.

In the emergency rule note, Kalshi said it would pay out the shortfall between the liquidation value of any open positions and the original stake.

CFTC says Michigan court ‘bullying’ Kalshi

However, the CFTC issued an order Tuesday saying it did not accept the emergency rule change. Instead, it will stay the change for 90 days, which will include a 30-day comment period, after which it will make a final decision on the rule. By that point, it is likely that many of the trades in question would have settled.

“The Commodity Exchange Act requires the CFTC to provide a uniform national market in derivatives transactions,” the release accompanying the order said. “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.

“The Commission is also tasked with ensuring continued public confidence in derivatives markets by guaranteeing market resilience and predictability, including in the execution and clearing of transactions.”

In the release, CFTC Chair Michael Selig accused Michigan of “bullying” Kalshi into unwinding trades.

“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,” said Chairman Michael S. Selig. “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.”

CFTC: Unwinding could reduce faith in market

The order argued that allowing some trades to be forcibly liquidated could make other traders believe the same thing could happen to them.

“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,’” it said, citing an 1864 Supreme Court case. 

It added that some Kalshi market participants “may have made budgeting and risk management decisions based on the expected or likely outcome of their trades.

“Further, market participants may have exposure in contracts that are related to or corollary to the canceled trades,” it added. “Those contracts may experience significant price volatility resulting from the changes mandated by Kalshi’s proposed rule change, thereby risking a more systemic market issue affecting multiple exchanges.

“In general, forced liquidation of trades will cause distortions that could give rise to a marketplace that does not directly represent the forces of supply and demand.”

Kalshi evaluating steps

The order said the CFTC has the authority to require designated contract markets like Kalshi to fulfill orders that have been executed, and that it was taking that power.

“This exercise of the Commission’s emergency authority will give market participants the necessary assurances that the trades they execute will be duly cleared and fulfilled,” it said.

It is not clear if there will be consequences from the Michigan court if the CFTC forces Kalshi to honor the trades.

A Kalshi spokesperson told InGame: “We are currently reviewing the CFTC’s order and evaluating our next steps.”