CFTC Invokes Emergency Powers Twice in Last 30 Days in Support of Kalshi
Publisher’s Note: A correction to this story was subsequently published reflecting that the CFTC has used its emergency authority a total of six times, including twice recently for Kalshi. Our apologies for the error.
WILLIAMS BAY, WI (JLN) – August 12, 2026: How many times has the CFTC invoked its emergency authority before July 14, 2026? Zero. That’s right, not during the Hunt Brothers’ silver market corner, or during the Maine Potato default, or during 9/11 or the financial crisis, or any other time.
Section 8a(9) of the Commodity Exchange Act is the CFTC’s nuclear option. It allows the commission, upon finding an emergency, to order a registered exchange to take whatever action the CFTC considers necessary to maintain or restore orderly trading. The merits of that emergency determination are generally insulated from judicial review.
And there is the legal strategy of CFTC Chairman Michael Selig: use the nuclear option to assert CFTC preemption over the states, avoiding any ambiguity about conflicting Federal court decisions on the CFTC’s authority, which I wrote about yesterday.
For nearly five decades, the CFTC left that authority untouched; the nuclear missiles stayed in the regulator’s silos. During the Hunt brothers’ attempt to corner silver, the commission relied on exchange emergency actions and self-regulatory measures. After the September 11 attacks and during the 2008 financial crisis, it used coordination, administrative relief, reporting requirements, and other supervisory powers.
Then, within the last thirty days, the CFTC invoked Section 8a(9) twice. Both actions involved Kalshi, and both arose from state efforts to regulate event contracts as gambling.
The first came on July 14, after a Michigan court ordered Kalshi to void, cancel, and refund previously executed trades involving Michigan residents. Kalshi responded by proposing an emergency rule to force-liquidate the affected positions. The CFTC stayed that rule and directed Kalshi to fulfill the contracts in the ordinary course of business. Pay no attention to that judge in the black gown, the CFTC said.
The CFTC’s concern went beyond Kalshi, and this was the right call. Retroactively unwinding trades executed through a central order book could disrupt counterparties that were not involved in the Michigan litigation. It could also undermine settlement finality, a foundation of derivatives markets. If a state court can reach into a federally regulated market and erase completed transactions, no market participant can be certain when a trade is final. It is a bad idea’s bad idea. But all this was just legal maneuvering too.
The second invocation came yesterday after New York Attorney General Letitia James sued Kalshi, alleging that it operated an illegal gambling business. New York sought an injunction, restitution, disgorgement and eye-popping civil penalties estimated at $36 billion or more. The CFTC ordered Kalshi to continue operating under its normal rules and the Commodity Exchange Act’s core principles.
This is a remarkable transformation of Section 8a(9). Congress gave the CFTC emergency authority to preserve orderly markets. Chairman Michael Selig is now using it as a federal shield against state enforcement.
The commission’s legal argument never strays from straightforward. The Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps traded on designated contract markets. The CFTC considers all of Kalshi’s event contracts to be swaps, including the sports-related ones. Why are they swaps? Because the CFTC says they are, and it gets to decide what is a swap, or for that matter, what is a futures contract. Therefore, it contends, states cannot apply their gambling laws in ways that interfere with trading on Kalshi.
That position has judicial support, but it is not settled nationwide, as I wrote ad nauseum yesterday. In April, a divided Third Circuit panel held that Kalshi was likely to succeed in showing that its sports contracts are swaps and that federal law preempts New Jersey’s gambling laws. But the ruling affirmed a preliminary injunction, not a final judgment on the merits, and its binding reach is limited to the Third Circuit.
Other courts and states have taken different approaches. New York has argued that sports event contracts remain gambling products subject to traditional state police powers. That produces the precise conflict the CFTC’s emergency orders are designed to prevent: federal law tells Kalshi to continue operating while state authorities tell it to stop.
Section 8a(9) may protect the exchange temporarily, but it cannot resolve the underlying jurisdictional question. Calling an enforcement action a market emergency does not determine whether Congress intended to displace state gambling laws whenever a wager is placed on a federally regulated order book. Nor does federal designation automatically answer whether every event contract has the economic substance of a derivative.
That may explain the scale and aggression of New York’s case. The $36 billion demand attracts attention and creates leverage, but the litigation may have a larger strategic purpose. The attorney general is pressing state sovereignty against the CFTC’s broadest claims of federal primacy, forcing courts to decide where derivatives regulation ends and gambling regulation begins.
New York may lose its request to shut Kalshi down. It may fail to collect anything resembling $36 billion. I don’t believe an immediate victory shutting Kalshi down was the objective. By seeking remedies that collide directly with a CFTC emergency order, the New York attorney general is creating a jurisdictional conflict, developing a record and preserving the constitutional and statutory questions for appeal. The ultimate audience in this drama will not be the trial judge. It will likely be the U.S. Supreme Court.
