A US appeals court has sided with Kalshi in its dispute with New Jersey regulators. The case centres on whether Kalshi event contracts fall under federal derivatives law or state gambling rules. The ruling gives more clarity on how Kalshi event contracts are treated in the US market.

• The US Court of Appeals for the Third Circuit upheld a lower court decision granting Kalshi a preliminary injunction against New Jersey regulators. The court found Kalshi showed a reasonable chance of success in arguing federal law applies. It also agreed the company could face harm without protection from state enforcement.
• At the core of the case is whether event contracts linked to sports outcomes qualify as “swaps” under the Commodity Exchange Act. The court said these contracts fit the definition because they depend on events with potential economic consequences. This places them under the jurisdiction of the Commodity Futures Trading Commission (CFTC).
• New Jersey had issued a cease-and-desist order, arguing the contracts breached state gambling laws, including restrictions on college sports betting. The state warned of fines and possible criminal penalties if Kalshi continued offering the products. Kalshi responded by seeking federal court protection.
• Judges concluded that federal law likely preempts state regulation in this case. They pointed to the CFTC’s exclusive authority over derivatives traded on designated contract markets. This means Kalshi event contracts may not be subject to state-level gambling rules when offered through regulated exchanges.
• A dissenting opinion argued the products resemble traditional sports betting and should fall under state control. It pointed to long-standing state authority over gambling regulation. The dissent also questioned whether federal law was intended to cover this type of activity.

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