The PM Pulse 013
New York Sues Kalshi, CFTC Market-Making Rules, and IG Buys Underdog
Regulatory Updates
New York AG Sues Kalshi in State Court
New York Attorney General Letitia James, with Governor Kathy Hochul, announced a lawsuit against Kalshi in New York County Supreme Court alleging the platform is running an illegal gambling operation. The suit seeks a court order stopping Kalshi from operating as an unlicensed gambling business, along with fines, forfeiture of alleged illegal gains, and restitution to users.
The AG also moved for a temporary restraining order. Proposed immediate relief includes ceasing event contracts in New York related to sports, culture, and elections; full restitution; disgorgement of amounts obtained; treble penalties; and $100,000 per transaction. The office is seeking at least $36 billion in compensatory damages pending a full accounting, including nationwide disgorgement theories under Executive Law § 63(12).
In parallel, the CFTC filed an emergency TRO in federal court seeking to block the New York AG from pursuing criminal or civil enforcement against Kalshi or other CFTC-registered entities.
The filing follows the Second Circuit’s denial of Kalshi’s request for temporary relief and the end of New York’s standstill through July 30. Expected next steps include a Kalshi attempt to remove the case to federal court and a state motion to remand.
This develops the New York track from The PM Pulse 009–012.
Key Takeaways:
State enforcement is now live after the Second Circuit denial cleared the path
Damages theory is aggressive ($36B “at a minimum”), built on disgorgement, treble penalties, and per-transaction fines
CFTC’s competing emergency TRO sets up an immediate federal–state collision
Sources: NY Attorney General, Daniel Wallach, Daniel Wallach
Sixth Circuit Hears Kalshi Appeals
The Sixth Circuit heard oral argument in the Ohio and Tennessee cases over Kalshi’s sports event contracts. Judges framed the dispute around traditional state authority over sports gambling rather than pure federal derivatives regulation.
Judge Eric Clay asked why Kalshi was “so disparaging of state regulators and state policymakers.” Judge Rachel Bloomekatz questioned whether Congress contemplated CFTC oversight of sports betting and noted that some contracts do not appear to address conventional market risk. Coverage described the argument as favorable to the states, with a possible circuit split versus the Third Circuit if Ohio and Tennessee prevail. No decision was issued.
SportTrade CEO Alex Kane responded to the exchange, arguing that a robust federal, intermediated market structure is better suited to exchanges than state regimes built around the sportsbook model.
Sources: Daniel Wallach, Marshall Cohen, InGame, Alex Kane
CFTC Proposes Rules on Affiliated Market Makers and Vertical Integration
The CFTC issued a notice of proposed rulemaking addressing affiliations among DCMs, DCOs, SEFs, FCMs, and affiliated market makers. The proposal targets perceived and potential conflicts of interest as vertically integrated structures become more common.
Under the draft rules, an exchange may own an affiliated market maker, but only if it operates as a “bona fide” market maker: continuous two-sided quotations, no directional positions beyond that obligation, no preferential treatment on fees, matching priority, or access, and separation of personnel, technology, and office space. The proposal would prohibit an exchange from owning a proprietary trading firm that trades on its own market. Public comments are open for 60 days after Federal Register publication.
The rules are especially relevant to platforms that rely on affiliated trading arms for liquidity, including Novig and Susquehanna (SIG).
Industry reaction: Sporttrade CEO Alex Kane argued that impartial fee schedules alone do not prevent a vertically integrated venue from setting high maker fees that only its own trading arm can absorb, effectively producing a single-dealer platform. Novig CEO Jacob Fortinsky agreed that impartial access is central to the DCM mandate, but said an ownership threshold is not the right fix — the core problems are structural advantages such as preferential fees, latency, clearing terms, and visibility into order flow, which should be prohibited directly.
Key Takeaways:
Affiliated market making is permitted only under strict “bona fide” constraints
Preferential treatment and shared non-public information would be restricted
Prop trading arms on an exchange’s own market would be barred
Industry debate centers on whether ownership limits or operational restrictions better preserve competitive market making
Sources: CFTC, Chairman Selig, InGame, Alex Kane, Jacob Fortinsky, Captain Jack Andrews
Company / Product Updates
IG Group to Acquire Underdog for Up to $1.3 Billion
IG Group Holdings plc agreed to acquire Underdog for total consideration of up to approximately $1.3 billion. The deal includes upfront consideration based on an enterprise value of about $1.1 billion (part cash, part new IG shares) plus an earnout of about $200 million for Underdog shareholders, subject to 2026 performance conditions. IG will also repay roughly $160 million of Underdog debt at completion.
Separately, eligible Underdog employees may participate in a management incentive plan capped at $850 million, self-funded from Underdog’s earnings and contingent on strong outperformance (including EBITDA targets of at least $400 million in 2028 and $700 million in 2029). That plan is not part of the $1.3 billion purchase consideration.
IG said the acquisition establishes it as a leader in U.S. prediction markets, more than doubling its U.S. revenues and increasing U.S. monthly active customers more than tenfold. Underdog is described as the third-largest U.S. prediction markets venue by regulated notional volume. Completion is expected in late 2026 or early 2027, subject to regulatory approvals.
Underdog CEO Jeremy Levine said joining IG will expand what the company can offer customers in sports predictions and beyond. Early investors and the founding team circulated a lengthy shareholder list marking the outcome:
Source: Underdog
Novig Named Exclusive Prediction Market Partner of the New York Mets
Novig became the exclusive official prediction market partner of the New York Mets, the first team-level partnership between an MLB franchise and a prediction market platform. The deal follows Novig’s designation as an MLB Authorized Prediction Market, which includes participation in MLB’s integrity program, market monitoring, reporting protocols, and restrictions on markets that present integrity risk.
Novig founder and CEO Jacob Fortinsky said the partnership is a milestone for the company and a sign of broader league engagement with regulated prediction markets.
Sources: Jacob Fortinsky, Front Office Sports, PR Newswire
Polymarket Moves Crypto Up/Down Markets to TWAP Resolution
Polymarket will change how its crypto up/down markets resolve, effective August 7 at 12:00 UTC. Instead of a single snapshot price, resolution will use a time-weighted average price (TWAP): 30 seconds for 5-minute markets and 60 seconds for 15-minute and 4-hour markets. The company is also allocating $1 million in liquidity rewards across the affected markets through August. Chainlink TWAP feeds and Polymarket’s real-time data stream are scheduled to support the transition.
Source: Polymarket Developers / Josh Stevens
Other Relevant News
Bloomberg Flags Manipulation Risk in Election Markets
A Bloomberg investigation reported that election prediction markets on Polymarket and Kalshi are vulnerable to manipulation.
Source: Bloomberg
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