In remarks delivered at NYU Law School, Miller said that contrary to a myth that has been spread in the media and social media, insider trading law applies in prediction markets. Insider trading violates the Commodity Exchange Act (CEA) and the anti-fraud provisions of CFTC regulations, he said.
“Insider trading in the prediction markets — where there is misappropriated information — is precisely the kind of serious violation that we are going after vigorously,” Miller said. “We will aggressively detect, investigate, and, where appropriate, prosecute insider trading in the prediction markets.”
The CFTC will prosecute cases against market participants who tip or trade with misappropriated information, Miller said. For example, a trainer with advance, non-public knowledge of a player’s injury, could violate a duty of confidentiality by using that information to trade, he said.
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The agency will also prosecute the illegal use of government information to trade, as well as use of information learned on the job and used in violation of a confidentiality agreement, non-disclosure agreement or employment contract, Miller said.
Miller contrasted these examples of violations with market participants using their own knowledge and information to make trading decisions, which is allowed. For example, a farm cooperative that sees issues with a harvest is allowed to hedge its position, he said.
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Concluding his remarks on prediction markets, Miller said: “This has only been a discussion of insider trading. We also have authority to bring cases under other provisions of the CEA — including for market manipulation, market abuse and other fraudulent trading practices.”
When prediction market Kalshi announced that it reported two insider trading cases to the CFTC, Michael S. Selig, commissioner of the CFTC, said in a Feb. 25 post on X that exchanges are the regulator’s first line of defense against insider trading in prediction markets and that Kalshi’s actions should serve as a warning against that kind of conduct.
“Let me be clear: If you attempt to engage in manipulation, fraud, or insider trading, we will find you and take action,” Selig said.
On March 12, the CFTC said that it is seeking public comment on whether it should amend or issue new regulations governing event contracts traded on prediction markets. The regulator also reminded designated contract markets of their obligations under current regulations.
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