CFTC Vows Clean Prediction Markets as Kalshi Flags Insider Trading

The Commodity Futures Trading Commission (CFTC) said Wednesday (Feb. 25) that it has full authority to police illegal trading practices on designated contract markets (DCMs).

The regulator said this in a press release after the DCM Kalshi announced that it reported two insider trading cases to the CFTC.

“DCMs have an independent duty to maintain audit trails, conduct surveillance, and enforce rules against prohibited practices. … In appropriate cases, the Division will investigate and prosecute violations, as it always has with respect to conduct occurring on DCMs,” the CFTC said in the release. “The Division continues to coordinate with DCMs regarding their enforcement dockets and referral of appropriate violations to the Division for investigation.”

CFTC Commissioner Michael S. Selig said in a Wednesday 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 misconduct.

“I’m pleased to see that our exchanges are adhering to their oversight responsibilities as self-regulated organizations and our Enforcement Advisory today reflects that,” Selig said in the post. “Let me be clear: If you attempt to engage in manipulation, fraud, or insider trading, we will find you and take action.”

Kalshi released information about two insider trading cases that it recently closed in a Wednesday blog post, adding that it opened 200 investigations and froze a number of flagged accounts over the past year.

One case involved a candidate who traded about $200 on his own candidacy for state office and then posted about it on social media. The other involved an individual who traded about $4,000 on YouTube streaming markets and was found by Kalshi to be employed by a YouTube streamer and to likely have access to non-public information connected to his trading.

“In both of these cases, our systems flagged the trades and our surveillance team froze the traders’ accounts,” Kalshi said in the post. “Neither trader withdrew any profits.”

The company added that in each case, it imposed a ban or suspension; imposed a financial penalty, which it will donate to a nonprofit organization; and reported the case to the CFTC.