Key facts
- Prediction markets face challenges policing insider trading due to numerous U.S. election races and a rising number of platforms.
- Kalshi suspended three congressional candidates for betting on their own races, and regulators are investigating George Santos for potential insider trading.
- Combined monthly global trading volumes on Kalshi and Polymarket surged nearly fivefold from September to reach about $24 billion in April.
- The Commodity Futures Trading Commission (CFTC) is pushing for jurisdiction over prediction markets and states it is equipped to enforce the law.
- The U.S. Senate banned members and staff from prediction market betting in April.
Prediction markets are facing significant challenges in policing insider trading as betting on U.S. elections booms across an increasing number of platforms. Experts warn that the sheer volume and granularity of races, coupled with the novelty of insider trading regulations in this space, could lead to a slow or nonexistent response when illicit trades occur.
Kalshi, a major prediction market platform, has already suspended three congressional candidates for betting on their own races. Furthermore, regulators are investigating former congressman George Santos for potential insider trading on the platform. These incidents highlight growing concerns about information asymmetry, as non-public information, such as unpublished polling data or developing scandals, could be leveraged for profit.
Combined monthly trading volumes on Kalshi and Polymarket surged nearly fivefold from September to approximately $24 billion in April, far exceeding the average monthly wagers on U.S. sportsbooks. This surge is occurring across thousands of state and federal legislative seats up for election, with markets becoming increasingly granular, focusing on variables like voter turnout and margin of victory.
Both Kalshi and Polymarket are bolstering their controls. Kalshi is blocking election trades by politicians and campaign workers and monitoring trades for anomalies. Polymarket is cracking down on trading based on private information and has referred nearly 100 user wallets to law enforcement. The U.S. Senate also banned its members and staff from prediction market betting in April.
The Commodity Futures Trading Commission (CFTC), which is seeking jurisdiction over these markets, states it is equipped to handle the challenge with monitoring tools and resources. However, former CFTC officials express concerns about the agency's current staffing levels, suggesting it may lack the manpower to investigate a large volume of potential insider trading cases.