The CFTC asserts its sole authority over prediction markets, yet questions arise about its capability to police insider trading. The Commodity Futures Trading Commission (CFTC) is challenged in effectively overseeing insider trading, which is a growing concern in prediction markets. Recently, Kalshi penalized a politician and a YouTube influencer’s employee for insider trading, a self-policing action. Kalshi has initiated 200 investigations, froze accounts, and converted some into active cases. The CFTC issued a statement regarding its authority to police illegal trading practices but failed to act as Kalshi dealt with these issues internally.
With approximately 120 enforcement staff as of 2025, down from 160 in 2024, the CFTC oversees prediction markets, agricultural and stock futures, and part of the crypto market. Staff numbers are decreasing, though the agency’s oversight responsibilities are increasing. Some believe insider trades go unnoticed. Trevor I. Lasn, who developed 0xInsider, claims suspicious activity volume is higher than platforms acknowledge. He argues that insider trading patterns deserve scrutiny.
The CFTC’s insider trading regulation is relatively new. Prior to the Dodd-Frank Act of 2010, only CFTC staff and supervised exchange employees were prohibited from insider trading, since the commission’s mandate originated with agricultural futures. The authority granted by the Dodd-Frank Act enabled the CFTC to adopt rules modeled after the SEC’s insider trading ban.
Kalshi positions itself as a self-regulating exchange, even voiding bets to comply with a CFTC rule against contracts tied to terrorism, assassination, war, or illegal activities. Conversely, Polymarket openly lists geopolitical bets, including war contracts, with offshore operations possibly operating outside CFTC jurisdiction. The SEC’s established insider trading enforcement includes obligations for brokers, exchanges, and the FINRA to monitor and report suspicious activities. Kalshi, lacking such layers of oversight, declined to reveal its enforcement staff size.
Prediction markets face challenges, including the risk of market manipulation alongside insider trading. Instances already occurred, such as misleading map edits in the Ukraine conflict to affect bets. Both Kalshi and Polymarket have given X posters affiliate badges, leading to fake reporting. Cases of suspicious bets tied to significant geopolitical events reflect the risk of insider information leaking onto these markets.
Cindy Schipani of the University of Michigan suggests new regulations could prohibit trading on information with national security implications, noting that while insider trading can reveal information, it disproportionately benefits insiders. The CFTC’s lenient insider trading enforcement complicates Kalshi’s fair market efforts and highlights the need for stricter oversight. Informed predictions, ideally, would be distinguished from insider activities, with markets rewarding research rather than privileged information access.