Kalshi urges targeted CFTC rules to curb prediction market manipulation risks

Kalshi wants federal regulators to tackle manipulation in prediction markets by going after misconduct and restricting specific traders, rather than placing sweeping limits on event contracts.

In August 27 written comments, KalshiEX LLC responded to issues aired during the Commodity Futures Trading Commission’s inaugural Innovation Advisory Committee meeting on August 20.

The federally regulated exchange concentrated on manipulation, so-called mention markets and questions over whether event contracts connected to corporate results might come under securities rules.

Kalshi, founded in 2018 and designated by the CFTC as a contract market in November 2020, said regulators should treat manipulation much as they would on established exchanges.

“The existence of manipulation and similar trading misconduct on exchanges should lead us to work harder to root out that misconduct, not to ban or restrict legitimate trading on the platform,” Kalshi said.

CME Group’s Terry Duffy had questioned the rapid pace of event-contract self-certifications and warned that some products could be manipulated during the committee meeting.

Kalshi responded that prediction exchanges already face CFTC anti-manipulation requirements alongside surveillance, compliance and disciplinary obligations. The company said its own monitoring has identified suspicious activity for investigation and CFTC referral, while disciplinary cases have included trades valued below $100.

“The solution is to continue pursuing bad actors, not to close markets or delist contracts that innocent market participants, by their own revealed preferences, value and wish to trade,” the company said.

Kalshi favors targeted CFTC safeguards for manipulation risks

Another area drawing scrutiny is mention markets, which settle according to whether someone says a specified word or phrase during an event.

Robinhood’s Vlad Tenev told the committee that some of these contracts could invite manipulation and raise customer-protection concerns. Kalshi acknowledged those risks while opposing a blanket ban.

“Kalshi shares the view that the answer is robust guardrails rather than prohibition,” the company said.

Under Kalshi’s proposed approach, the person whose words determine settlement could not trade the contract. Speechwriters, communications staff, teleprompter operators, producers and others with advance knowledge would also be excluded.

Kalshi said those restrictions already apply through its rules, while screening tools introduced in June prevent known politicians, athletes and league-affiliated people from trading related markets. It wants the CFTC to set comparable minimum requirements across exchanges.

On corporate event contracts, Kalshi also rejected the idea that correlation with a company’s share price automatically makes a binary contract securities-based.

The exchange said these products differ from conventional options because there is no non-refundable premium or exercise right, with buyers and sellers instead taking symmetric risk.

Rather than assigning every crossover product to a single regulatory bucket, Kalshi wants the CFTC and Securities and Exchange Commission to leave exchanges flexibility when contracts touch both jurisdictions. Its broader argument is that federal oversight can cover these products without creating overlapping regulatory regimes.

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