The Big Game is about to start, and it’s clear that Kalshi has officially gone mainstream. Our app is about to overtake ChatGPT for the #1 spot in the app store. With an hour to go, we’re over $315 million in trading volume. That’s almost double what Kalshi traded in a whole year in 2023. What we’re witnessing is a true shift in consumer behavior.
As an industry leader, it’s important to lay out our guiding principles as we continue to serve our customers and partners.
Kalshi was founded seven years ago, and it builds on the idea that the wisdom of the crowds can produce truth among noise in the world. That data and markets supersede discourse and bias. That financial markets shouldn’t just be confined to business performance but to other meaningful events like elections, economic indicators, and more.
Before we launched a single product, we spent years working to get regulated. We knew it was the hard way but the right way: getting US regulatory approval was key to earning trust and credibility. Today, with full CFTC approval, we operate under a strict regulatory framework.
Here’s more on the approach that got us where we are today and what will continue to make us successful. We look forward to working with Congress and regulators to ensure that prediction markets remain safe, fair, and open.
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Prediction markets provide value to the public by harnessing the collective insights of diverse participants to produce clearer, more accurate forecasts. When these markets operate under strong, effective regulatory safeguards, with robust oversight and enforcement, they can enhance public understanding of important issues, support better decision-making, and promote transparency and trust in the information they generate. Regulated industry leaders (such as Kalshi) already implement many of these safeguards - the intent of this framework is to clarify and standardize best practices.
A framework for prediction market operations should reflect the following values:
Integrity. The integrity of platforms, systems, and trading is essential to their proper functioning and the long-term viability of prediction markets. Absent the assurance of such integrity, prediction markets will be undermined and will collapse under the weight of cynical opportunism and potential corruption.
Trust. Ensuring trust in prediction markets and platforms is key to the markets’ viability, maturity, and success. Ensuring proper functioning, guardrails, and oversight reinforces fairness in how prediction markets operate.
Boundaries. Moral, ethical, and legal boundaries should be considered to limit the proper subjects of prediction markets.
Value. There is value in well-regulated, properly functioning prediction markets. Individuals have the freedom to reveal their preferences, produce collective insights, and contribute to greater knowledge and efficiency through trusted, fair prediction systems.
Core Principles for Operation and Oversight of Prediction Markets
Prediction markets operate as designated contract markets under the CFTC’s regulatory jurisdiction and are subject to the full range of CFTC oversight, including compliance with core principles governing market integrity, surveillance, financial safeguards, and anti-manipulation protections. In order to bolster robust CFTC oversight and enforcement, and to instill public trust and confidence, prediction markets should take proactive steps to identify, manage, and mitigate market integrity risks stemming from traders, event types, and abusive transactions. The following principles are intended to describe integrity standards to help prediction markets meet these values.
A. Heightened Standards for Certain High-Risk Activities
Prediction markets should prohibit, or apply enhanced due diligence to, activities that can undermine market confidence and public trust.
Prohibition on insider trading. Insider trading prohibitions should apply to trades on prediction markets. These requirements should be codified within the Commodity Exchange Act, or clarified by additional rulemaking or CFTC guidance on existing regulations.
Prohibition or heightened due diligence on contracts involving matters in the public interest. Prediction markets should apply enhanced oversight and due diligence to any prediction market contract that has a heightened likelihood of harming the public interest. In this regard, the following prediction market contracts should be subject to enhanced due diligence:
Markets directly resolving upon the occurrence or nonoccurrence of the below topics should be subject to preemptive regulatory scrutiny and/or prohibition
Terrorism, assassination, war, or any activity that is explicitly unlawful under state or federal law;
Markets directly resolving upon the occurrence or nonoccurrence of the below topics should be subject to enhanced due diligence
U.S. military operations in foreign countries or U.S. national security
Market surveillance and protections against illicit financial activity. Prediction markets must implement compliance measures, including real-time market surveillance, to monitor for:
Insider trading;
Market and price manipulation;
Money laundering and sanctions evasion;
Spoofing or other suspicious trades; and
Any other forms of fraud and abuse:
B. Heightened Standards for High-Risk Traders
Prediction markets should restrict, or apply enhanced due diligence to, the following types of traders that may present greater risks:
Higher insider trading risk individuals. Individuals that present high risk of insider trading should be subject to enhanced due diligence where appropriate.
Heightened ethics requirements, including insider trading prohibitions and avoidance of conflicts of interest, should expressly apply to these individuals.
These categories include, for example:
Politically exposed persons (PEPs), such as Members of Congress, Congressional staff, Executive Branch officials, and judicial officers and employees, as well as their immediate family;
Corporate insiders with material, non-public, market-moving information;
Employees, contractors, and affiliates of professional and collegiate sports leagues, institutions, and franchises; and
Any other categories of traders determined as high risk by the Market Integrity Committee of the prediction market.
Individuals who should be prohibited for other reasons. Participation in prediction markets should be prohibited for:
Any individual age 18 and younger;
Any other categories of traders determined by the Market Integrity Committee of the prediction market.
C. Compliance Program to Manage and Mitigate Market Integrity Risks
Prediction markets should implement compliance systems to identify, manage, and mitigate market integrity risks.
Implement market integrity compliance program. Prediction markets should establish a documented risk-based integrity program that identifies, manages, and mitigates market integrity risks stemming from prediction markets.
Understanding risks. Risks associated with prediction market contracts, such as insider trading, market manipulation, and public interest risks associated with customer types, specific event contracts and event types, and public interest factors, should be effectively assessed and understood on an ongoing basis.
Know your customer on an ongoing basis. Prediction markets should implement processes to understand traders and their activity at onboarding in order to better identify and mitigate trading risks.
Prediction markets should collect personal identifier information to comply with U.S. and state law and regulations (e.g., sanctions, PEP, disqualified persons, and adverse media screening). This includes legal name, address, email address, phone number with OTP confirmation, and date of birth.
High-risk traders should be flagged, where possible, as part of the customer onboarding process and be subject to additional information requests and enhanced due diligence and monitoring, including potential restrictions on account activity.
The onboarding process, or the ongoing know your customer process, should clarify through appropriate means whether a trader falls within high-risk categories, such as PEPs or a defined role in an election campaign, affiliation with professional or collegiate sports franchises, etc.
Prediction markets should refresh client information at reasonable intervals.
Implement effective internal controls. Prediction markets should establish internal controls, including real-time surveillance systems, tailored to the prediction market’s assessment of risks.
Prediction markets should review high-risk accounts on a dynamic, real-time basis.
Virtual private network (VPNs) should be prohibited both (i) as a means of accessing a US-regulated market from a prohibited jurisdiction; and (ii) as a means of illegally accessing a foreign, unregulated market from the United States.
Transaction monitoring systems should conduct real-time market surveillance and/or set reasonable trading limits based on customer and event type.
Prediction markets should use adequate technology and tools, including new and emerging technologies related to artificial intelligence and machine learning (AI/ML), for anomaly detection.
Implement oversight, enforcement, and audit mechanisms. Prediction markets should establish escalation processes and other governance mechanisms to ensure appropriate senior-management attention to address real and reputational risks.
Platforms should establish a Market Integrity Committee or similar oversight body at the board level to guide decision-making around market integrity considerations.
Prediction markets should have effective escalation processes for account and transaction alerts. The escalation process should include mechanisms for the investigation of suspicious behavior, including through information gathering and interviews.
Prediction markets should have a transparent disciplinary framework that imposes penalties for misconduct.
Prediction markets should establish private-private and public-private partnerships with other market participants, industry exchanges, financial institutions, entities involved in higher-risk activities, and law enforcement.
Prediction markets should establish processes for voluntary referral to regulators (e.g., CFTC) if misconduct is suspected.