Molly White
@molly0xfff@hachyderm.io  ·  activity timestamp 3 weeks ago
When I asked Cristea about the CFTC’s ability to oversee retail markets, he pointed to the CFTC’s track record regulating Futures Commission Merchants (FCMs), which facilitate trading of futures and derivatives. While institutional clients still dominate these markets, retail participation has grown significantly in recent years. However, he notes a key difference in consumer protections: “FCMs don’t have the same sort of requirement for a customer suitability analysis that applies to broker-dealers in the securities context.” Broker-dealers are obligated to assess whether specific investments are appropriate for specific customers. For example, if a 65-year-old retiree with limited savings tried to make a substantial investment in a high-risk stock, a broker-dealer would need to evaluate whether the investment suited her financial situation and could refuse inappropriate trades. Cristea also expressed concerns about enforcement capacity. “The current administration takes a more free market, caveat emptor-type approach. That said, even when the CFTC got jurisdiction over a very large swaps market the agency’s budget was not increased much. And together with this deregulatory trend, agencies getting smaller in size, where agencies are being told to do more with less, I am not sure the CFTC will necessarily come out with [additional retail] protections unless the agency sees that as a necessary step for credibility and for the market to thrive.” The CFTC has yet to bring
When I asked Cristea about the CFTC’s ability to oversee retail markets, he pointed to the CFTC’s track record regulating Futures Commission Merchants (FCMs), which facilitate trading of futures and derivatives. While institutional clients still dominate these markets, retail participation has grown significantly in recent years. However, he notes a key difference in consumer protections: “FCMs don’t have the same sort of requirement for a customer suitability analysis that applies to broker-dealers in the securities context.” Broker-dealers are obligated to assess whether specific investments are appropriate for specific customers. For example, if a 65-year-old retiree with limited savings tried to make a substantial investment in a high-risk stock, a broker-dealer would need to evaluate whether the investment suited her financial situation and could refuse inappropriate trades. Cristea also expressed concerns about enforcement capacity. “The current administration takes a more free market, caveat emptor-type approach. That said, even when the CFTC got jurisdiction over a very large swaps market the agency’s budget was not increased much. And together with this deregulatory trend, agencies getting smaller in size, where agencies are being told to do more with less, I am not sure the CFTC will necessarily come out with [additional retail] protections unless the agency sees that as a necessary step for credibility and for the market to thrive.” The CFTC has yet to bring
When I asked Cristea about the CFTC’s ability to oversee retail markets, he pointed to the CFTC’s track record regulating Futures Commission Merchants (FCMs), which facilitate trading of futures and derivatives. While institutional clients still dominate these markets, retail participation has grown significantly in recent years. However, he notes a key difference in consumer protections: “FCMs don’t have the same sort of requirement for a customer suitability analysis that applies to broker-dealers in the securities context.” Broker-dealers are obligated to assess whether specific investments are appropriate for specific customers. For example, if a 65-year-old retiree with limited savings tried to make a substantial investment in a high-risk stock, a broker-dealer would need to evaluate whether the investment suited her financial situation and could refuse inappropriate trades. Cristea also expressed concerns about enforcement capacity. “The current administration takes a more free market, caveat emptor-type approach. That said, even when the CFTC got jurisdiction over a very large swaps market the agency’s budget was not increased much. And together with this deregulatory trend, agencies getting smaller in size, where agencies are being told to do more with less, I am not sure the CFTC will necessarily come out with [additional retail] protections unless the agency sees that as a necessary step for credibility and for the market to thrive.” The CFTC has yet to bring
Old rules, new markets Though prediction markets aren’t a new phenomenon, their growing accessibility to retail traders is. Unlike the SEC, which prioritizes protecting retail investors, the CFTC’s mandate is centered on market integrity and preventing fraud or manipulation — not on consumer protection. Its regulations were designed for businesses hedging wheat and oil, not retail traders betting on album releases and how many times Elon Musk tweets in a month. Is a regulatory framework designed for commercial hedgers adequate for these retail-heavy markets? Should regulators try to protect retail traders who are consistently outmaneuvered by insiders with private information or other participants with structural advantages? Some experts think the CFTC’s oversight could work. Lee Reiners, a lecturing fellow at the Duke Financial Economics Center, explains that “any insider trading on these contracts would clearly implicate the anti-fraud provisions of the Commodity Exchange Act,” potentially triggering both CFTC enforcement action and a referral for criminal charges from the Department of Justice.
Old rules, new markets Though prediction markets aren’t a new phenomenon, their growing accessibility to retail traders is. Unlike the SEC, which prioritizes protecting retail investors, the CFTC’s mandate is centered on market integrity and preventing fraud or manipulation — not on consumer protection. Its regulations were designed for businesses hedging wheat and oil, not retail traders betting on album releases and how many times Elon Musk tweets in a month. Is a regulatory framework designed for commercial hedgers adequate for these retail-heavy markets? Should regulators try to protect retail traders who are consistently outmaneuvered by insiders with private information or other participants with structural advantages? Some experts think the CFTC’s oversight could work. Lee Reiners, a lecturing fellow at the Duke Financial Economics Center, explains that “any insider trading on these contracts would clearly implicate the anti-fraud provisions of the Commodity Exchange Act,” potentially triggering both CFTC enforcement action and a referral for criminal charges from the Department of Justice.
Old rules, new markets Though prediction markets aren’t a new phenomenon, their growing accessibility to retail traders is. Unlike the SEC, which prioritizes protecting retail investors, the CFTC’s mandate is centered on market integrity and preventing fraud or manipulation — not on consumer protection. Its regulations were designed for businesses hedging wheat and oil, not retail traders betting on album releases and how many times Elon Musk tweets in a month. Is a regulatory framework designed for commercial hedgers adequate for these retail-heavy markets? Should regulators try to protect retail traders who are consistently outmaneuvered by insiders with private information or other participants with structural advantages? Some experts think the CFTC’s oversight could work. Lee Reiners, a lecturing fellow at the Duke Financial Economics Center, explains that “any insider trading on these contracts would clearly implicate the anti-fraud provisions of the Commodity Exchange Act,” potentially triggering both CFTC enforcement action and a referral for criminal charges from the Department of Justice.
Toni Aittoniemi
@gimulnautti@mastodon.green  ·  activity timestamp 3 weeks ago
Molly White
@molly0xfff@hachyderm.io  ·  activity timestamp 3 weeks ago
While farmers hedging wheat prices serves a clear economic purpose, prediction markets operate in murkier territory. When people trade on sports games or celebrity relationships, are they engaging in legitimate derivatives trading deserving the same regulatory treatment? Or are platforms like Kalshi and Polymarket essentially gambling sites operating under the veneer of financial markets? And with participants potentially losing big money to better-informed insiders, who’s ensuring these markets stay fair? What happens when prediction markets collide with other issues — from market manipulation to gambling addiction to election integrity?
While farmers hedging wheat prices serves a clear economic purpose, prediction markets operate in murkier territory. When people trade on sports games or celebrity relationships, are they engaging in legitimate derivatives trading deserving the same regulatory treatment? Or are platforms like Kalshi and Polymarket essentially gambling sites operating under the veneer of financial markets? And with participants potentially losing big money to better-informed insiders, who’s ensuring these markets stay fair? What happens when prediction markets collide with other issues — from market manipulation to gambling addiction to election integrity?
While farmers hedging wheat prices serves a clear economic purpose, prediction markets operate in murkier territory. When people trade on sports games or celebrity relationships, are they engaging in legitimate derivatives trading deserving the same regulatory treatment? Or are platforms like Kalshi and Polymarket essentially gambling sites operating under the veneer of financial markets? And with participants potentially losing big money to better-informed insiders, who’s ensuring these markets stay fair? What happens when prediction markets collide with other issues — from market manipulation to gambling addiction to election integrity?
As Ackman says, prediction markets fall outside the SEC’s jurisdiction,a living in a different regulatory world than stock markets where executives get prosecuted for trading on non-public earnings or tipping off friends about upcoming mergers. Unlike crypto’s ongoing turf wars between regulators, prediction markets have a clear home: the Commodity Futures Trading Commission, which oversees futures, swaps, and other derivatives trading. A farmer worried about a poor wheat harvest can buy futures contracts that rise in value if wheat prices increase, helping to offset the money lost from selling less grain. An airline can buy oil-based futures contracts to offset the risk of jet fuel costs rising, effectively letting them budget fuel at today’s prices even if market rates climb before delivery. Some derivatives markets more closely resemble prediction markets, dealing in events rather than commodities — for instance, ski resorts can hedge against poor snowfall by trading weather-based contracts.
As Ackman says, prediction markets fall outside the SEC’s jurisdiction,a living in a different regulatory world than stock markets where executives get prosecuted for trading on non-public earnings or tipping off friends about upcoming mergers. Unlike crypto’s ongoing turf wars between regulators, prediction markets have a clear home: the Commodity Futures Trading Commission, which oversees futures, swaps, and other derivatives trading. A farmer worried about a poor wheat harvest can buy futures contracts that rise in value if wheat prices increase, helping to offset the money lost from selling less grain. An airline can buy oil-based futures contracts to offset the risk of jet fuel costs rising, effectively letting them budget fuel at today’s prices even if market rates climb before delivery. Some derivatives markets more closely resemble prediction markets, dealing in events rather than commodities — for instance, ski resorts can hedge against poor snowfall by trading weather-based contracts.
As Ackman says, prediction markets fall outside the SEC’s jurisdiction,a living in a different regulatory world than stock markets where executives get prosecuted for trading on non-public earnings or tipping off friends about upcoming mergers. Unlike crypto’s ongoing turf wars between regulators, prediction markets have a clear home: the Commodity Futures Trading Commission, which oversees futures, swaps, and other derivatives trading. A farmer worried about a poor wheat harvest can buy futures contracts that rise in value if wheat prices increase, helping to offset the money lost from selling less grain. An airline can buy oil-based futures contracts to offset the risk of jet fuel costs rising, effectively letting them budget fuel at today’s prices even if market rates climb before delivery. Some derivatives markets more closely resemble prediction markets, dealing in events rather than commodities — for instance, ski resorts can hedge against poor snowfall by trading weather-based contracts.
When billionaire Bill Ackman suggested on Twitter that Eric Adams could “place a large [Polymarket] bet on Andrew Cuomo and then announce [his] withdrawal” from the New York City mayoral race, he described something that feels profoundly illegal. A politician profiting from non-public knowledge of their own withdrawal from an election surely crosses some line — insider trading? Market manipulation? Election interference? Illegal gambling? Ackman ended his tweet: “There is no insider trading on Polymarket”1 — not because it doesn’t happen, but because it won’t be charged. He’s right: the Securities and Exchange Commission’s insider trading rules don’t apply here. But that leaves the question: what rules, if any, do?
When billionaire Bill Ackman suggested on Twitter that Eric Adams could “place a large [Polymarket] bet on Andrew Cuomo and then announce [his] withdrawal” from the New York City mayoral race, he described something that feels profoundly illegal. A politician profiting from non-public knowledge of their own withdrawal from an election surely crosses some line — insider trading? Market manipulation? Election interference? Illegal gambling? Ackman ended his tweet: “There is no insider trading on Polymarket”1 — not because it doesn’t happen, but because it won’t be charged. He’s right: the Securities and Exchange Commission’s insider trading rules don’t apply here. But that leaves the question: what rules, if any, do?
When billionaire Bill Ackman suggested on Twitter that Eric Adams could “place a large [Polymarket] bet on Andrew Cuomo and then announce [his] withdrawal” from the New York City mayoral race, he described something that feels profoundly illegal. A politician profiting from non-public knowledge of their own withdrawal from an election surely crosses some line — insider trading? Market manipulation? Election interference? Illegal gambling? Ackman ended his tweet: “There is no insider trading on Polymarket”1 — not because it doesn’t happen, but because it won’t be charged. He’s right: the Securities and Exchange Commission’s insider trading rules don’t apply here. But that leaves the question: what rules, if any, do?
Molly White
@molly0xfff@hachyderm.io  ·  activity timestamp 3 weeks ago
The regulatory landscape shifted further after Trump took office. The CFTC’s interim leadership began championing prediction markets as “an important new frontier”,4 and dropped both their appeal in the Kalshi case and an ongoing investigation into Polymarket’s continued accessibility to US users [I89]. Polymarket acquired a CFTC-regulated derivatives exchange, and a no-action letter from the agency greenlighted their re-entry into the US [I92]. With the administration’s deregulatory stance and a nominee for CFTC Chair who sits on Kalshi’s board [I90], this permissive approach is likely to accelerate in the coming years. More companies are eager to join the fray, with Crypto.com, Robinhood, and even the sports betting company FanDuel adding event contracts to their offerings. Eyeing this lucrative market, they’re likely to follow their predecessors’ lead in pushing regulatory boundaries even if it means expensive litigation. Following the crypto industry playbook, they may also lobby Congress for special exemptions.
The regulatory landscape shifted further after Trump took office. The CFTC’s interim leadership began championing prediction markets as “an important new frontier”,4 and dropped both their appeal in the Kalshi case and an ongoing investigation into Polymarket’s continued accessibility to US users [I89]. Polymarket acquired a CFTC-regulated derivatives exchange, and a no-action letter from the agency greenlighted their re-entry into the US [I92]. With the administration’s deregulatory stance and a nominee for CFTC Chair who sits on Kalshi’s board [I90], this permissive approach is likely to accelerate in the coming years. More companies are eager to join the fray, with Crypto.com, Robinhood, and even the sports betting company FanDuel adding event contracts to their offerings. Eyeing this lucrative market, they’re likely to follow their predecessors’ lead in pushing regulatory boundaries even if it means expensive litigation. Following the crypto industry playbook, they may also lobby Congress for special exemptions.
The regulatory landscape shifted further after Trump took office. The CFTC’s interim leadership began championing prediction markets as “an important new frontier”,4 and dropped both their appeal in the Kalshi case and an ongoing investigation into Polymarket’s continued accessibility to US users [I89]. Polymarket acquired a CFTC-regulated derivatives exchange, and a no-action letter from the agency greenlighted their re-entry into the US [I92]. With the administration’s deregulatory stance and a nominee for CFTC Chair who sits on Kalshi’s board [I90], this permissive approach is likely to accelerate in the coming years. More companies are eager to join the fray, with Crypto.com, Robinhood, and even the sports betting company FanDuel adding event contracts to their offerings. Eyeing this lucrative market, they’re likely to follow their predecessors’ lead in pushing regulatory boundaries even if it means expensive litigation. Following the crypto industry playbook, they may also lobby Congress for special exemptions.
In 2020, the US-based Polymarket began allowing customers to use cryptocurrency to trade events contracts, though they made no effort to certify their contracts with the CFTC. In 2021, Kalshi emerged as the first fully regulated prediction market in the US, following a hard-won CFTC approval. That platform allowed traders to stake up to $25,000 on outcomes ranging from COVID-19 vaccination rates to record-breaking temperatures. The CFTC cracked down on prediction markets in 2022. First, they hit the unregistered Polymarket with a $1.4 million fine and ordered it to stop offering unregistered event contracts to US customers, effectively shutting the platform out of the American market.2 Then they revoked PredictIt’s no-action letter,3 apparently concluding the platform had expanded beyond its academic purpose into a commercial enterprise. PredictIt challenged this decision in court, winning a preliminary victory in 2023 and a final one in 2025. In 2023, the CFTC ordered Kalshi to stop offering markets on which party would control Congress after the upcoming elections, citing the Commodity Exchange Act’s prohibition on “gaming”. Kalshi also mounted an aggressive legal challenge, and when a district court ruled in Kalshi’s favor in 2024, the company swiftly reinstated the contested markets [I66].
In 2020, the US-based Polymarket began allowing customers to use cryptocurrency to trade events contracts, though they made no effort to certify their contracts with the CFTC. In 2021, Kalshi emerged as the first fully regulated prediction market in the US, following a hard-won CFTC approval. That platform allowed traders to stake up to $25,000 on outcomes ranging from COVID-19 vaccination rates to record-breaking temperatures. The CFTC cracked down on prediction markets in 2022. First, they hit the unregistered Polymarket with a $1.4 million fine and ordered it to stop offering unregistered event contracts to US customers, effectively shutting the platform out of the American market.2 Then they revoked PredictIt’s no-action letter,3 apparently concluding the platform had expanded beyond its academic purpose into a commercial enterprise. PredictIt challenged this decision in court, winning a preliminary victory in 2023 and a final one in 2025. In 2023, the CFTC ordered Kalshi to stop offering markets on which party would control Congress after the upcoming elections, citing the Commodity Exchange Act’s prohibition on “gaming”. Kalshi also mounted an aggressive legal challenge, and when a district court ruled in Kalshi’s favor in 2024, the company swiftly reinstated the contested markets [I66].
In 2020, the US-based Polymarket began allowing customers to use cryptocurrency to trade events contracts, though they made no effort to certify their contracts with the CFTC. In 2021, Kalshi emerged as the first fully regulated prediction market in the US, following a hard-won CFTC approval. That platform allowed traders to stake up to $25,000 on outcomes ranging from COVID-19 vaccination rates to record-breaking temperatures. The CFTC cracked down on prediction markets in 2022. First, they hit the unregistered Polymarket with a $1.4 million fine and ordered it to stop offering unregistered event contracts to US customers, effectively shutting the platform out of the American market.2 Then they revoked PredictIt’s no-action letter,3 apparently concluding the platform had expanded beyond its academic purpose into a commercial enterprise. PredictIt challenged this decision in court, winning a preliminary victory in 2023 and a final one in 2025. In 2023, the CFTC ordered Kalshi to stop offering markets on which party would control Congress after the upcoming elections, citing the Commodity Exchange Act’s prohibition on “gaming”. Kalshi also mounted an aggressive legal challenge, and when a district court ruled in Kalshi’s favor in 2024, the company swiftly reinstated the contested markets [I66].
The history of prediction markets Prediction markets — platforms where people trade contracts that pay out based on whether specific events happen — have enjoyed a surge in popularity over the last few years as they’ve dramatically expanded their operations in the United States. While they have existed for decades, they were long confined to strictly academic exercises — operating as small-scale non-profits that carefully constrained their operations to avoid running afoul of the CFTC. The pioneers were university-affiliated non-profits like Iowa Electronic Markets, which capped trades at modest dollar amounts, and later PredictIt, which followed a similar model. The CFTC allowed their elections- and economy-related markets by issuing no-action letters, recognizing there was value in studying whether crowdsourcing predictions through financial markets could outperform traditional polling and forecasting methods.
The history of prediction markets Prediction markets — platforms where people trade contracts that pay out based on whether specific events happen — have enjoyed a surge in popularity over the last few years as they’ve dramatically expanded their operations in the United States. While they have existed for decades, they were long confined to strictly academic exercises — operating as small-scale non-profits that carefully constrained their operations to avoid running afoul of the CFTC. The pioneers were university-affiliated non-profits like Iowa Electronic Markets, which capped trades at modest dollar amounts, and later PredictIt, which followed a similar model. The CFTC allowed their elections- and economy-related markets by issuing no-action letters, recognizing there was value in studying whether crowdsourcing predictions through financial markets could outperform traditional polling and forecasting methods.
The history of prediction markets Prediction markets — platforms where people trade contracts that pay out based on whether specific events happen — have enjoyed a surge in popularity over the last few years as they’ve dramatically expanded their operations in the United States. While they have existed for decades, they were long confined to strictly academic exercises — operating as small-scale non-profits that carefully constrained their operations to avoid running afoul of the CFTC. The pioneers were university-affiliated non-profits like Iowa Electronic Markets, which capped trades at modest dollar amounts, and later PredictIt, which followed a similar model. The CFTC allowed their elections- and economy-related markets by issuing no-action letters, recognizing there was value in studying whether crowdsourcing predictions through financial markets could outperform traditional polling and forecasting methods.
Molly White
@molly0xfff@hachyderm.io  ·  activity timestamp 3 weeks ago
The regulatory landscape The US financial regulatory landscape is divided among several agencies, with the Securities and Exchange Commission (SEC) overseeing stock markets and various other securities. The SEC aggressively pursues unlawful insider trading cases when people trade securities based on material non-public information. Former SEC official John Reed Stark explains, “The rationale for policing unlawful insider trading is that for the markets to work efficiently and fairly, everyone needs to be working with the same basic information, or at least, that those with special access to nonpublic information are prevented from taking advantage of it before other investors.” But with the Commodity Futures Trading Commission (CFTC), which oversees prediction markets, it’s a different world. Trading based on non-public information is built into the system: a cattle rancher can use early calving data to hedge against future beef prices, even though others lack access to that information. Laurian Cristea, a lawyer specializing in financial services and CFTC exchanges, explains, “it’s not wrong to trade on information you properly know or developed through your business.” Nevertheless, rules against fraud or market manipulation still prohibit trading based on illegally acquired private information, or making false or misleading statements that impact markets, and CFTC-regulated exchanges like Kalshi are required to establish and enforce their own rules to maintain fair markets
The regulatory landscape The US financial regulatory landscape is divided among several agencies, with the Securities and Exchange Commission (SEC) overseeing stock markets and various other securities. The SEC aggressively pursues unlawful insider trading cases when people trade securities based on material non-public information. Former SEC official John Reed Stark explains, “The rationale for policing unlawful insider trading is that for the markets to work efficiently and fairly, everyone needs to be working with the same basic information, or at least, that those with special access to nonpublic information are prevented from taking advantage of it before other investors.” But with the Commodity Futures Trading Commission (CFTC), which oversees prediction markets, it’s a different world. Trading based on non-public information is built into the system: a cattle rancher can use early calving data to hedge against future beef prices, even though others lack access to that information. Laurian Cristea, a lawyer specializing in financial services and CFTC exchanges, explains, “it’s not wrong to trade on information you properly know or developed through your business.” Nevertheless, rules against fraud or market manipulation still prohibit trading based on illegally acquired private information, or making false or misleading statements that impact markets, and CFTC-regulated exchanges like Kalshi are required to establish and enforce their own rules to maintain fair markets
The regulatory landscape The US financial regulatory landscape is divided among several agencies, with the Securities and Exchange Commission (SEC) overseeing stock markets and various other securities. The SEC aggressively pursues unlawful insider trading cases when people trade securities based on material non-public information. Former SEC official John Reed Stark explains, “The rationale for policing unlawful insider trading is that for the markets to work efficiently and fairly, everyone needs to be working with the same basic information, or at least, that those with special access to nonpublic information are prevented from taking advantage of it before other investors.” But with the Commodity Futures Trading Commission (CFTC), which oversees prediction markets, it’s a different world. Trading based on non-public information is built into the system: a cattle rancher can use early calving data to hedge against future beef prices, even though others lack access to that information. Laurian Cristea, a lawyer specializing in financial services and CFTC exchanges, explains, “it’s not wrong to trade on information you properly know or developed through your business.” Nevertheless, rules against fraud or market manipulation still prohibit trading based on illegally acquired private information, or making false or misleading statements that impact markets, and CFTC-regulated exchanges like Kalshi are required to establish and enforce their own rules to maintain fair markets
Molly White
@molly0xfff@hachyderm.io  ·  activity timestamp 3 weeks ago
When fighting the CFTC in court over their election-related markets in early 2024, Kalshi insisted that Congress’s “gaming” restrictions were aimed specifically at sports betting, not election predictions. Their lawyers argued, “‘sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament’ were precisely what Congress had in mind as ‘gaming’ contracts”.5 A year later, Kalshi launched markets on these very same sporting events. Kalshi has since argued they can’t be classified as a gambling platform since traders bet against each other rather than against a “house”. Andrew Kim, a lawyer specializing in gaming law and contributor to the Event Horizon newsletter, acknowledges that some of Kalshi’s arguments against state gambling oversight may be valid under a strict reading of the law, but that this particular defense is weak. “There are a number of exchange wagering outlets... generally covered by state level gambling law.” He adds: “if you play poker, the house takes a rake, but it doesn’t participate. That’s still gambling.” Kalshi has also argued that, as a CFTC-regulated Designated Contract Market, the Commodity Exchange Act gives the agency exclusive jurisdiction over its event contracts. This claim of federal preemption has been disputed by state gambling regulators, and courts have not yet resolved the question.
When fighting the CFTC in court over their election-related markets in early 2024, Kalshi insisted that Congress’s “gaming” restrictions were aimed specifically at sports betting, not election predictions. Their lawyers argued, “‘sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament’ were precisely what Congress had in mind as ‘gaming’ contracts”.5 A year later, Kalshi launched markets on these very same sporting events. Kalshi has since argued they can’t be classified as a gambling platform since traders bet against each other rather than against a “house”. Andrew Kim, a lawyer specializing in gaming law and contributor to the Event Horizon newsletter, acknowledges that some of Kalshi’s arguments against state gambling oversight may be valid under a strict reading of the law, but that this particular defense is weak. “There are a number of exchange wagering outlets... generally covered by state level gambling law.” He adds: “if you play poker, the house takes a rake, but it doesn’t participate. That’s still gambling.” Kalshi has also argued that, as a CFTC-regulated Designated Contract Market, the Commodity Exchange Act gives the agency exclusive jurisdiction over its event contracts. This claim of federal preemption has been disputed by state gambling regulators, and courts have not yet resolved the question.
When fighting the CFTC in court over their election-related markets in early 2024, Kalshi insisted that Congress’s “gaming” restrictions were aimed specifically at sports betting, not election predictions. Their lawyers argued, “‘sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament’ were precisely what Congress had in mind as ‘gaming’ contracts”.5 A year later, Kalshi launched markets on these very same sporting events. Kalshi has since argued they can’t be classified as a gambling platform since traders bet against each other rather than against a “house”. Andrew Kim, a lawyer specializing in gaming law and contributor to the Event Horizon newsletter, acknowledges that some of Kalshi’s arguments against state gambling oversight may be valid under a strict reading of the law, but that this particular defense is weak. “There are a number of exchange wagering outlets... generally covered by state level gambling law.” He adds: “if you play poker, the house takes a rake, but it doesn’t participate. That’s still gambling.” Kalshi has also argued that, as a CFTC-regulated Designated Contract Market, the Commodity Exchange Act gives the agency exclusive jurisdiction over its event contracts. This claim of federal preemption has been disputed by state gambling regulators, and courts have not yet resolved the question.
Some states and tribal governments have also brought cases against Kalshi under state or federal gambling laws, arguing that it is skirting licensing, tax, and consumer protection requirements that apply to sportsbooks and casinos. In court filings, Kalshi insists it’s not a casino or sportsbook but rather a venue for traders to engage in “legitimate hedging”, similar to how farmers and airlines use futures markets to manage risk. However, their public messaging tells a different story, with their advertising and social media regularly inviting customers to come “bet”. Screenshot of an Instagram ad by Kalshi, which says “Hey New York... Bet on the NFL, Legal in 50 states.” Kalshi has repeatedly argued in court that they are not a betting platform, though their advertising tells a different story (via Event Horizon)
Some states and tribal governments have also brought cases against Kalshi under state or federal gambling laws, arguing that it is skirting licensing, tax, and consumer protection requirements that apply to sportsbooks and casinos. In court filings, Kalshi insists it’s not a casino or sportsbook but rather a venue for traders to engage in “legitimate hedging”, similar to how farmers and airlines use futures markets to manage risk. However, their public messaging tells a different story, with their advertising and social media regularly inviting customers to come “bet”. Screenshot of an Instagram ad by Kalshi, which says “Hey New York... Bet on the NFL, Legal in 50 states.” Kalshi has repeatedly argued in court that they are not a betting platform, though their advertising tells a different story (via Event Horizon)
Some states and tribal governments have also brought cases against Kalshi under state or federal gambling laws, arguing that it is skirting licensing, tax, and consumer protection requirements that apply to sportsbooks and casinos. In court filings, Kalshi insists it’s not a casino or sportsbook but rather a venue for traders to engage in “legitimate hedging”, similar to how farmers and airlines use futures markets to manage risk. However, their public messaging tells a different story, with their advertising and social media regularly inviting customers to come “bet”. Screenshot of an Instagram ad by Kalshi, which says “Hey New York... Bet on the NFL, Legal in 50 states.” Kalshi has repeatedly argued in court that they are not a betting platform, though their advertising tells a different story (via Event Horizon)
Kiran Castellino :he_him:
@kiranc@aus.social  ·  activity timestamp 3 weeks ago
Molly White
@molly0xfff@hachyderm.io  ·  activity timestamp 3 weeks ago
When I asked Cristea about the CFTC’s ability to oversee retail markets, he pointed to the CFTC’s track record regulating Futures Commission Merchants (FCMs), which facilitate trading of futures and derivatives. While institutional clients still dominate these markets, retail participation has grown significantly in recent years. However, he notes a key difference in consumer protections: “FCMs don’t have the same sort of requirement for a customer suitability analysis that applies to broker-dealers in the securities context.” Broker-dealers are obligated to assess whether specific investments are appropriate for specific customers. For example, if a 65-year-old retiree with limited savings tried to make a substantial investment in a high-risk stock, a broker-dealer would need to evaluate whether the investment suited her financial situation and could refuse inappropriate trades. Cristea also expressed concerns about enforcement capacity. “The current administration takes a more free market, caveat emptor-type approach. That said, even when the CFTC got jurisdiction over a very large swaps market the agency’s budget was not increased much. And together with this deregulatory trend, agencies getting smaller in size, where agencies are being told to do more with less, I am not sure the CFTC will necessarily come out with [additional retail] protections unless the agency sees that as a necessary step for credibility and for the market to thrive.” The CFTC has yet to bring
When I asked Cristea about the CFTC’s ability to oversee retail markets, he pointed to the CFTC’s track record regulating Futures Commission Merchants (FCMs), which facilitate trading of futures and derivatives. While institutional clients still dominate these markets, retail participation has grown significantly in recent years. However, he notes a key difference in consumer protections: “FCMs don’t have the same sort of requirement for a customer suitability analysis that applies to broker-dealers in the securities context.” Broker-dealers are obligated to assess whether specific investments are appropriate for specific customers. For example, if a 65-year-old retiree with limited savings tried to make a substantial investment in a high-risk stock, a broker-dealer would need to evaluate whether the investment suited her financial situation and could refuse inappropriate trades. Cristea also expressed concerns about enforcement capacity. “The current administration takes a more free market, caveat emptor-type approach. That said, even when the CFTC got jurisdiction over a very large swaps market the agency’s budget was not increased much. And together with this deregulatory trend, agencies getting smaller in size, where agencies are being told to do more with less, I am not sure the CFTC will necessarily come out with [additional retail] protections unless the agency sees that as a necessary step for credibility and for the market to thrive.” The CFTC has yet to bring
When I asked Cristea about the CFTC’s ability to oversee retail markets, he pointed to the CFTC’s track record regulating Futures Commission Merchants (FCMs), which facilitate trading of futures and derivatives. While institutional clients still dominate these markets, retail participation has grown significantly in recent years. However, he notes a key difference in consumer protections: “FCMs don’t have the same sort of requirement for a customer suitability analysis that applies to broker-dealers in the securities context.” Broker-dealers are obligated to assess whether specific investments are appropriate for specific customers. For example, if a 65-year-old retiree with limited savings tried to make a substantial investment in a high-risk stock, a broker-dealer would need to evaluate whether the investment suited her financial situation and could refuse inappropriate trades. Cristea also expressed concerns about enforcement capacity. “The current administration takes a more free market, caveat emptor-type approach. That said, even when the CFTC got jurisdiction over a very large swaps market the agency’s budget was not increased much. And together with this deregulatory trend, agencies getting smaller in size, where agencies are being told to do more with less, I am not sure the CFTC will necessarily come out with [additional retail] protections unless the agency sees that as a necessary step for credibility and for the market to thrive.” The CFTC has yet to bring
Old rules, new markets Though prediction markets aren’t a new phenomenon, their growing accessibility to retail traders is. Unlike the SEC, which prioritizes protecting retail investors, the CFTC’s mandate is centered on market integrity and preventing fraud or manipulation — not on consumer protection. Its regulations were designed for businesses hedging wheat and oil, not retail traders betting on album releases and how many times Elon Musk tweets in a month. Is a regulatory framework designed for commercial hedgers adequate for these retail-heavy markets? Should regulators try to protect retail traders who are consistently outmaneuvered by insiders with private information or other participants with structural advantages? Some experts think the CFTC’s oversight could work. Lee Reiners, a lecturing fellow at the Duke Financial Economics Center, explains that “any insider trading on these contracts would clearly implicate the anti-fraud provisions of the Commodity Exchange Act,” potentially triggering both CFTC enforcement action and a referral for criminal charges from the Department of Justice.
Old rules, new markets Though prediction markets aren’t a new phenomenon, their growing accessibility to retail traders is. Unlike the SEC, which prioritizes protecting retail investors, the CFTC’s mandate is centered on market integrity and preventing fraud or manipulation — not on consumer protection. Its regulations were designed for businesses hedging wheat and oil, not retail traders betting on album releases and how many times Elon Musk tweets in a month. Is a regulatory framework designed for commercial hedgers adequate for these retail-heavy markets? Should regulators try to protect retail traders who are consistently outmaneuvered by insiders with private information or other participants with structural advantages? Some experts think the CFTC’s oversight could work. Lee Reiners, a lecturing fellow at the Duke Financial Economics Center, explains that “any insider trading on these contracts would clearly implicate the anti-fraud provisions of the Commodity Exchange Act,” potentially triggering both CFTC enforcement action and a referral for criminal charges from the Department of Justice.
Old rules, new markets Though prediction markets aren’t a new phenomenon, their growing accessibility to retail traders is. Unlike the SEC, which prioritizes protecting retail investors, the CFTC’s mandate is centered on market integrity and preventing fraud or manipulation — not on consumer protection. Its regulations were designed for businesses hedging wheat and oil, not retail traders betting on album releases and how many times Elon Musk tweets in a month. Is a regulatory framework designed for commercial hedgers adequate for these retail-heavy markets? Should regulators try to protect retail traders who are consistently outmaneuvered by insiders with private information or other participants with structural advantages? Some experts think the CFTC’s oversight could work. Lee Reiners, a lecturing fellow at the Duke Financial Economics Center, explains that “any insider trading on these contracts would clearly implicate the anti-fraud provisions of the Commodity Exchange Act,” potentially triggering both CFTC enforcement action and a referral for criminal charges from the Department of Justice.
Molly White
@molly0xfff@hachyderm.io  ·  activity timestamp 3 weeks ago
Kalshi imposes similar prohibitions on its sports-related markets, using the same IC360 platform that’s used by betting platforms like Caesars Sportsbook. Kim says he doesn’t believe this type of monitoring is something the CFTC explicitly requires of prediction markets. Cristea agreed that it may not be specifically mandated, but noted that CFTC-regulated prediction platforms must demonstrate they can effectively police their markets against manipulation. For Kalshi, implementing monitoring systems like IC360 likely helps prove to the CFTC they’re upholding their licensing obligations. Trading prohibitions The following are prohibited from trading this contract: Current and former players, coaches, and staff of the league, association, or organization(s) governing the event. For college leagues/associations specifically, or where otherwise appropriate (as identified by the Exchange), this applies to current and former players/coaches/staff of the specific teams in <event> rather than the league/association as a whole (e.g., if the Division I Gonzaga Men’s Basketball Team is playing in <event>, this prohibition will restrict trades by current/former players of that team, rather than all current/former players/coaches/staff in any NCAA sport). Paid employees of the league and league participants Owners of teams and the league and household members and immediate family of all above Kalshi trading prohibitions on a sports-related bet
Kalshi imposes similar prohibitions on its sports-related markets, using the same IC360 platform that’s used by betting platforms like Caesars Sportsbook. Kim says he doesn’t believe this type of monitoring is something the CFTC explicitly requires of prediction markets. Cristea agreed that it may not be specifically mandated, but noted that CFTC-regulated prediction platforms must demonstrate they can effectively police their markets against manipulation. For Kalshi, implementing monitoring systems like IC360 likely helps prove to the CFTC they’re upholding their licensing obligations. Trading prohibitions The following are prohibited from trading this contract: Current and former players, coaches, and staff of the league, association, or organization(s) governing the event. For college leagues/associations specifically, or where otherwise appropriate (as identified by the Exchange), this applies to current and former players/coaches/staff of the specific teams in <event> rather than the league/association as a whole (e.g., if the Division I Gonzaga Men’s Basketball Team is playing in <event>, this prohibition will restrict trades by current/former players of that team, rather than all current/former players/coaches/staff in any NCAA sport). Paid employees of the league and league participants Owners of teams and the league and household members and immediate family of all above Kalshi trading prohibitions on a sports-related bet
Kalshi imposes similar prohibitions on its sports-related markets, using the same IC360 platform that’s used by betting platforms like Caesars Sportsbook. Kim says he doesn’t believe this type of monitoring is something the CFTC explicitly requires of prediction markets. Cristea agreed that it may not be specifically mandated, but noted that CFTC-regulated prediction platforms must demonstrate they can effectively police their markets against manipulation. For Kalshi, implementing monitoring systems like IC360 likely helps prove to the CFTC they’re upholding their licensing obligations. Trading prohibitions The following are prohibited from trading this contract: Current and former players, coaches, and staff of the league, association, or organization(s) governing the event. For college leagues/associations specifically, or where otherwise appropriate (as identified by the Exchange), this applies to current and former players/coaches/staff of the specific teams in <event> rather than the league/association as a whole (e.g., if the Division I Gonzaga Men’s Basketball Team is playing in <event>, this prohibition will restrict trades by current/former players of that team, rather than all current/former players/coaches/staff in any NCAA sport). Paid employees of the league and league participants Owners of teams and the league and household members and immediate family of all above Kalshi trading prohibitions on a sports-related bet
Other industries that deal with outcome-based bets, like sports wagering, have evolved robust integrity systems both to protect consumers and to preserve trust in the games themselves. Kim explains, “The reason for [these rules] is because of the mob, because of the history of gambling and the mob fixing matches. You have a rather sketchy history of criminal influence on the outcome of matches, and so you want to prevent that by just having very strict rules, like if you’re involved in the event, you can’t play, period.” Today, sports betting platforms work to screen out athletes, referees, and sports program employees to ensure they’re not betting on games they could potentially influence, and employ monitoring programs to detect suspicious bets. This vigilance has proven effective: recent scandals involving illegal betting by Iowa State football staff and the University of Alabama’s baseball coach were first flagged by the platforms’ monitoring systems. Their vigilance is likely because, as Kim says, “the penalties for the operator can be severe. It might be a fine. It might be the license getting pulled.”
Other industries that deal with outcome-based bets, like sports wagering, have evolved robust integrity systems both to protect consumers and to preserve trust in the games themselves. Kim explains, “The reason for [these rules] is because of the mob, because of the history of gambling and the mob fixing matches. You have a rather sketchy history of criminal influence on the outcome of matches, and so you want to prevent that by just having very strict rules, like if you’re involved in the event, you can’t play, period.” Today, sports betting platforms work to screen out athletes, referees, and sports program employees to ensure they’re not betting on games they could potentially influence, and employ monitoring programs to detect suspicious bets. This vigilance has proven effective: recent scandals involving illegal betting by Iowa State football staff and the University of Alabama’s baseball coach were first flagged by the platforms’ monitoring systems. Their vigilance is likely because, as Kim says, “the penalties for the operator can be severe. It might be a fine. It might be the license getting pulled.”
Other industries that deal with outcome-based bets, like sports wagering, have evolved robust integrity systems both to protect consumers and to preserve trust in the games themselves. Kim explains, “The reason for [these rules] is because of the mob, because of the history of gambling and the mob fixing matches. You have a rather sketchy history of criminal influence on the outcome of matches, and so you want to prevent that by just having very strict rules, like if you’re involved in the event, you can’t play, period.” Today, sports betting platforms work to screen out athletes, referees, and sports program employees to ensure they’re not betting on games they could potentially influence, and employ monitoring programs to detect suspicious bets. This vigilance has proven effective: recent scandals involving illegal betting by Iowa State football staff and the University of Alabama’s baseball coach were first flagged by the platforms’ monitoring systems. Their vigilance is likely because, as Kim says, “the penalties for the operator can be severe. It might be a fine. It might be the license getting pulled.”
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