Prediction markets regulator vows to investigate insider trading
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The chair of the Commodity Futures Trading Commission vowed Thursday to investigate insider trading in prediction markets and bristled at the suggestion that he would impose regulations favoring the Trump family.
Why it matters: Prediction markets like Kalshi and Polymarket are facing growing pressure to prevent insiders from profiting from their knowledge on issues like politics, sports and war.
Driving the news: CFTC chair Mike Selig said the commission — where the Trump-appointed official currently serves as the only sitting member — serves as the "cop on the beat" with prediction markets.
- "So I want to be crystal clear to anyone who engages in fraud, manipulation or insider trading in any of our markets: We will find you, and the full force of the law will come to bear," Selig testified to the House Agriculture Committee.
- "We have a zero tolerance policy when it comes to manipulation, fraud or other abusive trading in our markets," he added.
- Selig — who has been largely supportive of prediction markets — said he will also "modernize the agency to keep pace with the rapid speed of innovation."
The big picture: Recent reports of suspiciously well-timed trades on event contracts involving geopolitical issues like Iran and Venezuela have called attention to the risk of insider trading on prediction markets.
- "I don't believe this is market innovation. That is profiting from tragedy," Rep. Jim Costa, D-California, told Selig during the committee hearing.
Catch up quick: Prediction market companies have taken steps in recent months to show that they're responsible actors as they face mounting legislation and legal efforts to limit or block them from operating altogether.
- Kalshi, for example, recently announced it would preemptively block politicians and athletes from trading on their own markets.
- The White House last week reportedly instructed staffers not to use nonpublic information to make trades on prediction markets.
- And members of Congress have introduced multiple bills that would impose various restrictions on prediction markets, including insider trading.
Friction point: During Thursday's hearing, Selig clashed with Rep. Jim McGovern (D-Mass.), who asked him whether the White House had ever asked the CFTC to drop an investigation into Polymarket.
- McGovern noted that Donald Trump Jr. is an adviser to Kalshi and an investor in Polymarket, pressing Selig to acknowledge that "the Trump family has a financial stake in how these prediction markets are regulated."
- Selig took issue with McGovern's comments: "I think it's insulting that you're insinuating that we would play political games."
- "It smells like corruption — I'll be honest with you," McGovern replied.
What to watch: Whether the CFTC reveals any enforcement actions on prediction markets.
