How are prediction markets regulated?

While prediction markets may seem like a brand new industry, they aren't entirely novel. The first examples of prediction markets emerged in the first half of the 20th century, and spurred Congress to pass the Commodity Exchange Act – the federal statutory scheme which presently governs commodities markets like Kalshi. The Act covers financial instruments called swaps, futures, and, the main products featured on Kalshi, event contracts.

Because it offers event contracts, Kalshi is a financial exchange licensed and regulated by the Commodity Futures Trading Commission (CFTC) – a federal agency of the US government that has regulated US commodities and derivatives markets since 1974. The CFTC is run by the Executive Branch and subject to oversight by Congress. CFTC lawyers and staff work alongside other financial regulators (like the SEC, FTC, and Treasury Department) to oversee regulated exchanges available to people trading both in the U.S. and around the world. These regulated exchanges, like the New York Stock Exchange, the Nasdaq, and the Chicago Mercantile Exchange have become a core pillar of the U.S. financial industry.

Government regulators like the CFTC ensure these exchanges follow rigid financial requirements and police activity to ensure licensed markets are well-managed, safe for customers, and following the law. Financial regulators often work with law enforcement agencies like the U.S. Department of Justice to investigate illicit activity and bring legal actions where appropriate. Together, these agencies provide the framework that governs trading on licensed exchanges like Kalshi.

Kalshi is regulated under the CFTC's regulations as a Designated Contract Market (DCM). A DCM is a financial exchange designated by the CFTC as an authorized marketplace for participants to trade futures, swaps such as event contracts, and/or options. In Kalshi's case, our exchange offers event contracts which resolve based on the occurrence or outcome of future events. These contracts, and all trading on Kalshi, are subject to the provisions of the Commodity Exchange Act, as well as a set of 23 Core Principles (found at 17 CFR Parts 38 and 39) which create a series of regulations that DCMs must adopt and enforce.

The CFTC enforces hundreds of regulations that specifically apply to exchanges like Kalshi. These include regulations requirements for:

• Publication of trading and market data: Exchanges are required to engage in daily publication of settlement prices, volume, open interest, and opening and closing ranges for all actively traded contracts, so that the general public has visibility into transaction activity on specific markets and the effect on price movement.
• Certification of products, including event contracts: When an exchange certifies or submits any contract for approval to the CFTC, it must include a narrative describing the contract, data and information to support the contract's terms and conditions, market research related to risk management, and other specific information indicating that contract follows applicable CFTC regulations and the Core Principles.
• Clearing obligations: For registered clearing organizations, they must comply with general provisions specific to clearing, including registration procedures, review of swaps for clearing requirements, anti-fraud provisions. They must also comply with the Core Principles including regulations related to risk management, settlement procedures, system safeguards, reporting and recordkeeping requirements, public information, conflicts of interest, and legal risk considerations.
• Customer protections: CFTC regulations impose numerous customer protections that exchanges must implement, including rules regarding fair access, protecting traders from abusive trading practices like fraudulent, noncompetitive, or unfair actions, financial regulations ensuring customer funds are handled properly and in accordance with regulation. Separately, the National Futures Association (NFA) – which oversees the ongoing registration of exchanges and other CFTC-regulated entities – imposes specific marketing and advertising restrictions meant to apprise exchange customers of risks involved with prediction markets trading and protect them from false, deceptive, or manipulative advertising.
• Prohibited trading activities: CFTC regulations (in addition to other provisions of federal law) prohibit numerous kinds of illicit trading activities on registered exchanges, including manipulative or fraudulent activity on exchange (including insider trading), misstatements or omission of material facts by users, anything that defrauds another user of an exchange, and price manipulation.
• Anti-money laundering and screening: Futures commission merchants (FCMs) and introducing brokers (IBs) are CFTC-licensed entities that onboard customers who transact on exchanges like Kalshi. They are financial institutions subject to the provisions of the Bank Secrecy Act, which includes comprehensive anti-money laundering and screening requirements, including Customer Identification Programs, Suspicious Activity Reporting, and other traditional financial regulatory obligations. Separately, Kalshi also imposes its own AML/KYC programs in accordance with U.S. federal law and applicable financial regulations.

You can read more about our regulatory filings, rulings, and listings on our regulatory page, or find more information about prohibited trading activity and Kalshi's AML/KYC programs in other sections of the Market Integrity Hub.

Regulation is crucial for any licensed institution offering products in the U.S. financial sector. Kalshi's status as an exchange regulated by the Commodity Futures Trading Commission (CFTC) provides Kalshi users with numerous benefits and protections:

• Transparency: Regulations requiring publication of trading and market data, notices of rule changes and amendments, and public notices of disciplinary actions ensure that Kalshi operates with a high level of transparency. Users have access to accurate information to make informed decisions and can see the level of financial activity taking place both on the exchange in general and in specific markets of interest.
• Integrity: CFTC prohibitions on manipulative, deceptive, fraudulent, or abusive trading demand Kalshi's commitment to maintaining trading integrity on our platform, and other obligations to ensure fair and orderly markets require us to put in place procedures and rules that lead us to resolve markets fairly. Because Kalshi KYC's all users that transact on the platform, and FCMs and IBs are similarly subjected to KYC requirements, we know who is trading on Kalshi and can prevent or detect fraud, money laundering, market manipulation, underage access, and insider trading.
• Security: Federal rules and requirements that govern both Kalshi's trading exchange and clearinghouse offer a well-defined structure for clearing customer transactions. Your funds deposited on Kalshi are located at a federally regulated clearinghouse that operates under the same regulatory framework utilized by all other federally regulated derivatives exchanges, with risk management requirements and safeguards against fraud and manipulation.
• Trust: Regulatory oversight by a reputable body like the CFTC fosters trust among users, which is foundational in financial exchanges. Kalshi's reporting requirements subject us to constant CFTC review of our trading data, new contracts, and other transaction activity at our exchange and our clearinghouse. The CFTC reviews trade data (submitted on a daily basis by Kalshi) for manipulation and fraud. Because of this close oversight, Kalshi coordinates regularly with the CFTC to avoid listing markets that are easily subject to manipulation or offer perverse incentives to traders.

Understanding that Kalshi is regulated by a U.S. Federal regulatory authority helps reassure users that they are engaging with a platform that adheres to the highest standards of operation and accountability.