Democrats question CFTC chair on insider trading in prediction markets

Seven members of the US House of Representatives sent a letter to Commodity Futures Trading Commission (CFTC) Chair Michael Selig, asking for information on the agency's inaction on insider trading on prediction markets and event contracts related to war and conflicts.

In a Monday letter, the seven US lawmakers said that the CFTC had the authority under the Commodities Exchange Act “to apply its rules and regulations for the purpose of preventing evasion of the [act’s] underlying swap provisions.” The statement signaled that the representatives affirmed Selig’s position that the commission had jurisdiction over prediction markets.

However, the House members expressed concerns about how the CFTC was policing “morally obscene” event contracts, including those on US military actions in Iran and Venezuela — in those cases, there were suspicious trades related to the timing and outcomes of US military involvement. 

“Such corrupt trades deserve swift and decisive oversight,” said the letter. “Allowing these contracts to persist raises troubling concerns about the Commission’s desire and capacity to fulfill a global regulatory role.”

Source: Representative Seth Moulton

The legal battles over regulating prediction market platforms like Kalshi and Polymarket are being waged both at a federal and state level. Several US state gaming authorities have filed lawsuits alleging that the companies are illegally offering sports bets, while the CFTC, under Selig, claims that the event contracts on the platform amount to swaps and fall under its federal regulations.

The seven House members requested that Selig respond to their six questions by April 15.

In one of the most recent legal decisions, the US Court of Appeals for the Third Circuit affirmed a lower court ruling blocking New Jersey gaming authorities from filing enforcement actions against Kalshi. Two out of three circuit judges said that the company had a ”reasonable chance of success” in arguing that federal commodities laws preempted state authorities.

CFTC enforcement director says agency is “watching” for insider trading

The Monday letter followed CFTC enforcement director David Miller responding to concerns over insider trading, which has also resulted in legislation proposed by Democrats. According to Miller, the commission would only prosecute instances “against those who tip or trade with misappropriated information,” but not dedicate resources to “trivial” cases.