(April 1): A key Commodity Futures Trading Commission (CFTC) official said the agency will use its powers to root out insider trading in prediction markets, as concerns about suspicious activity on the exchanges grow.
“Unfortunately there’s a myth in mainstream media and social media that insider trading law doesn’t apply in the prediction markets,” CFTC enforcement director David Miller said at a panel at New York University on Tuesday. “That is wrong.”
The multi-billion dollar industry has surged over the past year, despite legal challenges from state officials who argue the federally-regulated exchanges should fall under their jurisdiction. That rapid expansion has also prompted concerns about insider trading as some wagers are thin enough that a single trader can move prices.
Prediction market customers can place wagers on everything from college basketball games to geopolitical events. Earlier this year, a trader on Polymarket made approximately US$400,000 betting on the ouster of former Venezuelan leader Nicolás Maduro, with many of the trades placed just before President Donald Trump publicly announced the US had captured him.
Some lawmakers have since introduced bills seeking to crack down on insider trading and rein in the industry.
The CFTC under the Trump administration has generally embraced prediction markets and the exchanges have recently taken a more proactive approach to insider trading. Both Kalshi and Polymarket announced new rules last week, as the public backlash has grown. Federal prosecutors have also said publicly they expect enforcement actions tied to the markets.
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There has, though, been significant debate in the industry about how the rules around insider trading would apply to the new types of wagers on prediction markets.
Miller said participants in CFTC-regulated markets are allowed to use their own knowledge and information to make trading decisions, such as a farmer seeing issues with their harvest to hedge their financial risks, but emphasised using “misappropriated information” to place wagers is not allowed.
“We will only be prosecuting cases against those who tip or trade with misappropriated information,” Miller said, adding that they will use their prosecutorial discretion and will not dedicate agency resources to “trivial” cases.
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Miller joined the CFTC in March and previously served as a prosecutor in the Southern District of New York.
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