Prediction markets operator Kalshi said it will start screening potential insiders from higher-risk markets before they can trade.
Kalshi, which operates under federal regulations as a prediction markets platform, has announced additional controls on insider trading and manipulation following a review by a third party.
The company said in a June 10 blog post that the measures are effective immediately and include risk scoring for markets, employment checks for higher-risk contracts and new whistleblower tools on every market.
Kalshi said the changes are based on the first report from its independent Surveillance Audit Committee, a group appointed to review the platform’s enforcement program.
How the New System Works
The new risk scoring system, per the blog post, will apply when a market is proposed for listing.
Kalshi noted that the risk score will take into account corporate event risks, if an outcome is based on a single or a few players’ decisions, significance of the market, regulatory considerations, non-insider risks, and national security risks.
The system is meant to flag markets where traders may have access to material non-public information, even when those traders don’t fall under the usual legal definition of corporate insiders.
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For markets with manipulation risk, Kalshi said it will collect employment information before users can trade to help identify “presumptive insiders” and “screen them out before a trade is ever placed.”
Further, Kalshi confirmed that all future markets would incorporate measures that would allow users to report any suspicious activities to the company’s surveillance team.
The company added the new tools are meant to cover abusive trading activity such as insider trading, market manipulation, spoofing and other potentially illicit financial activity.
Prediction Markets Expand Into Sensitive Events
The development is coming at a time when prediction markets have been moving from political predictions to betting on other issues where the outcome of the markets could be influenced by the corporate sector or government policies.
Kalshi said it doesn’t list markets on war, assassination or violence, but added that some leadership or foreign policy markets can still raise national security concerns.
In Q1, Kalshi said its enforcement team opened more than 150 investigations, blocked more than 100 potential insider trades with new screening tools, made more than 20 referrals to law enforcement and took five disciplinary actions. Kalshi head of enforcement Robert DeNault said:
“By implementing these new integrity measures, we continue to lead the industry on the issue of market integrity amongst federally regulated prediction markets.”
The company said the Surveillance Audit Committee will continue to issue quarterly reports and Kalshi will keep acting on the findings.
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