CFTC Enforcement Division Issues Prediction Markets Advisory
Executive Summary
The CFTC Enforcement Division issued an advisory on February 25, 2026, detailing two enforcement cases involving illegal trading on prediction markets (event contracts) traded on KalshiEX, a Designated Contract Market. The advisory clarifies that the CFTC maintains full enforcement authority over prediction markets and will prosecute violations including insider trading, market manipulation, and fraud—establishing critical compliance expectations for platforms and traders in this emerging asset class.
What Changed
The advisory does not introduce new rules but rather reaffirms existing CFTC enforcement authority over prediction markets and clarifies the scope of prohibited conduct: - Insider trading/misappropriation: Trading based on material nonpublic information obtained through a breach of fiduciary duty or pre-existing duty of trust and confidence (Section 6(c)(1) of the Commodity Exchange Act and Regulation 180.1(a)(1) and (3)) - Fraud and manipulation: Use of manipulative schemes or artifices to defraud, including trading in contracts where the trader has direct or indirect influence over the outcome - Pre-arranged and wash trades: Noncompetitive trading under Section 4c(a)(1) and (2)(A) and Regulation 1.38(a) - Disruptive trading practices: Violations under Section 4c(a)(5) The advisory demo
What You Need To Do
- *For Prediction Market Platforms (DCMs)
- *Implement robust surveillance systems to detect trading by individuals with material nonpublic information or direct/indirect influence over contract outcomes
- *Establish clear trading prohibitions in exchange rules addressing:
- Trading in contracts where the trader has influence over the outcome
- Trading based on material nonpublic information obtained through breach of duty
- Pre-arranged and wash trades
Key Dates
Compliance Impact
Urgency: HIGH
Who is Affected
Summary
No description available.