Summary

Situation Overview: Kalshi announced that it pursued enforcement actions against two participants for alleged manipulative trading activity. The CFTC also issued a related Prediction Markets Advisory reaffirming its oversight authority in this area and emphasizing compliance expectations for DCMs and market participants.[1]

Who: DCMs, DCOs, FCMs, retail participants.

In Depth

As registered entities, designated contract markets (DCMs) are required to comply with the Core Principles set forth in Part 38 of the CFTC’s regulations. Among other obligations, Core Principle two mandates that DCMs monitor for potential market manipulation and implement controls to prevent abusive trading practices.[2]

DCMs listing event contracts permit retail and institutional investors to become direct clearing members and engage in a variety of event contracts, including those focused on sports, geopolitical events, and economic indicators, among other areas. Recent events have highlighted the impact that participants with material non-public information (MNPI) can have on event contract markets, and the surveillance challenges these markets present.  As discussed below, Kalshi recently took enforcement action against two participants regarding the use of MNPI, prompting a CFTC Prediction Markets Advisory that emphasized the importance of compliance for DCMs and market participants.

Kalshi’s Enforcement Cases and the CFTC’s Role

All DCMs are considered self-regulatory organizations (SROs), meaning they are charged by the CFTC with the independent duty to bring enforcement actions against participants of their platforms for cases of misconduct. No DCM had exercised this authority to pursue action against a participant for alleged manipulation related to an event contract until February 25, 2026, when Kalshi announced two public enforcement matters involving trading based on MNPI. In both cases, Kalshi alleged the participants either knew the event’s outcome before they traded or could control the outcome of the event.

Case 1: A political candidate traded contracts referencing his own candidacy and subsequently made social media posts promoting himself trading the event contract.[3] Kalshi suspended the candidate’s exchange access for five years and fined him $2,246.36, comprising disgorgement of $246.36 related to the improper trading activity plus a $2,000 penalty.

Case 2: An editor for a YouTube channel with advance knowledge of the channel’s videos traded contracts related to the videos’ contents. The editor failed to cooperate with Kalshi’s investigation and received a two-year suspension and a fine of $20,397.58, comprising disgorgement of $5,397.58 in profits plus a $15,000 penalty.

The CFTC’s Anti-Manipulation Authority

Following Kalshi’s enforcement action announcement, the CFTC released a Prediction Market Advisory which highlighted the CFTC’s authority to police illegal trading practices occurring on any DCM. The Prediction Market Advisory specifically mentions Rule 180.1, prohibiting the use of any manipulative or deceptive device in connection with a commodity transaction, including MNPI. Notably, Rule 180.1 does not expressly prohibit insider trading; material information has been a key input for accurate price discovery since the inception of swaps and futures markets.[4]

Given that event contracts’ outcome-based payouts are particularly sensitive to nonpublic regulatory decisions, geopolitical developments, and confidential data, individuals with MNPI have notable advantages when trading in these markets. While the CFTC has not yet released explicit guidance on what constitutes manipulation of an event contract with respect to MNPI, CFTC Chairman Michael Selig announced on March 3, 2026, that the Commission plans to release an Advanced Notice of Proposed Rulemaking on event contract markets in the “near future.”[5]

Looking Forward

The CFTC’s Advisory made clear that under the CEA, the Commission, “has full authority to police illegal trading practices occurring on any DCM, including those described above related to prediction markets.”[6] However, the Commission did not take any enforcement action against the respondents in the above cases given their relatively low trading volumes.

Recent events in prediction markets underscore the practical challenges of applying the CFTC’s anti-manipulation authority, particularly Rule 180.1, to trading that may be influenced by MNPI. At the same time, we expect increased enforcement scrutiny in the event contract space, both from DCMs and potentially the CFTC itself. Market participants should remain vigilant to risks of fraud, manipulation, and other abusive practices, and ensure that robust compliance frameworks and surveillance controls are in place to detect, escalate, and address such activity.

Put Patomak’s Expertise to Work

Patomak has worked with DCMs, derivatives clearing organizations, futures commission merchants, introducing brokers, swap dealers, and other market participants to evaluate their market integrity frameworks against CFTC requirements and to develop compliance, surveillance, and risk management programs designed to address the nuances of prediction markets. To learn more or to discuss how Patomak can support your firm, please contact Sudhir Jain at sjain@patomak.com, Tim Brown at tbrown@patomak.com, Robert Lulgjuraj at rlulgjuraj@patomak.com, Harper Swope at hswope@patomak.com, or Colm Davidson at cdavidson@patomak.com.

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[1] See CFTC Release Number 9185-26 [hereinafter, the CFTC Advisory].

[2] 7 U.S.C. § 7(d)(2) (Core Principle 2 – Prevention of Market Manipulation).

[3] See Kalshi, Two Insider Cases We’ve Recently Closed.

[4] The CFTC has traditionally permitted derivatives “market participants to trade on the basis of lawfully obtained material nonpublic information.” See CFTC v. EOX Holdings L.L.C., et al., Memorandum Opinion and Order, Civil Action H-19-2901 (Sept. 30, 2021); see also Dissenting Statement of Commissioner Caroline D. Pham on Misappropriation Theory in Derivatives Markets, Sep. 27, 2023.

[5] Selig, M. (2026, March 3). Modernizing market regulation: A conversation with SEC Chairman Paul Atkins and CFTC Chairman Michael Selig [Panel discussion]. Milken Institute Future of Finance 2026, Washington, D.C.

[6] See note 2.