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Kalshi on Thursday announced efforts to expand its monitoring and enforcement frameworks as skepticism grows around the booming prediction market industry.
The announcement comes days before Super Bowl 60, which has already generated more than $160 million in predictive trading volume in the market, according to Kalshi. The platform and its peers allow users to purchase event contracts to achieve results in politics, pop culture, financial markets and sports.
Prediction trading on predetermined outcomes — for example, which companies will run Super Bowl ads on Sunday — has raised questions about possible insider trading. New York Attorney General Letitia James issued a warning Monday about what she called “unregulated prediction markets.”
“Being federally regulated means that Kalshi prohibits market manipulation and insider trading, places limits on the types of markets it lists, conducts know-your-customer (KYC) and anti-money laundering (AML) checks on every user before they can transact, and publicly reports all transactions to the CFTC daily,” the company said in a statement. “Kalshi has also spent years creating custom market trading monitoring and enforcement systems, similar to those used on the stock market.”
Kalshi announced Thursday that it has taken further steps, forming an independent oversight advisory board, which will provide quarterly analysis to the company’s external advisors and publish statistics on investigations of suspicious activity on its platform. The company also announced surveillance partnerships with Solidus Labs and the director of the Wharton Forensic Analytics Lab.
The Prediction Market will also now work with a former Treasury Undersecretary for Terrorism and Financial Intelligence to advise Kalshi on “matters of market integrity, trade oversight and financial compliance.”
Kalshi attorney Robert DeNault has been named to the role of chief enforcement officer, where he will work with the advisory board to identify insider trading and market manipulation, the company said.
Kalshi said it has also created hubs on its website to provide consumers with resources on responsible trading and market integrity.
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“Last year, we conducted more than 200 investigations and froze the affected accounts,” Mansour wrote. “Of these, more than a dozen have become active cases and several have been referred to law enforcement.”
Mansour said Kalshi based its market surveillance system on those used by the New York Stock Exchange and Nasdaq, flagging suspicious behavior by making trades through pattern recognition models.
“All industries have bad actors and no system is perfect, including Kalshi’s,” Mansour wrote. “But we are committed to improving every day. A lot of work awaits us!”
Disclosure: CNBC and Kalshi have a business relationship that includes customer acquisition and minority investment.