Gabby Jones | Bloomberg | Getty Images
Kalshi on Thursday announced efforts to expand its surveillance and enforcement framework as skepticism grows about the booming prediction markets industry.
The announcement comes a few days before Super Bowl 60, which Kalshi said has already attracted more than $160 million in trading volume. The platform and its colleagues allow users to purchase event contracts for results in politics, pop culture, financial markets and sports.
Predictive trades on predetermined outcomes — such as which companies will air Super Bowl commercials on Sunday — have raised questions about possible insider trading. New York Attorney General Letitia James warned Monday about what she called “unregulated prediction markets.”
“Federal regulation means Kalshi prohibits market manipulation and insider trading, has 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 trade, and publicly reports all trades daily to the CFTC,” the company said in a press release. “Kalshi has also spent years developing customized market trading monitoring and enforcement systems similar to those used in the stock market.”
Kalshi said Thursday it has taken further steps and formed an independent monitoring advisory committee that will provide quarterly analysis to the company’s outside advisers and publish statistics on investigations into suspicious activity on its platform. The company also announced monitoring 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 “market integrity, trade surveillance and financial compliance” issues.
Kalshi attorney Robert DeNault has been named head of prosecutions, where he will work with the advisory committee 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.
CEO Tarek Mansour said in a post
“Over the past year, we have conducted over 200 investigations and frozen accounts,” Mansour wrote. “Of these, over a dozen have become active cases and several have been referred to law enforcement.”
Mansour said Kalshi based its market surveillance system on those of the New York Stock Exchange and Nasdaq and detects suspicious behavior by executing trades through pattern recognition models.
“There are bad actors in all industries and no system is perfect, including Kalshi,” Mansour wrote. “But we strive to improve every day. There is still a lot of work ahead of us!”
Disclosure: CNBC and Kalshi have a business relationship that includes customer acquisition and minority ownership.