CFTC Cracks Down on Kalshi Over Unregistered Products

CFTC Nears Potential Lawsuit Against Prediction Market Leader Kalshi

The U.S. Commodity Futures Trading Commission (CFTC) has privately informed Kalshi, a leading prediction market platform, of its intent to potentially sue the company over its alleged failure to properly declare dozens of new products before listing them. This impending enforcement action, first reported exclusively on November 10, has been under investigation for several months, with sources indicating the CFTC is scrutinizing whether Kalshi accurately reported its upcoming product pipeline.

The private notification from the CFTC suggests that formal charges could be filed in the near future, though a settlement remains a possibility. Elisabeth Diana, a spokesperson for Kalshi, stated that the dispute concerns “filing errors related to a small number of contracts, many of which never went live,” and emphasized that the company “is addressing this issue.” Kalshi has consistently maintained that its offerings are traditional derivatives, not wagers. A CFTC spokesperson did not immediately respond to a request for comment.

The core of the dispute lies within the “self-certification” mechanism, a long-standing practice for U.S. futures exchanges. Under current rules, designated contract markets regulated by the CFTC can list new products as quickly as the next day after submitting documentation proving compliance with relevant requirements, including resistance to manipulation, without prior CFTC approval. This expedited process has allowed prediction market operators to rapidly introduce new products, often leaving regulators to address issues retrospectively. The CFTC issued new self-certification rules on July 24 of this year, explicitly prohibiting broad, template-based certifications that bundle numerous potential contract variations into a single submission, citing the difficulty this poses for regulators in assessing individual contract compliance.

This investigation gains significance amid a surge in the popularity of prediction markets. Since Donald Trump’s election as president, the prediction market sector has experienced rapid growth. Kalshi and Polymarket, the two dominant players, have seen their valuations soar to $40 billion and $21 billion, respectively. Their ability to quickly expand product lines across political, sporting, and economic events has been largely facilitated by the CFTC’s relatively accommodating stance in recent years.

However, the regulatory landscape in Washington is shifting. Following a significant victory in the midterm elections, Democrats are poised to increase oversight of the industry in the next Congress. The CFTC, under the leadership of Michael Selig, is simultaneously supporting prediction markets in lawsuits against multiple states while also turning its attention to the operators themselves. Polymarket is also under investigation for its compliance with a 2022 settlement agreement, including allegations of failing to block U.S. users from its offshore platform. Earlier this year, Terry Duffy, CEO of the Chicago Mercantile Exchange (CME), warned that numerous prediction market contracts are susceptible to manipulation and should not be easily approved.

Intriguingly, Kalshi currently finds itself aligned with the CFTC on certain issues. On November 9, Kalshi, along with six other companies including Coinbase, filed an amicus brief supporting the CFTC’s regulatory stance on “single-stock-linked perpetual contracts,” creating a peculiar situation where the company is both supporting the regulator and being investigated by it.

The implications of this investigation extend beyond a potential fine for Kalshi. Self-certification is a critical design element that underpins innovation in the U.S. derivatives market. If the CFTC tightens the standards for this channel through enforcement actions, it could impact the pace of new product launches across the entire prediction market and event contract industry. For Kalshi, valued at $40 billion, increased regulatory uncertainty will also directly affect its competitive standing against Polymarket and investors’ assessment of its compliance risks.

Two key points will be crucial to observe moving forward. Firstly, the CFTC’s ultimate course of action—whether it proceeds with a formal lawsuit, reaches a settlement, or issues a warning—will determine the strength of this enforcement wave. A lawsuit would mark the CFTC’s first direct action against a prediction market leader’s filing procedures, setting a precedent that other operators would undoubtedly scrutinize their own submission processes against. Secondly, the CFTC’s dual stance of asserting exclusive jurisdiction over prediction markets while simultaneously penalizing operators could complicate Kalshi’s “federal preemption” defense in multi-state gambling law lawsuits, suggesting that jurisdictional battles with states are likely to continue escalating.