The New Insiders of Prediction Markets

In December, Kalshi self-certified contracts on which colleges NCAA student-athletes would attend. While they did not list the contracts, the move raised fresh questions about market integrity. Had Kalshi launched these markets, the personal decisions of high school students would have dictated the outcome of real-money financial markets.

As the regulator of derivatives, the Commodity Futures Trading Commission (CFTC) is tasked with preventing fraud and insider trading. However, event contracts have turned private individual actions into objects of speculation. This creates a difficult environment for the CFTC, which saw significant staffing cuts under Caroline Pham’s chairmanship. Her successor, Michael Selig, must now navigate novel market manipulation and insider trading challenges within this burgeoning sector.

Insider trading laws

At their core, insider trading laws protect market integrity by preventing insiders from exploiting ordinary investors. When an individual trades on non-public information, they deny the rest of the market the “full picture” necessary to make informed decisions. This creates an uneven playing field where public investors are caught off guard, prices fail to reflect true value, and insiders breach the fundamental duty they owe to their companies.

In the stock market, using “inside information” is a violation of the fiduciary duty that corporate leaders owe to their shareholders. Executives are tasked with managing a company to reward those who invest in it. Using private knowledge for personal gain betrays this relationship, as investors expect a transparent assessment of a company’s performance rather than a rigged game.

The purpose of derivatives trading is fundamentally different: it allows companies to hedge against risks that traditional insurance cannot cover. A farmer, for example, may need to manage the simultaneous risks of harvest yields, transportation costs, and market fluctuations. Or a hedge fund may use derivatives to protect against shifting tax policies following an uncertain election

Because derivatives markets rely on specialized industry knowledge, the Commodity Futures Trading Commission (CFTC) takes a different approach to insider trading than the SEC. In these markets, participants are expected to trade based on their intimate knowledge of their respective industries.

The CFTC focuses not on the possession of information, but on the misuse of it. As former Chief Trial Attorney for the CFTC’s Division of Enforcement, Elizabeth Davis, explained:

“Given their roots in [agriculture] and energy, they [derivatives traders] trade on information…but it’s the fact that it’s required to be confidential, and that there’s a breach of that confidential duty that their [regulators’] focus is on.”

How information is gained and used matters

In a 2023 insider trading case, the CFTC charged a trader working for an exchange with, among other things, “appropriating…material non-public information.” Then-Commissioner Caroline Pham wrote a dissenting statement objecting to the CFTC’s use of the term “material non-public information.” She argued that the CFTC should “allege ‘misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information.’”

This terminology more clearly distinguishes the SEC’s broad prohibition on insider trading from the specific types of fraud the CFTC polices. In the commodities and derivatives markets, where trading on material non-public information is often both legal and common, the regulatory focus shifts away from the mere possession of information and toward the actual breach of a pre-existing duty or the misappropriation of confidential data.

Pre-existing duties

In 2024, the CFTC charged Andrew Gizienski with insider trading. Gizienski was an employee of EOX Holdings, a CFTC-registered futures broker. He told a friend about customer identities and positions on EOX Holdings, which created opportunities to use large positions to decide which underlying markets to manipulate prices in. Gizienski also traded on the account himself while he had access to that confidential information.

The CFTC charged him in part because he was found to be “in breach of a pre-existing duty of trust and confidence owed to those customers.” There were plenty of energy companies in the know about relevant information. However, anyone who breaches a previous agreement can ruin the market integrity of the people who participate in it. Gizienski was among a select few whose knowledge could allow fraudsters to target underlying markets to profit at the expense of the exchange’s traders.

However, CFTC investigations remain confidential throughout their duration, as Davis explained:

“Enforcement investigations are confidential as a matter of law, so until it gets to the point where it becomes ripe for either a settlement or an action or lawsuit being brought,…absent somebody getting a subpoena, reporting it on their required disclosures, you don’t necessarily know what enforcement is doing until it becomes ripe.”

Behind the scenes, the CFTC’s challenges in regulating event contracts won’t necessarily be about inside information. The agency’s challenges will revolve around whether event contracts are manipulated by parties that can settle markets in their own ways.

Bukele ‘could do the funniest thing’

Regulated event contracts date back to the late 1980s. But the explosion of event contracts on new topics has raised new questions about which contracts are most easily subject to manipulation.

For example, El Salvador’s dictator, Nayib Bukele, noticed Kalshi’s market on when the value of El Salvador’s Bitcoin reserve would be worth $1 billion. Bukele posted on X that he could “do the funniest thing,” implying that he could buy more Bitcoin to resolve the market when he chose.

I could do the funniest thing right now… https://t.co/82lENa4hgN

— Nayib Bukele (@nayibbukele) August 27, 2025

The agency can’t prosecute the leader of another country. However, it doesn’t necessarily have to ban the contracts altogether either. Prohibiting markets that settle based on Bukele’s actions could be a solution if he resolves multiple markets based on his whims.

There is no evidence that Bukele has done so. However, another type of event contract has been manipulated in a similar fashion: mention markets on corporate calls.

Brian Armstrong’s mention spree

During Coinbase’s Q3 earnings call, CEO Brian Armstrong was presented with a list of “mention market” strikes—specific terms that had not yet been triggered during the session. Armstrong proceeded to read the terms one by one, unilaterally resolving every contract to “Yes.”. 

While Armstrong characterized this as a one-time event, it highlights a significant challenge for the CFTC: the need to monitor individuals who intentionally resolve markets through artificial means. To maintain integrity, mention market prices must reflect the organic probability of a word being spoken rather than being inflated by the subject’s direct manipulation.

If markets begin pricing in the likelihood of a CEO simply rattling off terms to settle bets, those contracts lose their utility for forecasting and hedging. Without an accurate probability distribution based on genuine behavior, the CFTC may be forced to delist specific markets or prohibit the category entirely..

The stakes get even higher when forecasting military outcomes.

Institute of War settlements

Last November, as the Russian army advanced toward the eastern Ukrainian city of Myrnohrad, Polymarket opened a contract on when the city would fall. The platform designated the Institute for the Study of War (ISW) as the official source for resolving the market.

The integrity of that market was compromised when an ISW staff member reportedly edited the think tank’s map to falsely reflect Myrnohrad’s capture on November 15. Consequently, Polymarket resolved the market for that date, even though the city remained under Ukrainian control. While the ISW eventually fired the employee and corrected the map, the market had already settled. As of December 18, the city had still not been captured.

Regulatory implications

This incident occurred on Polymarket, not Polymarket U.S., which is still in beta and slowly being released to U.S. customers. In a regulated market, the ISW staff member could face investigations from the CFTC for violating a previous duty. That is, if war contracts were allowed to be listed at all.

As event contracts proliferate, the number of individuals and organizations with the power to “resolve” them has grown. Any of these parties can draw unwelcome attention from the CFTC if they play fast and loose with event contracts that depend on their words or actions.

If the CFTC aims to prove it remains an effective regulator with its reduced staff, it must find efficient ways to police fraud in these new high-stakes markets, where settlements can be worth millions of dollars.