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Kalshi on Thursday announced efforts to expand its surveillance and enforcement frameworks as skepticism builds around the booming prediction market industry.
The announcement comes days before Super Bowl 60, which has already drawn more than $160 million in prediction market trading volume, according to Kalshi. The platform and its peers allow users to buy event contracts for outcomes in politics, pop culture, financial markets and sports.
Prediction trades on predetermined outcomes — for example, on which companies will air Super Bowl ads on Sunday — have prompted questions of possible insider trading. New York Attorney General Letitia James on Monday issued a warning about what she called "unregulated prediction markets."
"Being federally regulated means that Kalshi bans market manipulation, insider trading, has limits on the types of markets it lists, runs Know-Your-Customer (KYC) and Anti-Money Laundering (AML) checks on every user before they can trade, and publicly reports all trades to the CFTC daily," the company said in a release. "Kalshi also spent years building custom prediction market trade surveillance and enforcement systems that are similar to those used in the stock market."
Kalshi said Thursday it has taken further steps, forming an independent surveillance advisory committee, which will provide quarterly analysis to the company's outside counsel and publish statistics on investigations into 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 undersecretary of the Treasury for terrorism and financial intelligence to advise Kalshi on "market integrity, trading surveillance and financial compliance matters."
Kalshi lawyer Robert DeNault has been appointed to the role of head of enforcement, 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 resources for consumers on responsible trading and market integrity.
In a post on X, CEO Tarek Mansour said if the company finds any wrongdoing, the penalties include fines and referrals to the Commodity Futures Trading Commission — which regulates event contracts in the U.S. — and the Department of Justice for prosecution.
"In the past year, we ran over 200 investigations and froze relevant accounts," Mansour wrote. "Of these, over a dozen have become active cases and several have been referred to law enforcement."
Mansour said Kalshi has based its market surveillance system on those used by the New York Stock Exchange and the Nasdaq, flagging suspicious behavior by running trades through pattern recognition models.
"All industries have bad actors and no system is perfect, Kalshi's included," Mansour wrote. "But we are committed to improving daily. Lots of work ahead!"
Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.
