Senators Introduce Bills to Restrict Prediction Markets and Curb Insider Trading
Two bipartisan federal bills introduced this week seek to impose strict limits on prediction markets, targeting event contracts tied to elections, geopolitical events and other outcomes while prohibiting insider trading by officials. The measures, co-authored by Senator Adam Schiff and others, challenge the Commodity Futures Trading Commission's recent approvals and could reshape a rapidly growing industry. Lawmakers argue the platforms evade state protections and enable unfair advantages, prompting sharp pushback from operators.
Legislation Targets Gambling-Like Contracts and Official Bets
The Prediction Markets Are Gambling Act, unveiled on March 23 by Schiff (D-California) and Curtis (R-Utah), would amend the Commodity Exchange Act to bar CFTC-registered entities from offering event contracts that mimic bets or casino games. It explicitly prevents such contracts related to specified events from overriding state laws, addressing concerns over consumer safeguards and tribal rights. Schiff criticized the CFTC for promoting these markets instead of enforcing existing rules, calling them a loophole that generates no public revenue.
Days later, Schiff and Curtis partnered with Senators Todd Young (R-Indiana) and Elissa Slotkin (D-Michigan) on the Public Integrity in Financial Prediction Markets Act of 2026. This bill forbids federally elected officials and government employees from trading on nonpublic information, imposing fines of at least $500 or double any profits gained. Young highlighted risks of sensitive information exploitation, amid suspicions around recent high-volume trades on foreign leaders' fates.
Industry Backlash and Market Volatility
Kalshi CEO Tarek Mansour decried the bills as casino industry protectionism, arguing regulated platforms serve millions better than offshore alternatives with zero oversight. Public companies blending prediction offerings with other services saw shares tumble: DraftKings hit a 12-month low of $20.53 after a 12% weekly drop, while Flutter fell 4% to $100, its lowest since 2022. Both firms have shed over 40% in the past year, reflecting broader pressures.
Prediction markets gained prominence in 2024 with $535 million in Kalshi volume on the presidential election. Former President Trump, in a recent interview, praised their accuracy over polls, noting they foresaw his victory when odds reached 65% pre-election and spiked to 66.9% on voting day. His platform, Truth Social, partnered with Crypto.com for future market access, though no launch date exists; his son serves on boards at Kalshi and Polymarket.
Platforms Bolster Integrity Amid Scrutiny
In response, Kalshi rolled out blocks preventing politicians, politically exposed persons and others like news decision-makers or PAC staff from trading sensitive contracts, such as those on Senate nominees. Compliance head Robert DeNault stressed that trust in counterparties underpins these markets' viability. Polymarket simultaneously clarified rules against confidential info, illegal tips and insider influence across its platforms.
These steps underscore tensions between innovation in information-aggregating tools and risks of manipulation. Federal curbs could drive activity abroad, erode U.S. regulatory edge and test states' rights in court, while platforms position self-regulation as sufficient. The bills signal Congress reclaiming oversight from agencies, with outcomes hinging on CFTC dynamics and election-year politics.
