CFTC Targets Insider Trading in Prediction Markets

The Commodity Futures Trading Commission (CFTC) has decided to focus more on insider trading in prediction markets, with its new enforcement chief making it clear that the issue is a top priority.

“We Will Aggressively Detect, and Investigate”

During his speech at the New York University School of Law, David Miller, recently appointed as the agency’s director of enforcement, called it a “very exciting time for the CFTC.” 

“From our roots as an agricultural futures regulator, we now oversee derivatives markets in a wide variety of areas. And we are at the forefront of regulating prediction markets and crypto assets, perhaps the two most dynamic markets in finance.”

The new enforcement boss who was a litigation partner at Morgan Lewis and Greenberg Traurig after spending 10 years in public service in different roles, including “federal prosecutor in multiple offices of the Department of Justice” and assistant US Attorney in the Southern District of New York, where he spent more than half of this time as a member of the Securities and Commodities Fraud Task Force.

His remarks showed that the CFTC will embrace a fresh approach: “The era of regulation by enforcement is over.  Under Chairman Selig’s leadership, we will focus on the Division’s core purpose of policing fraud, abuse, and manipulation rather than setting policy.”

Miller made it clear that the agency will take a firm approach toward anyone using nonpublic information in prediction markets to gain an advantage. 

Miller made sure to express his stance on the matter. 

“I take insider trading extremely seriously. Insider trading in the prediction markets, where there is misappropriated information, is precisely the kind of serious violation that we are going after vigorously,” he explained. 

“Unfortunately, there is a myth in the mainstream media and social media that insider trading law doesn’t apply in the prediction markets. That is wrong,” he added.

Miller added the CFTC plans to “aggressively detect, investigate, and, where appropriate, prosecute insider trading” in the controversial markets that allow users to trade on the outcome of future events. 

This can range from financial indicators to political races and sports results. Platforms such as Kalshi have helped bring these markets into the spotlight, but they have also raised new questions about fairness and oversight.

Exchanges Must Do Their Jobs

Miller made it clear that responsibility does not fall only on regulators, arguing that the exchanges themselves must take steps to monitor activity and prevent abuse on their platforms.

Exchanges have important obligations under our core principles relevant to insider trading and market manipulation. These include obligations to have appropriate surveillance, compliance practices and procedures, promote fair and equitable trading, protect markets from abusive practices, and, importantly, to only list contracts that are not susceptible to manipulation,” Miller said.

He added that “exchanges doing their job” is an “essential part of the fight against market manipulation and insider trading.”

Concerns have grown in recent weeks after a number of trades appeared unusually well-timed, raising suspicion that some participants may have had access to private information. 

In some cases, accounts were reportedly created just hours before major events, adding to questions about how the markets are being used.

Miller acknowledged that not all informed trading is illegal. “Our markets are price-discovery markets, not disclosure-based markets. Market participants are entitled to use their own knowledge and information to make trading decisions. For example, we want the farm cooperative that sees issues with a harvest to be able to hedge its position,” Miller said.

However, he drew a clear line, reiterating that the agency will act against those “who tip or trade with misappropriated information,” and, as he stressed, the CFTC “will prosecute aggressively” these types of manipulation.