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- Kalshi has formally told the Commodity Futures Trading Commission (CFTC) that it supports capping an exchange’s affiliated trading desk activity at 5% of its quarterly betting volume, offering the limit as a compromise as federal regulators weigh new conflict-of-interest rules.
- While Kalshi argues that limited, publicly disclosed affiliated market-making is necessary and should be allowed with independent financial surveillance, the CFTC’s review has triggered a fierce industry divide, with major players like CME Group demanding an outright ban on principal trading by exchange affiliates while others like Fanatics push for no restrictions.
Kalshi told federal regulators it would support a rule capping activity by its affiliated trading desk at 5% of exchange betting volume per quarter as the Commodity Futures Trading Commission weighs new conflict-of-interest rules.
The proposal matters because the CFTC is considering how prediction-market exchanges should handle affiliated trading arms, a structure critics say can create conflicts when the same corporate family operates both a marketplace and a principal trader. Kalshi said those risks should be addressed, but argued some of the agency’s draft measures would be too burdensome and could be sidestepped.
According to Kalshi’s filing, the suggested 5% quarterly cap would apply industry-wide to both single-event contracts and parlays executed through a request-for-quote system outside the central order book. Kalshi spokesperson Elisabeth Diana said Kalshi Trading has accounted for about 1.5% of volume on the company’s exchange this year.
Diana said, “We support affiliated market making only on a narrowly limited basis, under programs that are disclosed to the public and filed with the CFTC.”
Kalshi proposes disclosure and surveillance requirements
In its comment letter, Kalshi also urged the CFTC to require exchanges to publicly disclose affiliates’ trading volume for each wager type on a quarterly basis. The company said affiliate relationships should be defined using voting-interest and ownership thresholds.
Kalshi further recommended independent financial surveillance of affiliated relationships involving principal trading arms. It also said compliance checks should ensure a trading affiliate maintains informational barriers with its sibling exchange, including separate physical offices.
At the same time, Kalshi objected to some parts of the CFTC proposal. One measure under consideration would require affiliated trading arms to receive last priority at every price in the order book. Kalshi said some proposed restrictions would be “operationally burdensome” and “easily evaded through gamesmanship.”
CFTC review draws competing industry views
The CFTC’s proposal has received more than 50 public comments, showing a wide split over how far the agency should go.
According to the source report, CME Group said the CFTC should impose an outright ban on principal trading by exchange affiliates. Fanatics, by contrast, argued that affiliates’ market activity should not be restrained.
What happens next depends on how the CFTC resolves the rulemaking after reviewing the comment record. One open question is whether the agency adopts Kalshi’s proposed cap, some other limit, or a stricter approach to affiliated trading in prediction markets and other event-based contracts.
Source: As reported by sportico.com.
