Prediction markets’ new insider trading restrictions aren’t enough, bipartisan senators say

A pair of bipartisan senators on Wednesday said they won’t drop their push to ban sports prediction market contracts, despite Kalshi and Polymarket announcing new insider trading restrictions on their platforms.

“It’s got to be more than an aspirational statement by these companies,” Sen. Adam Schiff, D-Calif., told CNBC’s “Squawk Box” when asked about those platforms’ self-imposed new rules.

Kalshi on Monday said it would preemptively block politicians, athletes and “other relevant people” from betting on their own campaigns or sporting events.

The same day, Polymarket announced it would impose its own guardrails to address insider trading and market manipulation.

The new restrictions came as Schiff and Sen. John Curtis, R-Utah, introduced legislation that would give states, rather than federal regulators, control over sports betting and casino-style games.

The bill would prohibit Commodity Futures Trading Commission-registered entities from listing any such prediction contract.

In a joint CNBC interview Wednesday morning, the senators said the companies’ efforts to police themselves are insufficient.

“I don’t think it’s enough,” Schiff said. “It’s one thing to say, ‘This is our policy.’ It’s another actually to put into place the steps to make sure it’s not happening on those platforms.”

Curtis has said his bill with Schiff, the Prediction Markets are Gambling Act, is about “keeping speculative financial products out of spaces where they don’t belong.”

“You have to ask, ‘What could go wrong?'” he said on CNBC. “Imagine betting on a high school athlete getting hurt the day of a high school game … You can see how wrong that could go.”

Kalshi criticized the bill, saying in a statement to CNBC that banning sports on prediction markets would “just push this behavior offshore, where no regulation exists.”

“It’s clear this bill is motivated by casino interests that are threatened by competition. They’re more worried about protecting their monopolies than protecting consumers,” Kalshi said Wednesday. “We should let competition run its course instead of protecting monopolies.”

Schiff warned about the potential for “vast amounts of insider trading” that can’t be addressed under current regulations. He pointed to recent reports that some bettors have amassed significant sums predicting events in the Iran war with extremely high accuracy.

“That’s heavily suggestive of insider trading, and when it could be done using blockchain, there is no way to really regulate that, at least it’s not being regulated today,” he said.

Kalshi spokeswoman Elisabeth Diana told CNBC in an email that the restrictions announced Monday “go beyond what the stock market does.”

“We also have a track record of policing insider trading,” she said, pointing to Kalshi’s enforcement of its existing insider-trading rules after an employee of YouTube star MrBeast was found to have traded on the outcomes of the celebrity’s videos.

“That’s not aspirational, that’s the system at work,” Diana said.

The spokeswoman also noted that the Iran war bets referenced by Schiff occurred on Polymarket, not Kalshi. “We believe that regulated, federal oversight of prediction markets is better than a patchwork of inconsistent state laws,” she said.

Polymarket did not respond to a request for comment.

Prediction markets, which allow users to quickly and easily wager on nearly anything, have become vastly more popular and accessible in recent years. That popularity is leading to increasing criticism across the political spectrum.

“Pervasive gambling is not good for society,” Rep. Alexandria Ocasio-Cortez, D-N.Y., said last week in response to Polymarket being made the exclusive prediction market exchange partner for Major League Baseball.

At the same time, the financial impacts of widespread betting are coming under increased scrutiny. Economists from the Federal Reserve Bank of New York said in a report Wednesday morning that sports betting “can have dramatic implications for household financial stability.”

“Even though the share of people taking up sports betting after legalization is small (roughly 3 percent of the population), overall credit delinquency rises by about 0.3 percentage points,” the Fed researchers said.

While any legislation faces a difficult path in Congress, Schiff and Curtis expressed optimism that their bill has enough bipartisan support to clear the House and Senate.

“I think this is one of those areas where we agree on so much more than we disagree, and I think those areas of disagreement are getting narrower and narrower,” Curtis said.

Disclosure: CNBC and Kalshi have a commercial relationship that includes a CNBC minority investment.

Correction: Sen. Adam Schiff represents California. A previous version of this story misstated the state.