The Commodity Futures Trading Commission (CFTC) has reportedly warned Kalshi that the prediction market could face charges over its self-certification of certain contracts.
According to Politico, citing “a person with direct knowledge of the probe,” the investigation has been “in the works for months” and deals with Kalshi’s use of the self-certification process. Specifically, the report said that Kalshi “failed to properly notify the agency about dozens of new products that were in the works.”
Politico added that charges could “land soon” but that the investigation could also end in settlement.
Self-certification process
Self-certification is a process where an exchange tells the CFTC that it plans to list a new type of contract and provides certain details such as the applicable rules. If the CFTC does not object before the listing date specified, the contract may be listed, though it is not technically considered “approved.”
Self-certification is the method by which the vast majority of CFTC-regulated contracts — in prediction markets and traditional commodities — are listed. However, exchanges planning to offer more novel types of contract often seek explicit approval instead of self-certification.
When a contract is self-certified, the exchange must affirm that it is in keeping with the CFTC’s core principles, including that it is not “readily susceptible to manipulation.”
It is not clear which self-certified contracts are at the center of the investigation. In July, the CFTC warned exchanges against overly broad self-certifications.
“The notice is about a procedural error involving the submission of a handful of contracts, many of which weren’t live. We are already addressing the issue,” Kalshi Head of Communications Elisabeth Diana told InGame.
