STOCKS | U.S. Regulators Scrutinize Prediction Market Trading Affiliates

U.S. regulators are reviewing the business structures of fast-growing prediction markets such as Kalshi and Polymarket. According to Sina Finance, the Commodity Futures Trading Commission is seeking public comment on a draft rule aimed at preventing exchanges from giving affiliated traders preferential treatment over ordinary customers. The draft would require trading businesses and exchange businesses to operate independently and would bar affiliated traders from betting directly against customers. It would also require exchanges to disclose all affiliated traders, separate offices, staff and information systems, and ensure any incentive programs are open to non-affiliated members on equal terms. According to Sina Finance, the CFTC said prediction markets are an area of immediate regulatory urgency, and noted that at least six exchanges are known to allow affiliated firms to trade. The agency’s comment period ends in early October, after which it may revise the draft and move toward formal rules. Kalshi said its affiliated trading arm, Kalshi Trading, does not make a profit and accounts for only a very small share of platform volume. The company said Kalshi Trading receives no preferential treatment and shares neither personnel, office space nor communication channels with the parent company. Polymarket said it does not operate a proprietary market maker, whether on its U.S. platform or on its separate blockchain platform for overseas users. Robinhood previously used external exchanges such as Kalshi and later helped set up the joint venture exchange Rothera with Susquehanna International Group, with each side holding 45%.