Exclusive: Kalshi to block athletes and politicians from trading on their markets

Driving the news: Kalshi plans to announce Monday that it will preemptively prevent professional and collegiate sports participants from placing trades on their teams or leagues.

• It will also preemptively prevent political candidates from trading on the markets associated with their campaigns.
• Kalshi rules already prevented athletes from trading on their games and politicians from trading on their campaigns — but this move installs a mechanism that will prevent people in those positions from placing those trades in the first place.

Catch up quick: The announcement is one of multiple developments Monday reflecting the growing scrutiny over the expansion of prediction markets regulated by the Commodity Futures Trading Commission (CFTC):

• Polymarket, Kalshi's arch rival, announced "enhanced market integrity rules" in a bid to "clarify" its prohibition on insider trading. That includes banning trading on stolen confidential information or "illegal tips" and banning "trading by those who can influence the outcome" of an event.
• U.S. Sen. Adam Schiff (D-California) and Sen. John Curtis (R-Utah) introduced the bipartisan Prediction Markets Are Gambling Act to ban CFTC-regulated exchanges from allowing trading on sports or casino games.

The big picture: The booming popularity of prediction markets — which now allow people to risk money on sports throughout the country — has fostered a regulatory fissure between the Trump administration's CFTC and state governments.

• The Arizona attorney general last week filed criminal charges against Kalshi, accusing the company of operating an unlicensed sports gambling operation.
• Trump's appointed CFTC chair, Mike Selig, has signaled plans to fight state efforts to block the commission's regulatory oversight of prediction markets.

Threat level: The battle comes amid a backdrop of growing awareness of the risk of athletes fixing particular outcomes in games to win bets or help others do so.

• Multiple MLB pitchers, NBA players and NCAA basketball players are among the recent athletes accused of conspiring with outsiders in pursuit of winnings.
• "I think the prediction markets view insider trading as an issue that can kill the golden goose, and they're taking it seriously," gambling and prediction markets analyst Dustin Gouker tells Axios.

What they're saying: Robert DeNault, head of enforcement at Kalshi, tells Axios that the company will have a better shot at blocking illicit efforts with preemptive bans.

• "You'll never stop all illicit activity everywhere. That's just an impossible standard. But you shouldn't make the perfect the enemy of the good either," DeNault says. "It's actively working toward good solutions and leveraging the technological capabilities you do have in ways that make sense."

Between the lines: Kalshi's new effort includes partnering with outside contractors, including Integrity Compliance 360 (IC360) to screen athletes when they initially sign up for the platform.

• "It's not easy to provide surveillance and identify insider trading across thousands of markets that each have different people with potential insider information," Gouker says. "But it's certainly not an impossible problem for the prediction markets to improve upon."

Yes, but: Critics say the proliferation of sports trading via prediction markets is a slippery slope.

• "Too many young people in Utah are getting exposed to addictive sports betting and casino-style gaming contracts that belong under state control, not under federal regulators," Sen. Curtis said in a statement. "Our bipartisan legislation clarifies regulatory jurisdiction, ensuring that states can maintain their authority over sports betting and casino gaming."

The bottom line: Prediction markets are racing to convince regulators that they are responsible operators.