Kalshi's New Rules: Safety vs. Competition in
Published 6/10/2026, 1:42:26 PM
Kalshi's new rules represent a significant tightening of market integrity standards that enhance safety but create mixed competitive implications for the prediction market industry.
What Are the New Rules?
Kalshi Exchange Rule 5.17(z) prohibits any trader who is a "decision maker" or who has "any influence, directly or indirectly" on the outcome of an underlying event from trading on contracts related to that event. This rule was enforced in April 2026 when Kalshi published three disciplinary notices against political candidates who wagered on their own campaigns. [Source: https://kalshi.com/market-integrity/insider-trading] [Source: https://www.lexology.com/library/detail.aspx?g=39823ab8-0383-4544-9d43-41dcc40bdaf5]
The CFTC issued a March 2026 staff advisory requiring that event contracts not be "readily susceptible to manipulation" and that exchanges conduct "real-time monitoring." The agency also published an advance notice of proposed rulemaking requesting comments on prediction market standards. [Source: https://www.congress.gov/crs-product/IF13187]
In January 2026, CFTC Chairman Michael Selig withdrew the 2024 proposed ban on political and sports-related event contracts and announced new rulemaking to establish "clear standards" for prediction markets. [Source: https://www.corporatecomplianceinsights.com/cftc-withdraws-proposed-rule-prediction-markets/] [Source: https://www.cnbc.com/2026/01/29/cftc-scraps-proposed-ban-on-sports-contracts-says-new-rules-coming.html]
Note: The research provides a high-level overview of Kalshi's new rules but lacks granular details such as the complete text of Rule 5.17(z), specific fee structures beyond a general range, and detailed enforcement metrics.
Safety Implications
The rules make prediction markets safer in several ways:
| Safety Measure | Impact |
|---|---|
| KYC/AML Requirements | Kalshi identifies all users, enabling detection of fraud, money laundering, and insider trading |
| Insider Trading Prohibitions | Rule 5.17(z) bars decision-makers from trading on their own outcomes |
| Real-time Monitoring | CFTC-advisory requires exchanges to surveil for manipulation |
| Enforcement Actions | Kalshi imposed penalties including disgorgement and multi-year suspensions on violators |
The CFTC's first-ever insider trading complaint in event contracts (April 2026) involved U.S. Army service member Gannon Ken Van Dyke, who allegedly traded Polymarket contracts using classified military intelligence about "Operation Absolute Resolve," realizing over $404,000 in profits. [Source: https://www.cftc.gov/PressRoom/PressReleases/9217-26] This established that the CFTC will aggressively pursue insider trading in prediction markets.
However, gaps remain. Stanford Law professor Joseph Grundfest notes that "the real problems arise offshore and in crypto-native event markets" where "Polymarket is crypto-native, does not apply U.S.-style anti-money laundering or know-your-customer rules." [Source: https://law.stanford.edu/2026/04/30/prediction-markets-are-surging-heres-what-you-need-to-know/]
Note: The research discusses safety and integrity extensively but provides limited direct evidence on investor protection mechanisms such as fund safeguards, dispute resolution processes, or retail investor risk disclosures.
Competitive Impact
Kalshi's regulatory approach creates a two-tier competitive landscape:
| Factor | Kalshi | Polymarket |
|---|---|---|
| KYC/AML | Full identity verification required | Full KYC for US access only |
| State Availability | 42+ US states | Invite-only waitlist (Feb 2026) |
| Volume (2025) | $43.1 billion | $33.4 billion globally |
| Regulatory Track Record | No enforcement actions | 2022 CFTC settlement ($1.4M fine) |
| Fee Structure | ~3% settlement fee | 0.75–1.80% trading fee |
[Source: https://laikalabs.ai/prediction-markets/kalshi-vs-polymarket]
Kalshi's rules may reduce competition by creating higher barriers to entry. The platform's strict compliance requirements mean:
- Higher operational costs that smaller competitors cannot match
- Limited market offerings compared to unregulated offshore platforms
- Potential user friction from KYC requirements
But they also strengthen Kalshi's position by:
- Providing regulatory certainty in 42+ states
- Enabling partnerships with mainstream media (CNN, CNBC, AP, Fox News)
- Building institutional trust for larger market participants
Polymarket retains competitive advantages through lower fees, deeper global liquidity in geopolitical markets, and on-chain transparency via the Polygon blockchain. However, its US re-entry has been "a slow process" with "limited market accessibility" as of early 2026. [Source: https://laikalabs.ai/prediction-markets/kalshi-vs-polymarket]
The Regulatory Patchwork Problem
More than 10 bills have been introduced in Congress since January 2026 targeting prediction markets, including the bipartisan PREDICT Act (H.R. 8076), which would bar the President, Vice President, Congress members, and senior military officials from trading event contracts tied to political events. [Source: https://www.lowenstein.com/news-insights/publications/client-alerts/cftc-and-kalshi-announce-enforcement-actions-targeting-prediction-markets-fctm]
Minnesota became the first state to ban prediction markets entirely in May 2026. [Source: https://www.npr.org/2026/05/19/nx-s1-5821265/minnesota-ban-prediction-markets]
This creates an uneven competitive landscape where Kalshi's compliance-first approach may be rewarded in some jurisdictions but faces outright bans in others—potentially advantaging offshore, unregulated platforms that face no such restrictions.
Conclusion
Kalshi's new rules make prediction markets safer by implementing robust KYC/AML compliance, insider trading prohibitions, and real-time surveillance. The enforcement actions against political candidates and the CFTC's first insider trading complaint demonstrate meaningful teeth.
However, these rules reduce competitive diversity by favoring large, compliance-heavy platforms over smaller, more innovative competitors. The regulatory patchwork—combining federal CFTC oversight with state-level bans—creates a fragmented market where Kalshi's regulated approach is advantaged in some jurisdictions but faces existential threats in others.
The net effect is a consolidating industry where safety improvements come at the cost of reduced competition, potentially leaving room for offshore platforms to capture markets that regulated US exchanges cannot serve.
What remains open: The long-term question of whether Kalshi's compliance-first model can sustain market share against lower-fee offshore competitors, and whether Congress will pass comprehensive federal legislation that preempts the current state-by-state patchwork.