Kalshi seeks CFTC approval on margin trading; CFTC issues advisory on “mention” markets

Dig Deeper

The Backstory

From niche contracts to a federal-state fight

Kalshi’s request to offer margin trading on some event contracts marks a new phase in the rapid expansion of prediction markets: a push to make the products look and function more like mainstream financial derivatives, even as regulators, sports leagues and state officials argue that parts of the business increasingly resemble online gambling.

The company’s filing with the Commodity Futures Trading Commission seeks approval for eligible traders to use borrowed funds on certain categories of contracts, including economic, financial and political markets. Kalshi said the proposal would exclude sports, culture and “mention” markets, an important carveout given the scrutiny surrounding those products. The move would shift at least some prediction market trading away from the fully collateralized model that has defined regulated U.S. event contracts, where traders must post the capital needed to cover their positions.

For Kalshi, leverage could make longer-dated contracts more attractive to institutional traders accustomed to margin in equities, futures and other derivatives. For critics, it raises a sharper question: whether a market already drawing comparisons to sports betting should be permitted to add tools that can amplify gains and losses.

Sports contracts brought the conflict into the open

The legal and political fight around prediction markets accelerated as operators expanded sports-related contracts. Kalshi and rivals have argued that event contracts traded on federally regulated exchanges fall under derivatives law, not state gambling codes. State officials have countered that sports event contracts allow users to stake money on game outcomes and therefore should be subject to the same licensing, tax and consumer-protection rules as sportsbooks.

That divide has prompted direct confrontations with state attorneys general and gambling regulators. In Michigan, officials sued Kalshi earlier this year, alleging that its sports event contracts amounted to unlicensed sports betting. After a state judge temporarily blocked Kalshi from offering sports contracts, the CFTC ordered the company to honor pending Michigan trades, saying federally registered derivatives exchanges must operate as a single national market. Michigan Attorney General Dana Nessel’s office pushed back, saying the agency’s action interfered with the state’s authority to enforce sports betting and tax laws. The dispute underscored how the CFTC’s market-access principles can collide with state gambling policy when the underlying event is a sporting contest. Michigan’s challenge to Kalshi became an early test of whether states can wall off residents from federally listed event contracts.

The same question escalated in New York, where Attorney General Letitia James sued Kalshi, alleging the company was operating an illegal gambling business. The CFTC responded by invoking emergency authority to allow Kalshi to continue operating in the state, with Chairman Michael Selig arguing that prediction markets are interstate financial markets and should not be subject to a patchwork of state gaming laws. The agency’s intervention, detailed in the CFTC’s order allowing Kalshi to remain in New York, showed how far the federal regulator was willing to go to protect the national structure of registered exchanges.

The CFTC tries to draw lines without ceding control

While the CFTC has defended its jurisdiction against state challenges, it has also begun tightening expectations for prediction market operators. In August, the agency warned platforms against displaying contract prices in sportsbook-style American odds, saying the format could mislead users about the nature of derivatives transactions and obscure market depth and pricing impact. The guidance was aimed at preventing federally regulated contracts from being presented like casino or sportsbook wagers, even when the underlying subject matter overlaps with sports betting. The warning on sportsbook-style odds signaled that the agency was sensitive to consumer confusion and industry optics.

The regulator has also been developing a broader framework for determining whether event contracts involve activities prohibited under the Commodity Exchange Act’s Special Rule, including gaming, terrorism, assassination, war and unlawful conduct. That effort reflects the CFTC’s difficult position: It is asserting exclusive federal authority over prediction markets while also trying to show Congress, courts and the public that it can police products that may carry social, political or integrity risks.

The advisory on “mention” markets fits that pattern. Contracts that turn on whether a public figure says certain words, attends an event or interacts with another person create unusual manipulation risks because settlement may depend on conduct that can be influenced directly by the subject or people around them. By warning that such markets require careful, contract-specific analysis, the CFTC sought to reinforce that federal oversight does not mean open-ended approval for any event that can be converted into a binary contract.

Leagues and sportsbooks see integrity risks

Sports leagues have become some of the most forceful critics of the prediction market expansion. The National Football League told the CFTC its proposed rules did not go far enough to protect sports integrity or consumers. The league urged the agency to set a minimum age of 21 for sports event contracts, matching the standard in many regulated sports betting markets, rather than allowing access at 18 on platforms such as Kalshi and Polymarket.

The NFL also called for bans on contracts tied to officiating decisions, individual player performance and roster moves, arguing those markets are especially vulnerable to manipulation or misuse of inside information. Its position, laid out in the NFL’s comments on CFTC prediction market rules, reflects a broader concern among leagues that trading activity could create incentives around events that are easier to influence than final scores or broad outcomes.

Sportsbooks have separate but related concerns. Licensed betting operators such as FanDuel and DraftKings operate under state-by-state regimes that require licensing, tax payments, responsible gambling programs and integrity monitoring. Prediction market operators, by contrast, argue that federal registration allows them to offer contracts nationally. If courts and regulators accept that view, the result could create a parallel market for sports exposure outside the state gambling system that sportsbooks spent years building after the U.S. Supreme Court cleared the way for legal sports betting in 2018.

Consumer protection is becoming a central issue

The policy debate is no longer only about jurisdiction. Consumer protection has moved to the center as volumes rise and product design evolves. The National Council on Problem Gambling has called for safeguards such as age verification, self-exclusion, risk disclosures and responsible-engagement tools. Those requests mirror requirements common in regulated gambling markets but are not always embedded in derivatives regulation in the same way.

Kalshi has rejected claims that prediction markets operate like casinos, arguing that exchanges match buyers and sellers rather than setting odds against customers. That distinction was central to its rebuttal of a Roosevelt Institute analysis that alleged ordinary users had sustained large losses on the platform. Kalshi said the study misunderstood market data and conflated different categories of users and transactions. The dispute, covered in Kalshi’s response to the Roosevelt Institute report, highlighted a deeper disagreement over whether prediction markets should be understood primarily as information markets, financial exchanges or gambling-adjacent platforms.

Margin trading raises the stakes in that debate. Even if Kalshi excludes sports and mention markets from its proposal, approval would expand the financial tools available on a platform already under public scrutiny. Higher capital requirements near settlement may reduce some risks, but leverage can magnify losses and introduce stress if markets move quickly or contract outcomes become clearer late in the trading cycle.

The next decision could shape the industry’s path

The CFTC’s response to Kalshi’s margin request will be watched beyond one company. Approval could strengthen the argument that prediction markets belong within the architecture of federal derivatives regulation and can evolve toward more sophisticated trading models. Rejection or delay could show that the agency is wary of allowing rapid product expansion while unresolved legal and political fights continue.

Either way, the decision will land in a market defined by competing narratives. Operators want to be treated like exchanges that generate prices and information about real-world events. States and gambling interests see unlicensed betting products moving through a federal back door. Sports leagues worry that contract design can threaten game integrity. Consumer advocates want protections before mass-market trading becomes more entrenched.

Kalshi’s filing therefore is not just a technical request about collateral and eligible traders. It is a test of whether prediction markets can keep adding the features of mature financial markets while persuading regulators that they are not creating a lightly supervised substitute for online wagering.