Comment Text:
I am writing to respectfully urge the CFTC to implement regulation of Prediction Markets to prevent insider trading and illegal gambling. As a US citizen, these markets allow for manipulation of events and can disclose private activities of the US government and militaries. To protect the national security of our country, we must prohibit insider trading on these markets. Additionally, the markets do not reflect accurate predictions, but with the bets being placed, are actually gambling sites. Gambling is regulated and prohibited in much of the US for good reason. These prediction markets should be regulated similarly.
These contracts are so dangerous to the national security of the United States and so
offensive to U.S. values that they far outweigh any legitimate risk-management purpose. Traders
with inside information that specific geopolitical events will occur or who can directly influence
such events can easily buy event contracts. Given the high potential for insider trading, a surge
in buying activity and a rapid price increase can signal that the reference event will occur. Such a
pattern could tip off our adversaries that U.S. intervention is imminent. By contrast, speculation
in traditional financial instruments that may be linked to geopolitical instability, such as oil, gold,
and currencies, do not send direct and specific signals that an attack in one specific country is
imminent. And the ability to trade event contracts tied to violent geopolitical events could create
financial incentives for someone to actually commit violence for profit.
Activity in prediction markets regarding the war with Iran that began on February 28
demonstrates how event contracts tied to U.S. military operations are morally repugnant and
provide no social benefit. On offshore platform Polymarket, which is not regulated by the CFTC,
at least six wallets made more than $1 million in profits in just hours by betting that the U.S. or
Israel would strike Iran by that date. According to reporting by Bloomberg, this activity is the
“hallmark” of insider trading. An investigation is already underway by Israeli authorities. On
CFTC-regulated platform Kalshi, traders bet whether Ayatollah Khameini would be “out as
Supreme Leader” by that date. Kalshi was still promoting the Khameini market as its “featured
market” throughout the day of military strikes, encouraging speculation on war or death. After
Khameini died, the platform “clarified” that payouts under the contract would be limited and
announced that some trading fees would be refunded. Despite these efforts, many traders still
apparently profited from price appreciation after the strikes had started but before Khameini’s
death was confirmed. The contract resolved when Khameini died, providing strong evidence
that this is a death market and that traders profited directly from speculation on war.
