Kalshi, Polymarket Tighten Insider Controls

Lead paragraph

On Mar 24, 2026, The Block reported that two leading prediction-market platforms, Kalshi and Polymarket, strengthened internal controls to limit possible insider trading and event-manipulation risks after United States senators introduced the "Prediction Markets Are Gambling Act" earlier in March (The Block, Mar 24, 2026). The moves mark a rapid operational response by market operators that have historically operated on different regulatory trajectories: Kalshi as a CFTC-regulated exchange participant and Polymarket as a crypto-native platform. Both firms communicated changes to surveillance, account screening, and market listing policies; the public disclosures arrived as lawmakers signalled the possibility of targeted statutory restrictions on how prediction markets can list sports and related event contracts. For institutional market participants and compliance functions, the episode underscores a renewed convergence between political risk and platform-level market integrity controls in a market where event-conditional contracts trade on sentiment rather than corporate cash flows.

Context

Prediction markets have grown from niche speculative forums into platforms that in some cases handle meaningful liquidity and retail attention. Kalshi received regulatory permission to operate event-based contracts under CFTC oversight in 2023, setting it apart from many decentralized competitors that have operated outside traditional securities and commodities frameworks (CFTC press releases, 2023). Polymarket, by contrast, has built a large user base on-chain and off-chain and has repeatedly been at the centre of regulatory scrutiny precisely because its architecture has blurred lines between information markets and gambling-like structures. The Senate's bill introduced in March 2026—titled the "Prediction Markets Are Gambling Act"—specifically targets sports-related contract listings on prediction platforms, raising the prospect of immediate delistings or new compliance burdens for event types that overlap with regulated betting markets (The Block, Mar 24, 2026).

These developments are consequential because they alter the underlying risk profile for counterparties and liquidity providers. Kalshi's CFTC-regulated status has historically required surveillance and reporting regimes similar to futures exchanges; Polymarket's responses reflect an attempt to match some of those controls without the same regulatory umbrella. The two platforms' adjustments illustrate how intermediaries can internalize regulatory risk as an operational constraint, tightening KYC/AML procedures, limiting employee trading, and enhancing pre-listing review for higher-sensitivity event contracts.

Finally, political dynamics matter: the bill's focus on sports betting dovetails with broader congressional attention to platform-based financial innovations. If language in the bill is adopted or mirrored by state-level action, it could produce a bifurcation in the market between platforms that accept stricter oversight and those that pivot to permissible non-sports event verticals.

Data Deep Dive

There are three concrete data points central to understanding the current episode. First, The Block published its reporting on Mar 24, 2026 documenting both the bill and platform responses (The Block, Mar 24, 2026). That article is the proximate trigger for market attention and public scrutiny. Second, two distinct platforms — Kalshi and Polymarket — have been identified as implementing changes, an explicit numeric indicator of the concentrated attention on market leaders rather than the long tail of small operators. Third, Kalshi's regulatory milestone in 2023 (CFTC approval to operate event contracts) created a compliance baseline that now informs how it escalates controls and communicates with stakeholders (CFTC press release, 2023).

Beyond those headline points, the practical controls reported include: enhanced surveillance of accounts showing concentrated, asymmetric information patterns; expanded blackout periods for staff and contractors involved in event creation; and new pre-listing diligence criteria for events that could interface with regulated sports betting markets. While precise internal thresholds remain proprietary, the pattern is measurable: platforms are increasing the intensity of pre-trade controls and narrowing the permissible universe of tradable events, which, on a platform-wide basis, reduces the pool of high-sensitivity contracts in a way that can be quantified by listing counts and market breadth once public filings appear.

For investors and compliance officers, the corollary data to watch includes changes in market depth (bid-ask spreads, committed liquidity), turnover on event contracts, and concentration statistics (percent of volume in top 10 contracts). Those metrics will reveal whether tightened controls materially reduce usable liquidity or simply shift trading to lower-sensitivity event types or off-platform venues.

Sector Implications

The short-term implication for the prediction-market sector is a potential contraction in event types offered, particularly for sports-related contests that map closely to regulated wagering markets. That contraction will create immediate secondary effects: reduced cross-platform arbitrage opportunities, potential migration of high-frequency traders to alternative venues, and a possible temporary decline in top-line volumes for platforms that choose to delist or suspend sports-linked contracts. If the bill becomes law or galvanizes state-level enforcement, platforms without the resources to implement equivalent surveillance may find themselves increasingly isolated from U.S. user bases.

For regulated market participants and liquidity providers, the episode may accelerate due diligence requirements and risk models that explicitly account for legislative event risk. Prime brokers and institutional traders that had begun to allocate capital to prediction-market contracts will reassess operational exposure and potentially require contractual assurances around surveillance and market integrity from platform counterparties.

Competitors and ancillary service providers stand to benefit or suffer depending on strategic choices. Exchanges and platforms that emphasize compliance, transparent governance, and formal surveillance can capture users migrating from less-regulated venues. Conversely, some liquidity may flow to offshore or decentralized platforms, creating new AML/CFT and enforcement challenges. The net systemic effect depends on whether regulatory pressure leads to consolidation under compliant operators or fragmentation into opaque corners of the market.

Risk Assessment

Key near-term risks are legal and operational. Legislated prohibitions on sports-related prediction contracts would force immediate delistings and create reputational risk for platforms that failed to act proactively. Operationally, implementing more stringent controls raises implementation risk: false positives in surveillance can lock legitimate accounts, while false negatives can leave platforms exposed to manipulation and subsequent enforcement. Both outcomes carry commercial consequences.

A medium-term regulatory risk is the possibility of precedent-setting enforcement that expands government authority over event contracts beyond sports to political, economic, or weather markets. Such broadening would materially change the addressable market for prediction contracts and challenge the revenue models of platforms reliant on high-frequency or high-attention event types.

Finally, market structure risks include reduced liquidity and market fragmentation. If institutional participants pull back because of political risk or compliance burdens, spreads may widen and price discovery efficiency may deteriorate. That degradation in microstructure could undermine the informational value that prediction markets purport to provide.

Fazen Capital Perspective

Fazen Capital's view is that platforms will converge on a compliance frontier where the marginal cost of enhanced surveillance is weighed against the marginal revenue from higher-risk event verticals. Contrary to the simplistic narrative that regulatory pressure will kill prediction markets, we see a bifurcation: well-capitalized, compliance-focused platforms (those able to replicate exchange-grade surveillance and legal frameworks) are likely to capture a greater share of institutional and regulated retail demand, while smaller or decentralized operators will either pivot to non-U.S. jurisdictions or specialize in low-regulatory-risk event categories.

This contrarian insight suggests that regulatory tightening could, paradoxically, increase the informational value of surviving markets. As markets that remain open narrow to events with clear, auditable outcomes and robust surveillance, price signals may become cleaner for specific use cases (e.g., macroeconomic event probabilities) even as overall volume contracts. Institutional participants should model both the volume contraction risk and the quality-of-price signal improvement when assessing exposure to prediction markets.

For policy-makers, an incremental, supervision-based approach that focuses on market integrity rather than categorical bans (as proposed by the bill) may preserve the public-good aspect of prediction markets—information aggregation—while reducing the gambling externalities regulators are concerned about.

FAQ

Q: Will the Senate bill immediately ban all prediction markets? A: No. The legislative text reportedly focuses on sports-related contracts and is narrowly targeted (The Block, Mar 24, 2026). Immediate bans would require enacted law; meanwhile, platforms are adjusting voluntarily to de-risk exposure.

Q: How should compliance teams measure platform risk post-announcement? A: Practical measures include tracking listing counts by event type monthly, monitoring changes in average daily volume and bid-ask spreads, and requesting platform-level surveillance KPIs (e.g., suspicious activity report counts, account suspension rates). Historical comparisons to periods of prior regulatory scrutiny (for instance, how platforms adjusted after 2023 CFTC activity) can offer useful benchmarks.

Bottom Line

Kalshi and Polymarket's tightened controls following the March 2026 legislative move highlight a sector at an inflection point: regulatory attention is forcing operational upgrades that will re-shape liquidity, listing breadth, and the comparative advantage of compliance-capable operators. Market participants should expect a period of consolidation and narrower but potentially higher-quality price discovery.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.

References

• The Block, "Kalshi, Polymarket tighten insider trading curbs" (Mar 24, 2026): https://www.theblock.co/post/394807/kalshi-polymarket-insider-trading-curbs?utm_source=rss&utm_medium=rss
• U.S. Commodity Futures Trading Commission press releases and orders relating to event contracts (2023): https://www.cftc.gov/
• Fazen Capital insights: topic and related sector analysis: topic