Michael Selig said many "mention" contracts have issues and that margin trading will be limited to a narrow set of traders. Kalshi says repeated identical trades in its ether market come from a liquidity program, not collusion.
The top regulator of U.S. prediction markets used a television appearance on Wednesday to lay out where his agency is drawing lines. Two of them run straight through Kalshi.
Commodity Futures Trading Commission Chairman Michael Selig said activity in "mention" contracts, which pay out based on whether a person says certain words during a speech, televised event or earnings call, is "concerning." A day earlier, CFTC staff had warned that such contracts carry a heightened risk of manipulation.
"I think a large number of these contracts have issues, and so we're going to take a hard approach in evaluating those," Selig said.
He also said the agency has a zero-tolerance policy on wash trading, the practice of trading with oneself or a coordinating partner to create the appearance of volume without any real change in ownership.
That comment arrived as Kalshi pushed back against claims about its ether perpetual futures market. An analysis of the platform's trading data published this week found that more than a third of volume in that market came in trades of exactly $5,500, across more than $5 billion of volume over roughly a month. One analyst estimated that $5,500 trades accounted for as much as 58% of volume over a four-day stretch.
Kalshi rejected the suggestion that the pattern reflects wash trading. The company said wash trading is "explicitly banned in our rulebook" and that it found "no evidence" of collusion or wash trades. It attributed the repeated identical trade sizes to its liquidity-provider program, in which market makers post resting orders of a fixed size that are filled again and again by different counterparties.
The two explanations lead to different places. Under Kalshi's account, the uniform trade sizes are a side effect of how its market makers are paid to provide liquidity, and the counterparties on the other side are real and varied. Under the wash-trading interpretation, the same pattern would reflect volume without genuine changes in ownership. Trade-level data showing who stood on each side of the $5,500 fills would distinguish between the two.
Selig also addressed Kalshi's request to offer margin trading on some event contracts. He said the CFTC is evaluating the proposal and will allow only traders meeting "stringent eligibility criteria" to participate. Kalshi's filing had already excluded sports, culture and mention markets from the contracts that could be traded with borrowed money.
Taken together, the chairman's remarks suggest a regulator willing to let prediction markets add features of mature derivatives exchanges for sophisticated traders, while applying closer scrutiny to the contract types and trading patterns most open to abuse.
For Kalshi, the stakes are commercial as well as regulatory. Volume is a central measure of a trading platform's growth, and questions about how much of it reflects genuine activity may weigh on how investors value the company. Any CFTC statement on the ether perpetual market, and the agency's decision on the margin request, will be the next markers.