CFTC draft rule suggests exchanges impose occupational verification for users

The Commodity Futures Trading Commission could require registered prediction market exchanges to obtain employment and occupational information from users if a new proposed rule takes effect. If that does occur, existing customers on platforms like Kalshi would need to provide proof of their professional activities and new customers would have to do the same during account registration.

The additional information could aid exchanges in identifying users who could have access to non-public information about contracts available on the platforms. Kalshi has already taken actions toward that end.

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CFTC files draft rule with occupational verification standards

The Commodity Futures Trading Commission (CFTC) filed the proposed rule on Thursday, citing a need for “clear, workable regulations.” While the proposal covers many areas of oversight, it adds two new categories to the information that registered exchanges need to collect about each user.

Those new categories would be employer and occupation. Current requirements cover users’ addresses, contact information, and dates of birth.

In the filing, the CFTC says the change is “necessary to detect insider trading and prevent wash trading.” Wash trading is the same investor illegally buying and selling positions in the same market to artificially influence the market.

The proposed rule must go through a 30-day comment period before the CFTC can begin to implement it. Kalshi may have already implemented the requirements before the rule takes effect.

Kalshi moving forward with employment verification

Kalshi announced in early June that it received a report from an independent audit of its user surveillance protocols and is moving to implement the recommendations. The statement from Kalshi mentions employment verification.

However, the verification mentioned would only apply to “markets with certain scores.” In this context, the scores refers to a risk score that Kalshi says it is going to implement to determine the potential for “heightened insider trading or manipulation risk.”

The release does not specify a threshold for the scoring that will trigger the employment verification requirement. Regardless of what that threshold is, the CFTC’s proposed rule would represent more rigorous verification because it would require exchanges to collect that information for all users regardless of which markets they intend to trade in.

The proposed regulation does not go into great detail on how the exchanges should handle the collection and verification. Several systems already exist for that type of procedure.

Exchanges could contract with existing occupational verification services

Multiple private companies provide employment and occupational verification that can be done completely online in a matter of minutes. Normally, users can satisfy the conditions by submitting a pay stub or providing tax documents if they are self-employed.

Providers of the services like Equifax then reach out to the appropriate entities to verify documents. Some services also include the use of facial scans or fingerprints to assure the identities of people using the services.

Platforms like Kalshi could also build out their own occupational verification systems if they choose. If this rule from the CFTC becomes final, they will need to consider the cost of doing so.