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Kalshi CEO expects US DOJ to prosecute insider trading cases

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Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#121

Post by ikeboy »

JumpCrisscross wrote: post #98
tyre wrote: post #60

I don't understand why it is a crime under current US law. Prediction markets can only do sports gambling (the vast majority of their volume) because they self-certify under the CFTC. The CFTC doesn't have the same standards of "insider trading" as the stock market, because insider trading is the entire point of business at the CFTC! If you're trading, like, oil futures or wheat futures or whatever, you are likely do…

> If you're trading, like, oil futures or wheat futures or whatever, you are likely doing so specifically because you have inside information about your business needs Insider trading, in the U.S., is not legally about fairness but about theft. A firm hedging its own positions is using its information for its own purposes. A federal employee trading on what they heard is abusing the trust placed in them by the Americ…

Note that the 2nd circuit tossed an insider trading case on government information on the basis that it doesn't count as "property".

See United States v. Blaszczak.

It may be abuse of trust but that's not automatically a crime.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#122

Post by chromacity »

JumpCrisscross wrote: post #103
usrusr wrote: post #99

In stock markets, insider trading is a big no not because it ruins someone's gambling habit, but because the entire concept of the corporation requires a certain amount of trust of financiers in financees. That whole pooling of capital thing, to do stuff that has too high a capital requirement to start individually. When shares are publicly traded, that trust is impossible when holders have to assume that they will b…

> Prediction markets don't have any "natural" reason like that for excluding insider trading Corporate employees abusing trust are doing it equivalently whether they trade securities or place bets. Government employees, similarly, don’t personally own the country’s data. In a minority of cases, the information is one’s own, e.g. bets on how many times a person says a word. But most of the time, there is a breach of t…

> Corporate employees abusing trust are doing it equivalently whether they trade securities or place bets.

But the crime the article is talking about isn't "abusing trust", it's insider trading. Insider trading is defined in a specific way. For one, as far as I understand it, it must involve securities.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#123

Post by ashleyn »

usrusr wrote: post #99

In stock markets, insider trading is a big no not because it ruins someone's gambling habit, but because the entire concept of the corporation requires a certain amount of trust of financiers in financees. That whole pooling of capital thing, to do stuff that has too high a capital requirement to start individually. When shares are publicly traded, that trust is impossible when holders have to assume that they will b…

>Prediction markets don't have any "natural" reason like that for excluding insider trading. It's just "game designers" crying their hearts out when someone ruins their game by having an advantage.

I can think of a few very good reasons you would want to prohibit insider trading on prediction markets. Betting on war outcomes; being incentivised to commit war crimes or throw vital operational goals for financial gain. Wagering on public figures' jobs; being incentivised to harm them.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#124

Post by polski-g »

ashleyn wrote: post #123
usrusr wrote: post #99

In stock markets, insider trading is a big no not because it ruins someone's gambling habit, but because the entire concept of the corporation requires a certain amount of trust of financiers in financees. That whole pooling of capital thing, to do stuff that has too high a capital requirement to start individually. When shares are publicly traded, that trust is impossible when holders have to assume that they will b…

>Prediction markets don't have any "natural" reason like that for excluding insider trading. It's just "game designers" crying their hearts out when someone ruins their game by having an advantage. I can think of a few very good reasons you would want to prohibit insider trading on prediction markets. Betting on war outcomes; being incentivised to commit war crimes or throw vital operational goals for financial gain.…

If I worked at Amazon, "AWS outage by ... date" bets on Polymarket would look mighty tempting.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#125

Post by tptacek »

AnthonyMouse wrote: post #120
tptacek wrote: post #97

Earlier quoted context omitted.

If the outcome of a prop bet really is fully controlled by insiders, so that those insiders are making decisions based on betting outcomes, then allowing that betting to occur seems antisocial and counterproductive to begin with. This is another problem with the Polymarket/Kalshi species of "prediction market".

The problem is it's pretty hard to tell ahead of time whether that's what happens. Suppose some large private company has to decide whether they're going to build a new facility in city A or city B. This is useful information for all kinds of reasons. If you're a vendor then you need to start making preparations to set up shop in the city where your big customer is moving etc. The company's analysis shows it would de…

A private company of any real size isn't plausibly going to choose Atlanta over Chattanooga to win a prediction market bet. This is a good example of the kind of prediction that can theoretically be prosocial, and one strong indicator that it might be is that an insider bet is helpful rather than harmful.

On the other hand, at the point where the prediction market winnings are material enough that they might alter the underlying decision itself, you've clearly got an antisocial structure. Prediction markets that don't want to be seen as mere prop betting venues should refuse to run markets on those questions.

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#126

Post by tptacek »

AnthonyMouse wrote: post #118
tptacek wrote: post #114

Earlier quoted context omitted.

At the point where you're arguing that it's better for a prediction market's prices to be less accurate, I think we've departed the original premise.

You're predicting something which is happening in six months but is affected by data which is being published today. Do you want a more accurate price that comes in the afternoon, or a less accurate price that comes in the morning and then stays less accurate for months because the insiders ate too much of the expected profit margin to justify more expensive analysis?

I don't understand how your analysis works. How are you proposing people who are right early get run over by people who are right with certainty later?

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#127

Post by notahacker »

mbesto wrote: post #93
notahacker wrote: post #42

Earlier quoted context omitted.

You are a spokesperson or decision maker for an entity which is bet on, like a sports team or the government. You publicly indicate that you are going to do one thing (probably the thing that makes most sense), so the market bakes that into their assumptions and offers favourable odds for bets on doing the other thing. Then you place your bet shortly before you do the other thing. (it's true that low level insiders m…

This gets into game theory and doesn't follow a predetermined flow like you're suggesting. It's a bit like playing poker...does the guy who just went all in have pocket Aces or not?

It really isn't at all like poker and really is a lot like the predetermined flow I'm just describing. Prediction markets regard the actions of politicians, sportspeople or businesspeople as indications of their wider goals for the country/team/business, not bluffs to try to influence their betting action. If a company says they're planning to IPO this year, everybody reasonably assumes that means the board want to make the IPO happen, not that they've already decided against it but reckon they can make a decent amount of spare cash anonymously betting against it happening on Polymarket

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#128

Post by Karrot_Kream »

ashleyn wrote: post #123
usrusr wrote: post #99

In stock markets, insider trading is a big no not because it ruins someone's gambling habit, but because the entire concept of the corporation requires a certain amount of trust of financiers in financees. That whole pooling of capital thing, to do stuff that has too high a capital requirement to start individually. When shares are publicly traded, that trust is impossible when holders have to assume that they will b…

>Prediction markets don't have any "natural" reason like that for excluding insider trading. It's just "game designers" crying their hearts out when someone ruins their game by having an advantage. I can think of a few very good reasons you would want to prohibit insider trading on prediction markets. Betting on war outcomes; being incentivised to commit war crimes or throw vital operational goals for financial gain.…

CFTC's guidelines around prediction markets specifically call out war outcomes.

"As a general matter, DCMs are reminded that section 5c(c)(5)(C) of the CEA provides that the Commission may determine that an event contract is contrary to the public interest if the contract involves, among other things, assassination, war, or terrorism."

The guidelines are at https://www.cftc.gov/csl/26-08/download

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#129

Post by sfink »

usrusr wrote: post #99

In stock markets, insider trading is a big no not because it ruins someone's gambling habit, but because the entire concept of the corporation requires a certain amount of trust of financiers in financees. That whole pooling of capital thing, to do stuff that has too high a capital requirement to start individually. When shares are publicly traded, that trust is impossible when holders have to assume that they will b…

Of course there's a natural reason: conflict of interest. If someone bets on a release date or a product being cancelled, then they can gain for reasons contrary to the good of their employer.

Corporations depend on controlling the compensation to their employees in order to incentivize them to produce benefit to the corporation. If there is an uncontrolled route to compensation via a prediction market, then the corporation loses its ability to trade compensation for alignment with its objectives.

> The prediction market not existing would not make the insider any less of an insider

Correct, but the prediction market existing makes the insider less of an employee. (Actually, the prediction market not existing would make the insider more of an insider, in that if insider benefit via prediction markets is unregulated, corporations will be forced to limit the information and authority of its employees.)

Re: Kalshi CEO expects US DOJ to prosecute insider trading cases

#130

Post by mbesto »

tptacek wrote: post #95
mbesto wrote: post #92

Earlier quoted context omitted.

Correct. This is an important distinction. Matt Levine has a good take on this. His informal, distilled definition is essentially: - There is a time gap where insiders know something material and the public does not. - Someone with access to that material nonpublic information, who is not supposed to use it for personal gain, trades on it anyway. - That conduct is treated by courts as a deceptive scheme against the l…

Scenario 1 is illegal because it gravely violates military secrecy laws.

That wasn't my point but okay.
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