Kalshi says CFTC hasn’t contacted it over ‘unusual’ $5B trading activity

Prediction markets operator Kalshi said it has not been contacted by the Commodity Futures Trading Commission and does not believe there is any formal examination, after a report that the regulator was reviewing a flurry of trading activity in its Ether perpetual futures market. 

On Tuesday, The Wall Street Journal reported that the CFTC is examining a pattern of rapid trades clustered around $5,500, citing a person familiar with the matter. The trading pattern has prompted allegations of wash trading. 

The scrutiny comes as Kalshi has reported rapid growth in its perpetual futures business. A week after launching its perpetual futures markets in May, the company told CNBC that trading volume had surpassed $1 billion.

Elisabeth Diana, head of communications at Kalshi, described the discourse as “rumors seeded by competitors.” 

“We have not been contacted by the CFTC and don’t believe there is any formal examination,” Diana told Cointelegraph. “As we’ve said, these data patterns are typical of liquidity incentive programs and common in financial markets. Don’t believe everything you read on X.”

Cluster of trades on Ether perpetual futures

The trades took place in one of Kalshi’s markets for perpetual futures, where users speculate on the price of an asset without buying it; in this case, the price of Ether. 

The trades of roughly $5,500 each accounted for over $5 billion in Ether perp volume over the past month, according to the Journal. 

The Journal also reported that Kalshi offered some traders opportunities to buy equity in the company if they met trading-volume targets, citing people familiar with the arrangements. It also said the company waived trading fees and provided monthly cash payments to encourage large traders to provide liquidity. 

In a blog post on Wednesday, Kalshi attributed the repeated trade sizes to programs that pay market makers to keep buy and sell orders available at specified sizes and at a set price range. It said those payments reward the availability of orders, not the volume of trades executed. 

The post did not directly address the equity-purchase opportunity tied to trading volume targets as reported by the Journal. 

Kalshi denies wash trading claims

Market makers help financial markets function by continuously quoting prices at which they are willing to buy and sell an asset, giving other traders ready counterparties to trade with. Market makers can profit from the difference between their buying and selling prices, but risk losses if prices move against them. Traders who accept their quoted prices are known as takers.

Related: Kalshi joins Coinbase with own filing for US stock perpetual futures

Kalshi said traders could profit when prices changed on other exchanges by buying or selling at a market maker’s outdated price. 

“The fixed size trades are entirely consistent with a single maker putting up resting orders of a fixed size and getting traded against by many takers,” Kalshi said.

It said the trades involved hundreds of distinct traders taking a market maker’s orders, with the takers “pretty consistently right” and the maker “pretty consistently wrong.”

“This is a sign of genuine economic activity rather than wash (where you’d expect volume to increase without either side taking a profit/loss),” Kalshi said. 

Magazine: Winners and losers of the SEC’s new tokenized stocks rules