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00:00Bobby, welcome. I want to jump right into this to this suit because Letitia James, the attorney
00:04general, says, quote, no matter what they call themselves, prediction markets like Kalshi are
00:09gambling platforms, plain and simple. By ignoring our laws, Kalshi is running an illegal operation
00:15and harming New Yorkers in the process. What is your response to this claim that Kalshi is running
00:21an illegal gambling operation? I mean, as both a New Yorker and a lawyer, I'm alarmed by the
00:28overreaching sentiment that's coming from the attorney general's office. So Kalshi is a licensed
00:33federally regulated exchange. By her logic, any federally regulated exchange that's operating
00:39with a federal license and overseen by a federal regulator can suddenly be subject to the whims of
00:45state criminal enforcement if the attorney general of a particular state wakes up and decides one day
00:51that these contracts actually come within New York state gambling law. That's not how any exchange in
00:57U.S. history has ever operated. Right. So we have we're here at Bloomberg. You guys talk about the
01:02New York Stock Exchange, NASDAQ, other exchanges. All of them could be potentially affected by the
01:07breadth and scope of the New York attorney general's approach and legal theory in terms of how she
01:14believes she can regulate and bring to heel federally licensed exchanges here in New York state.
01:19Bobby, are you saying you're the exact same things as the New York Stock Exchange or the NASDAQ
01:23markets that you're saying you're the exact same thing apples to apples then? What I am saying is
01:28that federal law dictates that that is the case. When a federal law like the Commodity Exchange Act
01:34exists and provides for a way for an entity to get licensed by something like the Commodity Futures
01:39Trading Commission or the Securities Exchange Commission, that licensure and that federal regulation
01:44is what governs that marketplace. Now, if states want to litigate with that regulator on a case-by-case
01:51basis about what types of contracts might implicate some state laws, that's one question. And that's
01:55some of the lawsuits we've seen over the last year on sports. But this is much more far-reaching.
02:00This is claiming that that license means nothing. And if you don't hold a New York license,
02:05you're running a criminal operation and you need to be run out of the state. And I think it's
02:10important to ground this sort of in history of disruptive sort of new players in marketplaces,
02:15right? Kalshi's new, but this sort of licensed regime has existed for many decades. We've seen
02:21similar playbooks used against companies like Uber and Airbnb, where states try to throw their weight
02:26around and bring crazy cases to block what customers want as a reasonable alternative.
02:31We think that that's a pretty similar playbook to what the Attorney General is following here.
02:35So why shouldn't Kalshi seek a license from the New York State Gaming Commission? Why wouldn't you do
02:39that? So it really goes to the way that the business operates. We are a federally licensed
02:44exchange that requires us to run open markets that are available nationwide. Our users set the
02:50price. Traders set the price. We match traders in an open marketplace with one another. We are not on
02:56the other side of individuals trading. We don't run a casino where people can come in and drink and
03:01play card games. We don't run a sports book where we profit when people lose. What we do is run
03:06open
03:06marketplaces where users define the price point. And that type of financial product, even if it
03:11touches on topics that is similar to a topic touched on by a sports book, the way that that product
03:17operates is typically what governs what regulations apply. So even though people keep coming at you and
03:23say, gambling, gambling, gambling, that's why you're not gambling? So I think it's important to define
03:31exactly what they mean when they say gambling. To me, gambling is when you go up against the house.
03:35When you go to a place that controls whether you're going to win or lose, they're going to
03:39chase losers. They're going to maximize their ability to limit winners. They're not going to
03:43run like a true business. But where an exchange exists and individuals are setting price with one
03:48another, I think that it operates under a different regulatory framework. And it's not to say that a
03:54whole panoply of different topics can be touched on by different regulated products. So we see concerns
04:00in options trading or leverage trading, retail traders moving into markets that are traditionally
04:05regulated markets at the federal level. I think some of the same concerns exist for those markets.
04:09And if you read the lawsuit closely, a ton of the definitions and the language and the descriptions
04:14that Attorney General James's office uses could easily be transposed onto Robinhood, crypto trading,
04:21derivatives trading, any sort of trading activity that the Attorney General suddenly decides poses
04:25a customer threat to individuals who want to participate in.
04:28In April, she did sue Coinbase and Gemini for running illegal gambling platforms. Why do you
04:35think Kalshi was singled out in this iteration of the lawsuit?
04:40You'd have to ask the governor's office why Kalshi was singled out. I think the truth is there are a
04:47number of prediction markets that would be affected by this approach. There's a number of other exchanges
04:51that would be affected. Robinhood's based in New York, right? Novig, Polymarket, they're all based
04:59in New York, none of whom have been subject to the Attorney General's focus. So I don't know if that's
05:03coming. I don't know if you'd have to ask her office. But certainly, you know, we're a bit alarmed
05:07that the Attorney General is seeing the scope of New York gambling law applying to potentially
05:13federal derivatives exchanges.
05:15But I do think about, exchanges do think about the composition of the bets that are on, like,
05:21if we're going to use the gambling analogy that keeps getting kind of lobbied at you, I mean,
05:27if I think about exchange, there is incredible oversight, you know, and there's rules and so that
05:33there isn't, you know, trades that are happening that are not legit or fair or right. You know, if
05:40if gambling is, as you say, there is no house, right, it's just two parties figuring out something,
05:46where is the oversight and concern about the composition of the bets being made,
05:51and making sure that they are true? Because I think that's where you get into gambling.
05:55If anybody can kind of put up a bet, and another person can take the side, and who knows if
05:59those two sides didn't get together to figure out this bet, like, you know what I'm saying?
06:03So that, to me, is where you get into the gambling. It's a little, it feels a little loose.
06:09Sure. I don't think it's loose at all. So I think that when you're, so just to sort of zero
06:15in on
06:16some of the nuance that you just said, gambling is when there is the house. What you do on an
06:21exchange is where there is no house. There are two counterparties in a particular market agreeing
06:25on a price together and executing what we characterize as a swap, what the CEA qualifies
06:30as a swap. Those types of trades are heavily regulated under CFTC regulation. There are hundreds
06:35of regulations that apply. So you're saying all the trades that are happening on Cal Street will be
06:38heavily regulated in oversight, and we understand the two sides.
06:41They are currently heavily regulated and being overseen. I meet with the CFTC's enforcement
06:45division. That's my line of work at CalShe. I lead our exchange enforcement. I meet with their
06:50enforcement division multiple times a week. But separately, they have other divisions,
06:54division market oversight, other divisions that oversee the implementation of markets so that
06:58they are structurally fair for the participants operating in them. And that oversight requires CalShe
07:05as an exchange, but all prediction market exchanges to work very closely with the CFTC on the products
07:09that they offer. They have to self-certify them to the CFTC who can revoke approval for those
07:14products. And the CFTC recently came out with a 267-page rulemaking that was specific toward
07:20prediction market contracts. So I think, you know, it isn't correct to say these aren't currently
07:24heavily regulated.
07:25We're speaking with Bobby Dinald. He's head of enforcement and legal counsel at CalShe. He joins
07:30us here in the Bloomberg Businessweek studio. I want to shift gears and talk about some other
07:33recent news. It seems like you're really playing whack-a-mole at this point with these lawsuits.
07:37Like, obviously, it's keeping you busy. Also keeping you busy is enforcement. And former
07:42Congressman George Santos agreed to pay more than $35,000 to settle allegations that he manipulated a
07:47wager on your platform about whether he'd attend the 2026 State of the Union. Is it your
07:51responsibility to police that? Are you the one who recognized that and flagged it?
07:56Yes, it is our responsibility to police that.
07:58Do you have the resources? Like, this is one example, but do you have the resources
08:02to find every single one of them that allegedly has insider information?
08:07So I'd pause there and say that's not our standard at the New York Stock Exchange,
08:11and that's not our standard in the securities and equities markets. What we expect our federally
08:15regulated exchanges to do is to have reasonable procedures to detect insider trading, market
08:21manipulation, etc. Kalshi has very robust and, in fact, more robust than stock exchanges policing
08:27measures to prevent and detect insider trading. We do have 24-7 market surveillance. We use a
08:34surveillance vendor, but also in the coming days are going to announce an expansion of our
08:38surveillance systems. And we police these markets both in real time and in retrospect. And we work
08:44with the CFTC to investigate specific markets and detect anomalous activity in those markets. We did
08:49detect the trading activity by Mr. Santos. We conducted an investigation that involved an
08:54interview with Mr. Santos, and we referred the entire matter and the evidence that we collected
08:58to the CFTC, which allowed them to pursue enforcement. But separately, in the derivatives and commodities
09:03space, these exchanges, like ours, have a responsibility to also bring enforcement actions directly
09:09against the users who participate on them. And so we pursue direct exchange enforcement in areas
09:14where individuals come on and violate our CFTC-approved exchange rules.
09:18How often is that happening? And how many investigations are you triggering, like on a daily basis or a weekly
09:23basis?
09:24So we sort of estimate quarterly and volumes upticked quite a bit. So the investigations have upticked quite a bit.
09:30But somewhere between 150 and 250 a quarter become material investigations. We make a number of referrals.
09:36I think year to date, we've probably made about 40 or 50 referrals to the CFTC.
09:40These matters take time, though. The legal process, everybody deserves due process rights.
09:44So we afford people due process. We've settled or brought disciplinary actions in a number of cases.
09:49We're going to continue to do so. And by the end of the year, you know, I'm sure you'll see
09:53a meaningful number of actions.
09:55I put for context, the SEC in the last year, the Biden administration bought 35 insider trading actions.
10:01So, you know, I think the expectation would be somewhere in the ballpark of that number.
10:05Do you think that there are some markets that are listed on Kalshi that are more susceptible to manipulation than
10:10others?
10:11I think much like insider trading in the traditional securities and equities markets, there are certain paradigms that exist that
10:18create more likelihood for insider or manipulation risk.
10:21Like mentioned markets, perhaps?
10:23You know, I think mentioned markets are a unique category.
10:26I don't know that they're necessarily more susceptible to insider risk, but I can see the context or argument for
10:32saying they maybe are more susceptible to manipulation where one person controls what word they say.
10:37On the counter of that, there's a small pool of people who could possibly be capable of manipulating that market.
10:43And because we're an exchange that collects user information, we follow KYC, know your customer rules for every single individual
10:49trading on the exchange.
10:50We have a pretty good idea of who's taking positions in certain markets that allows us to police mention markets
10:55just like we police all markets.
10:56You're talking about Kalshi public companies, right?
10:59I just, what, or no.
11:00Oh, I mean, yeah, that's part of it.
11:01I mean, that's the new.
11:02Just 60 seconds.
11:03I know we've got to run.
11:05It's interesting.
11:06Earnings updates, KPI forecasts, earnings call mentions.
11:08You loved this when you saw this.
11:09I do.
11:10And I'm thinking, God, does this replace ultimately the earnings estimates that we follow?
11:14Is that the goal?
11:15Just quickly.
11:15I think there's two goals.
11:16I think the first goal is what we find is so many people are using Kalshi as a resource just
11:21to obtain information.
11:2375% of people who visit the platform are there just to look, to learn.
11:27They're not there to trade.
11:28And so this is a resource for people who might be on a trading desk, people who might be in
11:32a financial position where they want to analyze these really subtopic financial questions about a particular KPI.
11:38But, you know, of course, we are seeing academic research that shows these are somehow and sometimes more accurate than
11:44our traditional metrics in financial markets.
11:46And so it's exciting to develop further in that space.
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