Wisconsin Representative Bryan Steil, who chairs the House subcommittee on digital assets, has introduced a new bill aimed at curbing insider trading in prediction markets. The legislation, dubbed the "Stop Lawmakers from Predicting Act," specifically targets members of the U.S. Congress, their spouses, and dependent children, prohibiting them from wagering on public policy issues and political outcomes.

According to a notice released Thursday, the bill would bar elected officials from placing bets on event contracts tied to government policies, government actions, or election results. However, it does not extend to White House officials, including President Donald Trump or Vice President JD Vance, nor does it restrict lawmakers from betting on sports or other non-political events. Violators would face a fine of $2,000 or 10 percent of the value of the prohibited wagers, whichever is greater.

Background on prediction markets and insider trading concerns

Prediction markets have grown rapidly in recent years, with platforms like Kalshi and Polymarket allowing users to trade contracts on everything from election outcomes to economic indicators. The industry has attracted significant attention from regulators, particularly the Commodity Futures Trading Commission (CFTC), which has asserted exclusive jurisdiction over these platforms under the Commodity Exchange Act.

The concern over insider trading in prediction markets gained widespread attention after an incident involving a U.S. soldier who allegedly made over $400,000 betting on the removal of Venezuelan President Nicolás Maduro. Maduro was ousted by U.S. forces in January 2026, and news agencies reported that the soldier had access to non-public information regarding the military operation. This case highlighted the potential for market manipulation by individuals with privileged access to government decisions.

Steil's bill is the latest in a series of legislative efforts to address such risks. While previous proposals have focused on broader insider trading rules for public officials, this measure specifically zeroes in on the unique nature of prediction markets, where the assets are event contracts rather than traditional securities.

Exemptions and implications

One notable aspect of the proposed law is the exclusion of White House officials. Critics argue that this creates a double standard, as the President, Vice President, and their families may have even more direct influence over—and knowledge of—policy decisions than members of Congress.

President Trump has maintained close ties to the prediction market industry. His son, Donald Trump Jr., serves as a strategic adviser to both Kalshi and Polymarket. Furthermore, Polymarket was a sponsor of the UFC Freedom 250 event held at the White House on Sunday, underscoring the administration's engagement with these platforms.

Supporters of the bill defend the exemption by noting that the legislation is specifically aimed at members of Congress, who are directly involved in crafting policy. White House officials, they argue, are subject to different ethical rules and disclosure requirements, though these are not always strictly enforced.

The broader regulatory landscape

The fight over control of prediction markets is playing out on multiple fronts. The CFTC, under Chairman Michael Selig, has taken an aggressive stance, filing lawsuits against state-level authorities that attempt to restrict or ban these platforms. In court, the agency has argued that event contracts should be regulated as "swaps" rather than bets, giving the federal government primary oversight.

Legal experts suggest that this jurisdictional battle may ultimately reach the Supreme Court, which would have to decide whether the Commodity Exchange Act grants the CFTC exclusive authority over all forms of event-based contracts. Meanwhile, several states have moved to ban or restrict prediction markets, citing concerns about gambling addiction and financial fraud.

Kalshi and Polymarket have responded by tightening their policies. In some jurisdictions, they now require Know Your Customer (KYC) verification to prevent prohibited trading. However, the industry remains largely self-regulated, with many transactions occurring on decentralized platforms that are difficult for authorities to monitor.

Historical context: from political betting to modern platforms

The concept of betting on political events is not new. Informal prediction markets have existed for centuries, with examples including the betting on papal conclaves and election outcomes in 19th-century England. However, the rise of digital trading platforms has dramatically increased the scale and liquidity of such markets.

In the United States, the first regulated prediction market was the Iowa Electronic Markets, launched in 1988 by the University of Iowa. These markets were primarily academic in nature but demonstrated the potential for aggregating information through financial incentives. Over time, commercial platforms emerged, leading to the current landscape dominated by Kalshi and Polymarket.

The rapid growth of these platforms has outpaced regulatory frameworks, creating opportunities for both legitimate hedging and manipulative trading. The incident involving the soldier's $400,000 bet served as a wake-up call for lawmakers, highlighting the need for clear rules to prevent insider trading.

Details of the proposed legislation

The Stop Lawmakers from Predicting Act would take effect 180 days after enactment, assuming it passes both chambers of Congress and is signed into law by the President. During this period, impacted individuals would be required to divest any existing positions in policy-related event contracts.

The bill defines "prohibited wagers" broadly, covering any contract whose value depends on the outcome of a government policy, government action, or political event. This includes presidential elections, congressional votes, Supreme Court decisions, and regulatory rulemakings. However, it specifically excludes sports betting, which is regulated separately under state law.

Penalties would be enforced by the Office of Congressional Ethics (OCE) for members of the House and the Senate Ethics Committee for senators. The mandatory fine of $2,000 or 10% of the prohibited wager—whichever is higher—is designed to be significant enough to deter abuse, though some critics argue it is insufficient to stop wealthier members of Congress.

Steil's office did not immediately respond to requests for comment on the bill's specifics or its potential timeline for consideration in the House.

Reactions from industry and advocacy groups

Industry associations have expressed mixed reactions. The Blockchain Association, which represents many crypto-related businesses including prediction markets, has generally supported clearer regulatory frameworks but opposes measures that would restrict access for ordinary users. "We need rules that prevent insider trading without stifling innovation," said Kristin Smith, the association's CEO, in a previous statement.

Consumer protection groups, meanwhile, have praised the bill as a step in the right direction. "Allowing lawmakers to wager on policies they help create is a blatant conflict of interest," said a spokesperson for Public Citizen. "We hope to see similar restrictions extended to the executive branch in the future."

The CFTC has not publicly commented on the specific legislation, but Chairman Selig has previously called for Congress to clarify the agency's authority over prediction markets.

Technical challenges and enforcement

Enforcing a ban on insider trading in prediction markets presents unique challenges. Unlike traditional securities, blockchain-based platforms allow users to trade pseudonymously. While Kalshi and Polymarket have implemented KYC procedures for U.S. customers, many other platforms operate without such safeguards.

To address this, the bill would require all registered exchange operators to report suspicious trading activity by members of Congress to the relevant ethics committee. However, it does not mandate de-anonymization of all trades, which would likely face privacy objections.

Additionally, the legislation would require public disclosure of trades made by members of Congress and their immediate families on these platforms, similar to the Stock Act of 2012 for traditional securities. This transparency measure aims to deter abuse by making it easier for watchdogs to detect unusual betting patterns.

Looking ahead

As the 2026 midterm elections approach, prediction markets are expected to see increased volume, making the need for clear rules even more pressing. The Steil bill is likely to be a starting point for broader congressional debates on the regulation of event contracts.

Observers note that the exclusion of White House officials may become a sticking point during negotiations. Given the administration's close ties to prediction market platforms, any effort to extend the ban to the executive branch would face significant political hurdles.

Regardless of the outcome, the Steil bill marks a significant attempt to address the ethical challenges posed by prediction markets. Whether it passes as written or is amended, the conversation around insider trading in these platforms is certain to continue.

Source:Cointelegraph News