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Proposed Legislation to Regulate Prediction Markets for Federal Officials
On March 25, 2023, a bipartisan bill known as the PREDICT Act was presented by Representatives Adrian Smith (R-NE) and Nikki Budzinski (D-IL). This legislation is designed to prohibit senior federal officials and their families from participating in prediction markets that focus on political events or government actions.
The bill arises amid increasing concerns about informed trading practices occurring on platforms such as Kalshi and Polymarket. These trading environments allow users to bet on the outcomes of specific events, which, in the context of government actions, could lead to unethical advantages for those in power.
Key Provisions of the PREDICT Act
The PREDICT Act targets not only members of Congress but also extends to the President and Vice President, political appointees, senior executive branch officials above GS-15, military officers of the rank O-7 and above, and judicial officials. It also encompasses their spouses and dependent children. Representative Smith emphasised that public service is not a means to exploit confidential information for personal financial gain.
Should the law be violated, individuals would face a civil penalty amounting to 10% of the transaction value in addition to being required to return any illicit gains to the U.S. Treasury.
Findings from Recent Studies
A study conducted by Harvard Law scrutinised 93,000 markets on Polymarket, identifying roughly US$143 million in potentially anomalous profits among more than 210,000 suspicious wallet-market pairs. These findings illustrate the prevalence of questionable trading activities that underscore the need for regulatory measures.
Notably, six recently established Polymarket wallets allegedly generated approximately US$1.2 million (AU$1.74 million) in profits prior to a significant U.S.-Israeli strike on Iran on February 28. In one instance, a trader purchased shares asserting an event’s occurrence at US$0.10, coinciding with an implied probability of just 17%. This account notably profited around US$553,000 (AU$801,850) from a trade executed merely 71 minutes before the information became public. An additional case involved a trader turning US$38,500 (AU$55,825) into about US$485,000 (AU$703,250) on a contract linked to the capture of Venezuelan leader Nicolas Maduro.
Furthermore, Israeli authorities have indicted individuals for allegedly leveraging classified wartime intelligence on Polymarket to their benefit.
Wider Legislative Context
The PREDICT Act is part of a broader legislative trend, with at least six prediction market bills introduced in Congress throughout March 2026. Proposed legislation includes varied limitations on political event contracts and expansive prohibitions surrounding electoral, military, and governmental event contracts. Notably, the Commodity Futures Trading Commission (CFTC) initiated a formal review of event contract regulations on March 12.
The bill’s future remains uncertain, particularly given the current Republican control of Congress, where there are factions, including members of the Trump administration and CFTC Chair Mike Selig, advocating for what they see as lawful advancements in prediction markets.
Budzinski noted that this legislation aims to address regulatory gaps overlooked by the STOCK Act, which does not explicitly cover trading in prediction markets.
In summary, as legislators contend with the implications of prediction markets and the potential for ethical misconduct, the PREDICT Act represents a significant step toward ensuring transparency and integrity within trading conducted by federal officials. The proposal, while facing potential challenges in Congress, highlights an increasing recognition of the need for regulation in this evolving financial landscape.
