Several Kalshi users thought they were in luck Monday night when the prediction market accepted in-game wagers on whether Chicago Bears running back Roschon Johnson would score against the Minnesota Vikings. Johnson had been ruled inactive before kickoff, so it was impossible for him to find the end zone.
Yet many of the customers who bet “no” after Johnson was ruled out ultimately lost money. One X user shared screenshots of a betting slip with a $2,175 wager that ultimately paid out $1,975 rather than the $2,500 they expected based on the stated odds. This person lost $200, despite picking the right outcome.
For players who aren’t dressed for games, Kalshi employee Shannon Magiera later explained on social media, Kalshi’s prop markets retroactively settle at the odds from the moment the player was announced inactive. This is also reflected in the fine print on Kalshi’s website. In short, the loser here wasn’t whoever was offering lines on an impossible outcome; it was the person who noticed and tried to take advantage.
“We are an exchange,” wrote Magiera, part of Kalshi’s operations team, in response to a post on X. “There is another user who is holding the yes contracts to counter your no position.”
Left unsaid in Magiera’s explanation is that for some markets, the “other user” might be Kalshi itself.
Kalshi Inc. owns an exchange (KalshiEX), a clearinghouse (Kalshi Klear) and a unit called Kalshi Trading that makes transactions on the marketplace and provides liquidity to the exchange. The holding company does not disclose how many wagers are made by its affiliated trading arm—all participants are anonymous, according to a Kalshi representative—making it impossible to determine, in an instance like the Monday Night Football confusion, whether it held a position or how big it was.
Kalshi Trading’s presence seemingly contradicts one of the main arguments Kalshi uses to differentiate itself from traditional sportsbooks and avoid state gambling laws. Kalshi has repeatedly said gaming operators like DraftKings and FanDuel set lines and therefore take the other side of wagers made by bettors, while prediction marketplaces are only middlemen for “peer-to-peer” trading. It has also suggested it has no financial stake in whether retail users win or lose their wagers.
As a result, Kalshi, which saw its exchange’s trading volume on sports contracts break $290 million last weekend alone, claims it is not a gambling app despite offering contracts in American odds and ad copy that includes “bet on football legally” and “the first nationwide legal sports betting platform.”
According to Kalshi’s website, Kalshi Trading is “a separate entity from Kalshi Exchange—a different company with completely separate operations, and subject to strict informational barriers that prevent any non-public exchange information from being shared.”
That said, the two have shared board members, and until recently, job postings on LinkedIn listed the same point of contact for Kalshi Trading and KalshiEX applicants. One posting also portrayed Kalshi Trading as being closer to a sports betting “house” than Kalshi Inc. has suggested in comments to reporters.
While there is no evidence of legal wrongdoing from Kalshi Trading, owning an exchange and being an exchange participant is a setup that has drawn concern from some finance experts and previous CFTC commissioners. It also muddies the waters in an instance like the Roschon Johnson bet, where exchange rules can appear to work against casual retail traders.
“It would be really interesting to know who were the market makers in that scenario on Monday night, and at what percentages,” former CFTC commissioner Christy Goldsmith Romero said in an interview. “The risk is there. The risk is there with affiliated entities that you could have conflicts of interest with affiliated entities that end up hurting customers.”
The practice “is uncommon in financial markets,” Haoxiang Zhu, a finance professor at MIT’s Sloan School of Management, said in an email. “In derivatives markets (futures, swaps), it is common for a futures exchange to operate its own clearinghouse. Still, it’s uncommon to have a futures exchange being affiliated with prop firms trading on that exchange.”
In a response to questions for this story, a company representative told Sportico in an email that Kalshi Trading has “no asymmetrical trading advantage” on the exchange, and is “one of many ‘peers’ in the peer-to-peer ecosystem.”
“Users who place resting orders on Kalshi (which include a wide variety of users, not just institutions) compete with each other based on their assessments of the underlying event’s probability,” the representative said. “Market forces drive the ‘price’ toward a fair value, unlike a sportsbook, where the house can charge any amount it wishes to its individual customers.”
Essential Role
Market makers—which in the prediction market industry are often third-party funds without affiliation to an exchange—are essential to the survival of platforms like Kalshi. By providing liquidity, they ensure there are always “buy and sell now” contracts at a slight premium on the actual probability of the wagered-on event happening. Without them, users would not be able to get into or out of positions near fair value—or in the worst cases, at all.
Like any business, though, market makers look for profit opportunities. Kalshi Trading is no different.
Earlier this year, Kalshi’s website listed a Kalshi Trading role with responsibilities that included “using bookmaker odds data in conjunction with original modeling to generate prices.” Shortly after Sportico began reporting this story, that language was removed from listings.
This week, former Kalshi Trading employee Adhi Rajaprabhakaran responded to Kalshi’s announcement of pickleball wagers being available on the site by highlighting the active role Kalshi Trading would play. “God bless my former colleagues at Kalshi Trading who have to price this and watch p*ckleball live to move their quotes,” Rajaprabhakaran wrote.
Rajaprabhakaran’s comment and the job position’s original language clashes with what a Kalshi official told Sportico in July. “The role of market makers is to react to pricing, not to set or influence it,” the official wrote in an email while making the case that market makers do not resemble bookmakers.
Asked for clarification, the Kalshi representative said in an email this week that “all prices on Kalshi are ultimately reactive and generated through thousands of competing orders, rather than by a single centralized authority.”
Kalshi’s website says “the majority of participants on Kalshi today are retail traders, as opposed to institutional traders,” but those terms are not defined. It’s also not known what percentage of money on the exchange is from its own trading unit, or other market makers such as Susquehanna International Group, which get “financial benefits, reduced fees, differing position limits and enhanced access,” according to the company.
Susquehanna’s market makers were not involved in Roschon Johnson to-score contracts trading on Monday once he was ruled out, according to a company spokesperson. Susquehanna employees pulled all contracts at that point, the representative said.
It is not known whether Kalshi Trading, another market maker or just a confused retail trader who genuinely didn’t know Johnson wasn’t playing took the side of the running back finding the end zone for contracts after the game started.
“Counterparties are anonymous, but there are a lot of different market makers in these markets that provide liquidity for the entire duration of the games,” Magiera wrote on X. “We encourage every trader on Kalshi to read the rules before diving in :)”
A Scrutinized Model
The affiliated trading arm model was reexamined at the CFTC in the aftermath of FTX’s 2022 collapse, when operations at FTX’s affiliated trading arm and primary market maker Alameda Research were found to have been deeply intertwined with the cryptocurrency exchange. Customer funds at FTX were also illegally used to bankroll Alameda trades.
The CFTC deliberated at length about how these vertically integrated market structures should ideally work during a 2023 process in direct response to FTX’s downfall. Goldsmith Romero said at the time that she was worried that FTX’s transgressions were more than a one-off, writing that “too often, we see registrants in a vertically integrated structure who share resources, including personnel, surveillance systems and other systems, physical space, and practically everything else.”
After the process concluded, former commissioner Kristin Johnson expressed concern that the agency had not formed a new rule specific to managing risks and potential conflicts at affiliated trading arms.
“I have raised the alarm, time and time again, about conflicts of interest and other concerns in emerging asset classes and the urgent need for the Commission to adopt a holistic rule that addresses these issues,” Johnson wrote in an August 2024 statement.
Those rules were not adopted by January 2025, when the Biden administration gave way to the Trump administration. Since that time, four of the five CFTC commissioners have left, without being replaced.
Goldsmith Romero, who stepped down in May and now teaches at Georgetown Law School, said the CFTC has limited regulatory power to enforce the separation of an exchange and trading affiliate.
“It’s not just, ‘Tell us it’s true,’” she said. “The CFTC wants to see where it’s documented, and then the CFTC will do periodic exams on that. But I will say that the CFTC does not have insight into affiliates that are not regulated by the CFTC. They only have insight and visibility into the regulated entity. So they can go back to KalshiEX and ask for documents and other information, but that’s all on the exchange side.”
Johnson exited the CFTC last week, leaving interim chair Caroline Pham as the lone commissioner at the agency. Johnson said in a farewell address that prediction markets of all stripes—not just ones with affiliated trading arms—are operating without proper oversight.
“We have too few guardrails and too little visibility into the prediction market landscape,” Johnson said, adding that “the target audience for these contracts” is people without experience in finance who may not understand the complexities of prediction market companies.
“[Potential for conflict] is something that, as these platforms become more interesting to retail investors, people should be aware of,” Jessica Wachter, a professor of finance at Penn’s Wharton School and former chief economist at the SEC, said in a video interview.
Neither the CFTC nor Johnson responded to requests for comment.
The History of Kalshi Trading
Kalshi Trading dates back at least four years. In a Sept. 16, 2021, message on the company’s public Discord, Kalshi Inc. CEO Tarek Mansour explained Kalshi Trading to users as a “liquidity provider” and “affiliate of Kalshi,” with independent operations from the exchange. Mansour said Kalshi had already been using Kalshi Trading at that point, and that the market-making arm was down for a temporary pause.
Five days later, a written notice from Kalshi obtained by Sportico informed the CFTC that KalshiEX had been using Kalshi Trading to boost liquidity since June 28 of that year. “[Kalshi Trading] both aggresses and enters passive orders on the exchange,” the Sept. 21, 2021, message to the CFTC says.
The notice also identified Mansour and COO Luana Lopes Lara as board members of both Kalshi Trading and KalshiEX. A Kalshi representative declined to comment on the current board composition of either entity.
The correspondence also indicated how the holding company would approach possible conflicts of interest between Kalshi Trading and KalshiEX, or in the company’s words, “specific risks with respect to the integrity and fairness of the Exchange.”
The document cites “strict informational barriers between Trading and the Exchange to preclude the provision of any confidential information regarding any other member to Trading.” It says KalshiEX would “ensure members remain informed of actual or potential conflicts arising out of Trading activities.”
A year earlier, when Kalshi Inc. submitted its initial DCM (designated contract market) application, it seemingly made references to what would become Kalshi Trading, suggesting the liquidity provider was part of its vision from the get-go. In an emailed response to the DCM application obtained by Sportico, then-CFTC associate director of market review Jonathan Lave asks, “Please explain how Kalshi will ensure that the market-making affiliate will not be able to access the DCM’s non-public information. Where will the affiliate be located in relation to the contract market (e.g. same building, same floor or same room)?”
Kalshi’s answer is exempted from public disclosure, but its official rulebook currently calls for Kalshi Trading to “have and maintain physical separation from” KalshiEX, including from “servers, databases, accounts, tools, software and development tooling.”
When asked for this story, a Kalshi representative added that the trading arm’s employees “are not permitted in exchange communication channels, they do not share operational expenses, and they do not work out of the same room, floor, or building.”
On top of what the CFTC sees as right and wrong, from a business perspective, Kalshi has an incentive to avoid even the perception of conflicts of interest, because such an impression could undermine customer confidence.
“I would think the perception itself would be quite damaging,” Jonathan Brogaard, an associate dean of financial research at the University of Utah, wrote in an email. “Traders may simply avoid the marketplace if they do not think they are trading on a level playing field.”
Before Sportico began its reporting for this story, on LinkedIn, Kalshi Inc. suggested applicants for the “Quantitative Developer (Affiliated Trading)” Kalshi Trading position that referenced sportsbooks reach out to the same employee, Adin Smith, it recommended as the go-to point of contact for prospective employees hoping to join KalshiEX. This is no longer the case. A Kalshi representative told Sportico in an email that Smith is a Kalshi Inc. employee who “forwards applicants from the central job board to the relevant hiring managers.”
Kalshi Trading and KalshiEX employees also interact on the company’s public Discord. Here, Kalshi Trading employees have assured retail traders several times through the years that there is no way to cross the aisle.
“We’re walled off from the exchange,” wrote Jason Pipkin, a longtime Kalshi Trading employee, last December.
Kalshi Inc., however, benefits when Kalshi Trading wins bets over regular users. And if that sounds like a setup similar to DraftKings or FanDuel, users on social media Monday night found another congruence.
Sportsbooks have drawn scrutiny recently for retroactively voiding bets that were initially accepted after the outcome was already known to protect their bottom line. In changing the odds of the Roschon Johnson wagers after the fact, Kalshi didn’t seem so different from the operators that cancel those bets.
When informed of the Kalshi fine print, the user that lost $200 on the Johnson wager responded, “so they are a sportsbook…”