Prediction market Kalshi seeks regulatory approval for margin trading

Prediction market platform Kalshi filed on Tuesday with federal regulators to seek approval to offer leverage on event contracts, a prevalent practice already on Wall Street for stocks and futures.

The filing with the Commodity Futures Trading Commission — the federal regulator for event contracts — comes from Kalshi Klear, the company's internal clearing house. It's the latest move by the company as prediction markets increasingly seek to attract institutional liquidity to event contract exchanges.

Kalshi already provides leverage on its perpetual futures contracts, though has yet to receive the same approval to do so for its prediction markets.

Offering margin trading, which allows a trader to borrow money to purchase more of an asset than the cash they put down, has been seen widely by institutions eyeing the prediction market space as a critical step needed for bigger players to participate, which are used to the practice on traditional equities and derivatives. Currently, all event contracts on regulated U.S. exchanges are entirely collateralized.

Bloomberg News in July reported Polymarket, a prediction market rival, made moves to obtain regulatory licenses to eventually offer margin trading on its event contracts in the U.S.

Prediction market volume, including Kalshi's, has surged over the past year primarily thanks to retail trading on their sports-related offerings. However, a Kalshi spokesperson told CNBC the company would avoid offering margin opportunities on its sports event contracts, as well as its culture and "mention" markets.

Kalshi in a memo provided to CNBC said the ability to offer leverage will make longer-dated prediction markets, those with expiration dates far in the future, more attractive to institutional traders.

The company also said it is seeking to introduce a system where as event contracts near their expiry date, the capital requirements to obtain leverage increase. Marginable contracts — if approved — will only be accessible to self-clearing members, who have direct relationships with Kalshi Klear, that meet certain capital requirements, the Kalshi spokesperson said.

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.