Two senior Democratic senators introduced legislation this week that would prohibit federal elected officials from trading on prediction markets — a direct response to growing alarm that lawmakers, presidents, and other officeholders could exploit their positions to profit from wagers on political outcomes they themselves can influence.
The bill, introduced by Sen. Jeff Merkley of Oregon and Sen. Amy Klobuchar of Minnesota, is called the TRUST Act, short for Transparent Representation Upholding Service and Trust. Its core prohibition is blunt: no federal elected official may buy, sell, or hold a financial interest in a prediction market contract related to the official actions or elections of federal officeholders. Spouses and dependent children are covered too.
“Americans deserve to know that their elected officials are working for them — not placing bets on political outcomes they can directly influence,” Merkley said in a statement posted on his Senate website. Klobuchar was equally pointed: “It is common sense that elected officials shouldn’t be able to profit from prediction markets based on their own actions.”
The timing isn’t accidental.
Prediction markets have surged from a niche curiosity into a multibillion-dollar industry over the past two years, powered by the explosive growth of platforms like Kalshi and Polymarket. Kalshi, a CFTC-regulated exchange based in New York, won a landmark court battle in 2023 that allowed it to list contracts on congressional elections. Polymarket, a crypto-based platform headquartered offshore, became a cultural phenomenon during the 2024 presidential race, processing billions of dollars in volume as traders bet on whether Donald Trump or Kamala Harris would win the White House. The platforms have since expanded into contracts covering everything from Federal Reserve interest rate decisions to Supreme Court rulings to cabinet confirmations.
That expansion is exactly what troubles Merkley and Klobuchar. The senators argue that elected officials sit at the nexus of information and action — they don’t just know what’s likely to happen in Washington, they make it happen. A senator negotiating a trade deal could bet on its passage. A president preparing to issue an executive order could wager on the policy outcome before announcing it. The potential for abuse, the senators contend, is not hypothetical but structural.
The TRUST Act would impose civil penalties for violations and require the Commodity Futures Trading Commission to issue implementing regulations. It would also mandate that prediction market platforms verify that their users aren’t covered officials — a compliance burden that could reshape how these exchanges onboard customers.
The bill arrives during a period of intense regulatory flux for prediction markets. The CFTC, which oversees derivatives markets, has been wrestling with how to classify and regulate event contracts for years. Under the Biden administration, the agency took a skeptical posture, attempting to block Kalshi’s election contracts before losing in federal court. The Trump administration has signaled a friendlier approach. In early 2025, acting CFTC leadership withdrew the agency’s appeal of the Kalshi decision, effectively clearing the path for election-linked contracts to trade on regulated exchanges.
That shift has emboldened the industry. Kalshi has aggressively expanded its product offerings, listing contracts on geopolitical events, economic data releases, and government personnel decisions. Polymarket, despite operating outside U.S. regulatory jurisdiction for American users, has continued to attract enormous global volume. According to reporting by CoinDesk, Polymarket processed over $3.5 billion in trading volume during the 2024 election cycle alone.
But the growth has also attracted scrutiny from both sides of the aisle. The concern isn’t limited to Democrats. Several Republican lawmakers have privately expressed unease about the optics of politicians — or their families — profiting from bets on government action, according to people familiar with Capitol Hill discussions. The STOCK Act, passed in 2012, already bars members of Congress from trading stocks based on nonpublic information. The TRUST Act extends that logic to prediction markets, which the senators argue present an even more direct conflict of interest because the contracts are explicitly tied to government decisions rather than corporate performance.
The analogy to insider trading is imperfect but instructive. When a senator trades shares of a defense contractor before a major procurement announcement, the connection between the official’s knowledge and the trade is circumstantial — prosecutors must prove the lawmaker acted on material nonpublic information. Prediction markets collapse that distance. A contract that pays out if a specific bill passes or a specific nominee is confirmed is, by design, a direct bet on government action. If the trader is also a government actor, the conflict is self-evident.
Industry representatives have pushed back on the framing. The prediction market sector argues that these platforms serve a valuable public function by aggregating information and producing accurate forecasts of political and economic events. Kalshi has positioned itself as a tool for price discovery, arguing that its markets help businesses and individuals hedge against political risk. Restricting who can participate, industry advocates say, could undermine the informational value of these markets.
There’s a counterargument to that counterargument. Academic research on prediction markets, including work by economists at the University of Chicago and MIT, suggests that market accuracy depends on informed participants — but there’s a difference between informed and conflicted. Allowing officeholders to trade on outcomes they control doesn’t just create a corruption risk; it could actually distort the very price signals that make prediction markets useful in the first place.
The political dynamics around the bill are complicated. Merkley and Klobuchar are both members of the Democratic minority in the Senate, which limits their ability to advance legislation on their own. But the issue has bipartisan resonance. Public polling consistently shows that Americans across the political spectrum are deeply skeptical of lawmakers enriching themselves through their positions. The STOCK Act passed with overwhelming bipartisan support in 2012 after a “60 Minutes” investigation revealed widespread congressional stock trading that appeared to track legislative activity. Prediction market trading by officials could generate a similar backlash.
So far, no Republican co-sponsors have signed onto the TRUST Act. But the bill’s introduction sets a marker. If prediction markets continue to grow — and if any lawmaker or senior official is caught trading on a platform like Kalshi or Polymarket — the political pressure for legislation could intensify rapidly.
The bill also raises questions about enforcement. The STOCK Act’s track record is instructive and sobering. Despite its passage more than a decade ago, enforcement has been minimal. A 2022 investigation by Business Insider found that dozens of members of Congress had violated the law’s disclosure requirements with little consequence. The TRUST Act attempts to address this by giving the CFTC explicit authority to investigate and penalize violations, rather than relying solely on congressional ethics committees. Whether that mechanism would prove more effective remains an open question.
The prediction market industry itself is divided on how to respond. Some executives privately acknowledge that a ban on officeholder trading could actually benefit the sector by removing a political vulnerability. If prediction markets become associated with congressional corruption, the regulatory backlash could be far more severe than a narrow trading restriction. Better, some argue, to accept a targeted prohibition now than to risk a broader crackdown later.
Others in the industry are less sanguine. They worry that the TRUST Act could be a wedge — that banning officeholders today leads to banning government employees tomorrow, and eventually to restricting prediction market trading by anyone with proximity to government decision-making. The compliance requirements alone could be burdensome. Verifying that a user isn’t a federal elected official or their spouse requires identity checks that go beyond standard know-your-customer protocols.
The offshore dimension adds another layer. Polymarket doesn’t serve U.S. users directly, but enforcement of that restriction has been porous. In 2024, the platform faced scrutiny after reports that U.S.-based traders were accessing it through VPNs. The TRUST Act doesn’t directly address offshore platforms, but its disclosure and verification requirements could push regulated exchanges like Kalshi to implement stricter controls — potentially driving more activity to unregulated venues beyond the reach of U.S. law.
This is the central tension. Prediction markets are global, digital, and increasingly decentralized. Legislation aimed at U.S. officeholders can set norms and impose penalties, but it can’t control what happens on a blockchain-based platform incorporated in the Caribbean. The senators seem aware of this limitation. The bill focuses on the officeholders themselves rather than the platforms, making the prohibition a conduct rule for public servants rather than a market regulation.
That approach has precedent. Federal ethics rules already restrict what government officials can own, invest in, and profit from. Senior executive branch officials must divest from holdings that create conflicts of interest. Judges must recuse themselves from cases involving their financial interests. The TRUST Act applies the same principle to a new asset class. And prediction market contracts are, functionally, a new asset class — one that didn’t exist in any meaningful commercial form when the STOCK Act was written.
The bill also reflects a broader anxiety about the speed at which financial innovation outpaces governance. Prediction markets went from academic experiments to billion-dollar platforms in less than five years. Congress is still debating how to regulate cryptocurrency, a technology that’s been commercially relevant for over a decade. The TRUST Act is, in some sense, an attempt to get ahead of a problem before it metastasizes — to establish a rule before the scandal that makes the rule necessary.
Whether it succeeds depends on factors largely outside Merkley and Klobuchar’s control. The Republican majority in the Senate would need to see political value in advancing the bill, either as standalone legislation or as an amendment to a larger package. The prediction market industry’s lobbying operation, while still nascent compared to Wall Street’s, has been growing. Kalshi has hired former government officials and retained prominent lobbying firms in Washington. The company has argued publicly that prediction markets should be treated as a legitimate financial product, not a political liability.
But legitimacy cuts both ways. If prediction markets want to be treated as serious financial instruments — regulated, trusted, and widely adopted — then they need to accept the kinds of conflict-of-interest rules that apply to every other financial market. Brokerage firms don’t let their compliance officers trade on insider knowledge. Banks don’t let their executives bet against their own clients. The principle that people with power over outcomes shouldn’t profit from those outcomes is foundational to market integrity.
The TRUST Act applies that principle to the most powerful people in the country. Its passage is uncertain. Its logic is not.
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