Prediction Markets Create Novel Insider Trading Risks That Outpace Corporate Compliance Programs
By
Katherine Terrell Frank
Summary
Corporate legal departments face a new insider trading challenge from prediction markets (like PredictIt, Kalshi, and Polymarket), which fall outside traditional securities law frameworks. The article argues that trading on material nonpublic information about corporate events (product launches, regulatory decisions, earnings) via these platforms creates insider trading risks that existing compliance programs — designed around stock trading — are ill-equipped to handle. It explores the legal gaps, regulatory uncertainty, and practical steps companies should take to update policies, training, and monitoring to address this emerging threat.
Source
bskyPrediction Markets Create Novel Insider Trading Risks That Outpace Corporate Compliance Programsjdsupra.comKey quotes
· 5 pulledCorporate legal departments at public and private companies are confronting a novel insider trading problem — one for which their existing compliance infrastructure was not built.
Prediction markets allow participants to trade on the outcome of future events — from election results and interest rate decisions to product launch dates and regulatory approvals.
The same material nonpublic information that would get an executive in trouble for trading company stock could now be deployed on a prediction market platform with far less scrutiny.
The SEC has not yet brought an insider trading case involving prediction markets, but legal experts say it is not a matter of if, but when.
Companies that ignore prediction markets in their compliance programs are leaving a significant gap in their insider trading defenses.
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