Prediction Market Risks Drew Regulatory Scrutiny

Advisory firms are tightening compliance as regulators target the misuse of nonpublic information in event trading.

Updated on Sept. 28, 2026 in Investing

Bold flat-color editorial illustration of balanced scales holding an obsidian sphere and a white sphere, symbolizing binary prediction market risks. — Investment advisory firms are updating internal compliance programs to prevent employees from using confidential information to trade on event-based prediction markets. AI Illustration. Upload story photo >

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Should investment firm employees be restricted from trading in prediction markets to prevent conflicts of interest?

Investment advisory firms are addressing new compliance risks associated with employees trading on prediction market platforms. These markets allow users to bet on outcomes ranging from economic reports to elections, creating potential pathways for the misuse of confidential data.

Why it matters

Prediction markets can bypass traditional internal surveillance systems used by financial firms to prevent insider trading. The ability to monetize confidential information through these contracts has prompted a broader re-evaluation of ethical standards within the industry.

Fourteen percent of advisory firms now identify prediction markets as a primary compliance risk. Recent enforcement saw a federal employee ordered to pay $172,000 for using nonpublic data to earn $107,500 in trading profits.

The players

Commodity Futures Trading Commission

The federal agency that regulates derivatives and enforces the Commodity Exchange Act to prevent market manipulation.

New York Life Investment Management

A major asset management firm that recently updated its personal-trading standards to include prediction markets.

Gabriel Perez

A former White House teleprompter operator sanctioned for trading contracts based on confidential presidential speech content.

ACA Group

A provider of governance, risk, and compliance advisory services for the financial services industry.

The details

Employees may use material nonpublic information gained through their professional roles to bet on specific events, effectively monetizing secrets. These event-contract accounts frequently operate outside the standard brokerage surveillance and securities preclearance systems that firms use to monitor employee trading. In response, institutions are moving to integrate prediction markets into their existing Code of Ethics and compliance programs.

June 2026: Morrison Foerster held a compliance program regarding event contracts.
July 2026: New York Life Investment Management updated its Code of Ethics.
August 2026: The CFTC ordered a federal employee to pay $172,000 in penalties.
September 2026: The ACA Group released a report detailing compliance risks.

Money Landscape

The increased oversight of event-based trading represents an extension of long-standing insider trading prohibitions defined by the Commodity Exchange Act. Financial institutions are moving to close gaps in compliance as these novel prediction platforms become a more common fixture in the market.

If you hold accounts at an investment firm, expect to see stricter disclosure requirements regarding your personal trading habits. Investors should consult with a financial professional to understand how updated firm policies on alternative assets or event contracts may impact their own compliance obligations.

The takeaway

Prediction markets are increasingly viewed through the lens of traditional securities law, making the sourcing of information for any trade a critical compliance concern. Ensure you remain aware of any updates to your firm's code of ethics regarding outside trading and personal account disclosures.