Regulating Insider Trading on Prediction Markets

Global prediction markets trading surged more than 400% last year to nearly $64 billion and could hit one trillion dollars annually by 2030.[1] Users trade event contracts—bets on the occurrence of a future event.  Although sports generate the most volume, contracts also span politics, economic indicators, new technology, and entertainment.

Prediction markets also raise insider trading concerns. Politicians have supposedly bet on their own candidacy,[2] employees have allegedly traded contracts linked to their employer,[3] and trades timed just before the removal of Venezuelan President Nicolás Maduro and U.S. strikes on Iran have drawn scrutiny.[4]

Regulators have taken notice. Federal agencies and state gaming authorities are competing to lead enforcement, the contours of which are taking shape in real time. DOJ is also actively considering how to use its criminal enforcement authorities under various fraud theories to curb abuse.  The implications will be far-reaching—for prediction markets and any company whose personnel could create regulatory or criminal exposure through their trading activity on prediction markets.

CFTC Enforcement

The United States Commodity Futures Trading Commission (“CFTC”) has led enforcement efforts.  On February 25, 2026, the CFTC asserted that it has “full authority to police illegal trading” on prediction markets.[5] It warned that trading on inside information may violate Section 6(c)(1) of the Commodity Exchange Act (“CEA”) and CFTC Regulation 180.1(a)(1) and (3), which prohibit manipulative or deceptive conduct in connection with the purchase or sale of any “swap.”[6] As part of the Dodd-Frank amendments, those provisions were modeled on Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, which have been interpreted to prohibit insider trading.[7] Courts have held that Section 6(c)(1) and Rule 180.1 serve similarly broad and remedial anti-fraud purposes as Section 10(b) and Rule 10b-5.[8]  The CFTC has also stated that insider trading on prediction markets may be enforced through Section 4c(a)(4) of the CEA, which prohibits government employees from trading on government material nonpublic information (“MNPI”).[9]

The CFTC’s jurisdictional position is that event contracts are “swaps” regulated by the CEA.  The CEA defines a “swap” as “any agreement, contract, or transaction that provides for any purchase, sale, payment, or delivery … dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”  7 U.S.C. § 1a(47)(A)(ii). Congress vested in the CFTC exclusive jurisdiction over transactions involving swaps. 7 U.S.C. § 2(a)(1)(A). Notwithstanding this, several states have also attempted to regulate prediction markets under state gambling laws, prompting legal challenges from the CFTC.[10] On April 6, 2026, the United States Court of Appeals for the Third Circuit issued a 2-1 decision of first impression holding that event contracts are swaps and that state gambling laws are thus preempted by the CEA.[11] A parallel case is pending before the United States Court of Appeals for the Ninth Circuit, in which the CFTC has filed an amicus brief.[12] If the Ninth Circuit disagrees, the issue is likely to reach the Supreme Court.

Federal preemption in this context reallocates regulatory authority; it does not create a deregulatory vacuum.  While state gaming regulators may be sidelined when contracts fall within the CEA, federal oversight is likely to intensify rather than recede.  Preemption does not immunize market operators or traders from parallel enforcement by the DOJ or the SEC under independent statutory authority—nor, as discussed below, does it preclude such enforcement.  To the contrary, regulators have framed preemption as necessary to ensure consistent enforcement standards across jurisdictions, particularly when markets operate nationally and trades are executed online—an approach that is consistent with recent SEC and CFTC stances concerning increased coordination. 

The CFTC has made clear that insider trading enforcement is a top priority. Director of Enforcement David I. Miller recently outlined the agency’s enforcement agenda, placing insider trading—including on prediction markets—at the top of the list, followed by market manipulation, disruptive trading, retail fraud (including Ponzi schemes), and willful Anti-Money Laundering (“AML”) and Know Your Customer (“KYC”) violations.[13] Director Miller stated that enforcement would focus on trading or tipping involving misappropriated MNPI in violation of a duty owed to the source—such as through a confidentiality or employment agreement—and rejected the “myth” that insider trading on prediction markets is permissible because it is information-forcing.[14] Examples of trades of concern raised by Director Miller included:

• Trading on contracts involving the subject of one’s own employment or confidentiality obligations (e.g., a tech company employee trading on the expected date of a product release);
• Trading on athletic injury contracts, which could be manipulated by players or exploited by insiders, such as trainers or team and league employees; and
• Trading on political or policy-related contracts based on government MNPI.[15]

Rulemaking is underway. On March 12, 2026, the CFTC also published an Advanced Notice of Proposed Rulemaking (“ANPRM”) seeking public comment on whether to amend or issue new regulations governing prediction market event contracts, reiterating that the CFTC “will exercise its exclusive jurisdiction over prediction markets.”[16] The notice solicited input on the types of event contracts that may be prohibited as against public interest and regulatory cost-benefit considerations, among other topics.[17] The CFTC simultaneously issued a Staff Advisory from the Division of Market Oversight addressing oversight of event contract listing and trading, and reminding registered markets of their “self-regulatory obligations,” including:

• Establishing and enforcing trading rules and monitoring trading activity;
• Listing only contracts not readily susceptible to manipulation;
• Preventing manipulation, price distortion, and settlement disruptions through surveillance, compliance, and enforcement; and
• Protecting markets and participants from abusive practices and promoting fair and equitable trading.[18]

The CFTC is also fostering coordination with major sports leagues. The agency has made clear that it expects markets to cooperate with league-run investigations into potential manipulation or insider trading and to engage with sports leagues on sports-related event contracts—including by sharing information about categories of individuals who should be restricted from trading as informed participants.[19] In March 2026, the CFTC and Major League Baseball also entered into a first-of-its-kind Memorandum of Understanding establishing a framework for cooperation and information-sharing on issues of common interest, including protecting the integrity of both professional baseball and related prediction markets.[20]

Parallel DOJ & SEC Enforcement

Enforcement will likely not be limited to the CFTC. The United States Department of Justice (“DOJ”) has also signaled that it will prosecute insider trading on prediction markets. Federal prosecutors have multiple tools at their disposal, including wire fraud and money laundering statutes—both of which Brooklyn prosecutors used last year to charge current and former NBA players in an allegedly widespread, mafia-linked illegal betting scheme.[21] At the February 2026 Securities Enforcement Forum in New York, United States Attorney for the Southern District of New York Jay Clayton answered affirmatively to an audience question about whether he anticipated prosecutions relating to the prediction markets.[22] Clayton told the audience “[t]hat’s a crime.  Because it’s a prediction market doesn’t insulate you from fraud.”[23] He also provided an example of individuals who conspire to fix a golf game and trade related contracts.[24] 

The United States Securities and Exchange Commission (“SEC”) has likewise signaled potential enforcement interest.  In February 2026, SEC Chair Paul Atkins testified before the Senate Banking Committee that prediction markets are a “huge issue” likely involving “overlapping jurisdiction” among federal agencies.[25] He emphasized that “a security is a security” and that the SEC “ha[s] enough authority” to regulate this space.[26] Consistent with its technology‑neutral approach, the SEC could pursue enforcement when event contracts function in substance as securities, security‑based swaps, or investment contracts—particularly when trading implicates familiar antifraud and market‑abuse theories under the federal securities laws.  Depending on the facts, the SEC is likely to rely on Section 10(b) and Rule 10b-5 (including both classical and misappropriation theories of insider trading), as well as manipulation provisions where trading creates false or misleading pricing signals.  Tipping risk is especially acute: insiders or employees who disclose issuer-specific or government material nonpublic information to third parties who then trade prediction-market contracts may face liability regardless of whether the tipper personally traded or received a tangible benefit.  Each of these agencies will invariably collaborate in their investigation and enforcement efforts. 

Key Takeaways

Regulatory and criminal enforcement risk from insider trading on prediction markets is no longer theoretical.  Enforcement test cases are imminent, and companies should prepare themselves to demonstrate to regulators that they recognized the risk early, implemented appropriate controls, and responded promptly to violations.  While each situation is unique, there are overarching steps boards and legal compliance teams can take now to prepare for inevitable future scrutiny, including:

• Expanding insider trading and trading pre-clearance policies to explicitly cover prediction markets and event contracts, making clear that trading on or tipping in connection with company-related events is prohibited regardless of product labeling.
• Broadening the company’s definition of MNPI with respect to those policies, including expressly covering information about significant future operational milestones—such as product or service launch dates and features, earnings announcements, regulatory approvals, cybersecurity events, or major transactions—that could reasonably influence prediction-market outcomes.
• Reassessing which employees are subject to trading restrictions—while enforcement may initially target executives, significant risk also may sit in operational and advisory functions with access to MNPI, including engineering, data, privacy, safety, investor relations, communications, and government affairs.
• Explicitly addressing tipping risk, clarifying that liability may arise from disclosing issuer‑specific or government MNPI to third parties who trade prediction‑market contracts, even where the employee does not trade personally, does not receive a tangible benefit, or views the disclosure as informal.
• Tightening MNPI protections in confidentiality and other third-party agreements, including by broadening contractual provisions, requiring flow-down obligations to subcontractors and their employees, and securing audit and monitoring rights.
• Implementing targeted employee training that expressly identifies the risk of trading on prediction markets using company MNPI, dispels the notion that such markets fall outside traditional insider‑trading frameworks, and reinforces Reg‑FD‑like discipline around selective disclosure.
• Preparing an incident response playbook for potential regulatory violations, covering data preservation, trading suspensions, investigation plans, disclosure obligations, self-reporting, and anticipating parallel CFTC, SEC, and DOJ investigations.
• Ensuring that regulatory risks from employee insider trading on prediction markets are within the board’s or a relevant committee’s mandate and regularly reviewed as part of enterprise risk management.
• Engaging in the regulatory rulemaking process through public comment on pending proposals, including the CFTC’s recent ANPRM, and monitoring developments that further define SEC and DOJ jurisdiction and enforcement priorities.