Numerous law firms—including Debevoise, Freshfields, Proskauer, R. McConnell Group, Ropes & Gray, and Snell & Wilmer, have addressed the intersection of prediction markets and insider trading and advised that companies review their existing compliance frameworks in light of recent developments.
The firms align on several key points. Most notably, they emphasize that trading on prediction markets using material nonpublic information (MNPI) or other confidential information may present legal, regulatory, contractual, and reputational risks—even where the underlying contract is not a traditional security. Several note that the CFTC has asserted authority to police trading on prediction markets under its anti-fraud and anti-manipulation rules, while also highlighting potential exposure under federal wire fraud statutes and, in some cases, the possibility of SEC jurisdiction. They also observe that prediction market platforms themselves may prohibit trading based on nonpublic information.
Perspectives vary on how companies should address these risks in their internal policies. One firm suggests that insider trading policies should be updated to make clear that prohibitions on the misuse of MNPI apply regardless of whether the instrument at issue is a security, and recommends corresponding updates to pre-clearance procedures and training. Another similarly emphasizes expanding insider trading and trading compliance frameworks to cover prediction markets and event contracts expressly. By contrast, another firm notes that because many prediction market contracts may fall outside the traditional “securities” framework, companies may wish to consider whether their codes of conduct or broader confidentiality policies—rather than, or in addition to, insider trading policies—should address this activity. Still another highlights the potential need to address prediction market participation through codes of conduct, conflicts of interest provisions, or other policies focused on confidentiality and reputational risk.
Collectively, the memos suggest that both types of policies warrant review. Updating the insider trading policy is consistent with where employees typically expect to find restrictions on the use of MNPI and addresses the core concern identified across the memoranda — misuse of confidential information for personal gain. At the same time, revisions to codes of conduct or related policies may be appropriate given that prediction market activity can implicate broader issues of confidentiality, conflicts of interest, and reputational risk, including for employees who may not be fully covered by traditional insider trading policies. Some memos also note that certain prediction market contracts—particularly those tied directly to a company’s stock price or performance—may qualify as “security-based swaps,” though the broader takeaway is that policy coverage should not depend solely on how a particular instrument is classified.
Although the memos generally focus on public company compliance frameworks, the underlying concerns they identify—particularly the misuse of confidential or material nonpublic information for personal gain—may have broader applicability. For private companies and nonprofit organizations that may not maintain formal insider trading policies, these developments may nevertheless raise questions as to whether existing codes of conduct, confidentiality policies, or conflicts of interest provisions sufficiently address employee participation in prediction markets.