Prediction markets are a compliance problem—and most firms aren’t ready

By Koert Huddle, Managing Director, U.S. Compliance and Steve Hughes, Associate Director, U.S. Compliance

Key takeaways:

• Prediction markets have grown from a niche curiosity into a $60+ billion industry, with $1 trillion in trading volume predicted by 2030
• Regulators are taking action accordingly; the CFTC has already issued an Advance Notice of Proposed Rulemaking (ANPRM), published enforcement advisories, brought the first-ever insider trading case in an event contract, and signed coordination MOUs with the SEC, MLB and NHL
• MNPI exposure in prediction markets is real and impacts all parties: registered investment advisors, hedge funds, commodity firms, private equity firms, and their employees
• Firms that haven’t yet updated their personal trading policies, pre-clearance procedures and employee training to cover prediction markets have a vulnerability that regulators are actively seeking out

Just a few short years ago, prediction markets were easy to dismiss as a novelty. That is no longer true.

What started as a niche platform for election odds has grown into one of the most dynamic corners of global finance. Monthly notional trading volume has expanded from under $100 million to more than $13 billion, while monthly active users have grown 150x in the same period. Bernstein projects the sector will hit $1 trillion in total trading volume by 2030 at roughly 80% compound annual growth.

That kind of growth attracts attention from both investors and regulators, who are no longer watching from the sidelines. Enforcement actions have been filed, with a formal rulemaking process now underway. Compliance implications for registered investment advisors (RIAs), hedge funds, commodity firms and private equity firms are no longer a hypothetical future concern; they are present tense, and most firms simply aren’t prepared.

What are prediction markets, and why should compliance teams pay attention?

Prediction markets are platforms that allow users to buy and sell “event contracts,” binary instruments that pay out based on whether a specified real-world event occurs. The categories are limited only by the imagination: election outcomes, earnings announcements, regulatory decisions, geopolitical developments, sports results, interest rate changes, product launches, and more.

Under the Commodity Exchange Act (CEA), event contracts traded on federally regulated platforms are structured as swaps or futures, conferring exclusive jurisdiction on the CFTC. Existing commodity laws apply, and the same rules governing manipulation and fraud in traditional derivatives markets extend into prediction markets.

For financial services firms, there are three immediate implications:

1. Employees who trade on these platforms using material nonpublic information (MNPI) face potential civil and criminal exposure, regardless of whether the event contract is classified as a “security”
2. Firms have supervisory and compliance obligations to prevent misuse, even if they do not directly participate in these markets
3. The gap between a compliance policy update and a potential regulatory breach is closing quickly

The enforcement timeline: Regulatory activity in prediction markets

The pace of regulatory action over the past several months has been a clear signal that compliance is a priority in prediction markets.

Here’s what’s happened so far in 2026:

Prediction markets and MNPI risk

The CFTC and DOJ have made one thing clear: if your employees can trade on what they know, prediction markets are now part of your MNPI problem. If there’s currently no policy addressing how that information may or may not be used in the context of event contracts, you have a compliance gap.

Does insider trading law apply to prediction markets?

Until now, a common assumption has been that since most event contracts are not classified as securities, traditional insider trading rules don’t apply. But as the timeline above makes clear, regulators have explicitly rejected this logic.

In March 2026, CFTC Enforcement Director David Miller stated as much directly: “A myth has spread that insider trading is permissible… in the prediction markets. Not so. Insider trading in the commodity futures and swap markets is prohibited by the CEA and relevant CFTC regulations.” Miller also said, “Insider trading in the prediction markets, where there is misappropriated information, is precisely the kind of serious violation that we are going after vigorously.”

This priority extends beyond the CFTC; the DOJ and SEC have also asserted enforcement authority. The misappropriation theory under commodity law applies regardless of securities classification. For regulated entities, supervisory failures are their own category of liability, even when the wrongdoer is an individual employee.

Which employees face MNPI exposure?

Firms should be aware that compliance exposure extends well beyond traders and portfolio managers. Prediction markets expand the universe of employees who could misuse sensitive information in nearly every direction. For example, an IT professional who first discovers a cybersecurity incident, or a researcher who knows the development status of a drug candidate before disclosure goes public.

Any employee who tips off a third party, regardless of whether they’re trading or receiving any benefit, may be held liable.

The CFTC’s ANPRM also explicitly raises the question of how prohibitions on federal government personnel using MNPI for personal gain through swap or futures transactions should inform prediction market regulation, a question that naturally extends to private sector fiduciaries managing client assets.

What counts as MNPI in prediction markets?

In traditional securities law, MNPI typically means earnings information or M&A activity. In prediction markets, the relevant category is much broader. Information that could be material to an event contract now includes:

• Regulatory submissions, approvals or enforcement actions
• Clinical trial outcomes or product development timelines
• Cybersecurity or data privacy incidents
• Government contract awards or policy decisions
• Key performance metrics not yet publicly disclosed
• Classified or sensitive government/military operational information
• Proprietary platform or aggregated user data

How to update your compliance program to minimize prediction market risk

The ANPRM comment period closed on April 30, 2026, but enforcement actions are already being brought under existing law. Waiting for the final rule is not a compliance strategy.

Here’s what financial services firms should be doing now:

1. Update your personal trading policies: Most personal trading policies were written before event contracts existed as a meaningful product category. Review whether your policy explicitly covers prediction markets and event contracts; if it doesn’t, close that gap immediately. Pre-clearance requirements, restricted-period trading blackouts, and attestation programs should all be reviewed and updated accordingly
2. Assess your conflicts of interest (COI) framework: Roles with access to sensitive client, operational, or regulatory information need to be re-evaluated through the lens of event contract risk
3. Retrain your team: Training should specifically address prediction markets obligations. Update your training modules and attestation language, and document these processes to establish the program and demonstrate its existence to regulators
4. Know the 40 questions: The CFTC’s ANPRM poses 40 questions to the market covering key compliance-sensitive areas: margin trading and leverage, gaming-adjacent activity, inside information controls, public interest determinations, and the procedural mechanics of how these contracts are evaluated. These questions signal where regulators see risks, so don’t overlook them when updating your compliance policy
5. Watch state-level rules: While the CFTC is asserting federal jurisdiction over event contracts traded on designated contract markets, several states have already issued executive orders restricting or barring state employees from using nonpublic information in prediction market trades. More state-level action will likely follow

How IQ-EQ can help

Regulators aren’t resting on their laurels; the rules are being written now, and enforcement is already active. For most firms, the more immediate question is whether their current compliance framework would stand up to scrutiny if prediction market activity were examined today.

That starts with a review. Many existing programs were not built with event contracts in mind, which can leave gaps across personal trading policies, conflicts frameworks and employee training. Identifying and addressing those gaps now is becoming increasingly important as regulatory focus intensifies.

IQ-EQ’s expert compliance team supports RIAs, hedge funds, private equity firms and commodity trading firms through this process, helping identify where frameworks fall short and implement practical fixes. This typically includes targeted compliance gap assessments, developing policies and procedures, strengthening pre-clearance and control frameworks, and embedding expectations through training and attestation. Ongoing reviews and advisory support help ensure those changes keep pace as requirements evolve.

The key is to start now. Firms that that act early will be far better positioned than those forced to respond under regulatory pressure.

With a global team of more than 300 regulatory compliance specialists across the U.S., UK, Europe, the Middle East and Asia, IQ-EQ supports firms operating in complex regulatory environments. Our focus is simple: helping you identify the risk, take the right action, and demonstrate that your controls work in practice.

Contact our team to address your prediction market risk.

About the authors

Koert Huddle is Managing Director of U.S. Compliance at IQ-EQ, where he advises investment advisors, hedge funds and private equity firms on regulatory compliance across the Commodity Exchange Act, Dodd-Frank, the Investment Advisers Act, and the Securities Exchange Act. Steve Hughes is IQ-EQ’s Associate Director of U.S. Compliance, where he works with investment management firms on compliance program design, regulatory risk assessment and policy development.

Frequently asked questions