Prediction Markets Are Now a Compliance Problem

What firms need to understand as regulators move from theory to enforcement 

Something significant happened at NYU Law School on March 31, 2026. David I. Miller, the newly appointed Director of Enforcement at the Commodity Futures Trading Commission (CFTC), delivered a clear message to an audience of enforcement professionals, practitioners, and students. 

The idea that insider trading laws do not apply to prediction markets is a myth. And the CFTC intends to enforce that point. 

For compliance professionals across financial institutions, hedge funds, and investment banks, this is not a future issue. It is a current one. 

A Clear Enforcement Signal 

In his first public address since joining the CFTC, Miller outlined both the legal foundation and the enforcement approach. The framework will be familiar. The CFTC’s anti-fraud authority under the Commodity Exchange Act mirrors the SEC’s Rule 10b 5, and insider trading under the misappropriation theory applies when someone trades using material nonpublic information in breach of a duty of trust. 

The CFTC’s position is that event contracts fall within its jurisdiction and are subject to these same anti-fraud provisions. 

Miller made that position explicit. Insider trading in prediction markets will be pursued, particularly where misappropriated information is involved. 

He also clarified what is not being targeted. Trading based on legitimately held information remains permissible. The focus is on individuals who misuse confidential information obtained through their role or relationships. 

Where Risk Is Emerging 

Miller highlighted several areas where risk is most acute. 

Contracts tied to individual performance or status create exposure when employees act on advance knowledge of corporate decisions, product launches, or internal developments. A recent case involving a media company employee demonstrated how easily this risk can materialize. 

Sports related contracts present similar concerns. Nonpublic information about injuries, team decisions, or outcomes can be used to gain an unfair advantage. The CFTC has already begun coordinating with professional leagues to monitor these risks. 

Government related contracts introduce another layer of complexity. Public officials and those with access to policy decisions may be exposed to insider trading risk if they act on information gained through their position. Legislative scrutiny in this area is already increasing. 

Across all three categories, the common thread is clear. The misuse of material nonpublic information creates enforcement exposure, regardless of the asset class. 

Regulatory Momentum Is Building 

Miller’s remarks build on broader signals from CFTC leadership. Chair Michael S. Selig has made it clear that prediction markets are a priority area for enforcement and rulemaking. 

The CFTC is working to establish clearer rules, assert federal jurisdiction, and strengthen surveillance capabilities. At the same time, coordination with the SEC is increasing as both agencies address the overlap between emerging products, digital assets, and traditional financial instruments. 

For firms, this creates a more complex environment. The regulatory boundary is still evolving, but enforcement is already underway. 

The Compliance Gap 

Despite this momentum, prediction markets remain largely outside existing compliance frameworks. 

Most programs are designed to monitor trading in equities, fixed income, and more recently digital assets. Pre-clearance workflows, personal account dealing policies, and conflicts of interest frameworks do not typically account for event contracts traded on platforms such as Kalshi or Polymarket. 

Firms should be asking a few direct questions: Do existing policies capture event contract trading? Are employees with access to material nonpublic information restricted from participating in relevant contracts? Do training programs address this risk? 

In many cases, the answer is no. 

From Policy to Action 

The path forward is not theoretical. It requires extending existing principles to a new type of instrument. 

Firms should start by assessing if event contracts are captured within personal trading policies and pre-clearance processes. Conflicts of interest frameworks should be reviewed to identify roles where access to sensitive information creates exposure. Training and attestation programs should be updated to reflect this risk, with clear guidance on what constitutes misuse of information. 

Equally important is the ability to monitor activity. As participation in prediction markets grows, firms need systems that can incorporate these instruments into existing oversight workflows. 

A Practical Approach 

StarCompliance (Star) is already working with firms to address this challenge by extending employee compliance frameworks to cover prediction market activity. 

The underlying principles are unchanged. The same expectations that apply to equity trading, conflicts management, and information barriers apply here as well. The difference is the instrument, not the obligation. 

Firms that act now can build a defensible framework before enforcement reaches their sector. Those that wait risk reacting to an issue after it has already become a regulatory concern. 

Prediction markets are not a grey area in search of new rules. They are a new application of existing law, and regulators have made it clear they are paying attention. 

What Firms Should Do Now 

Compliance teams should take immediate, practical steps: 

• Assess whether personal trading policies and pre-clearance processes cover event contracts 

• Review conflicts of interest frameworks for roles with access to material, nonpublic information 

• Update training and attestation programs to address prediction market participation 

• Evaluate monitoring capabilities and whether event contracts can be incorporated into existing workflows 

Take the Next Step 

Star is helping firms bring prediction markets into scope with the same level of control and oversight applied to other asset classes. 

To learn more about how to extend your compliance framework, connect with StarCompliance today. Click HERE to schedule a demo.