Prediction Markets and Insider Trading: Updating Your Company’s Insider Trading Policy

Overview

Prediction markets have rapidly evolved from a niche product to a mainstream venue for trading event-based contracts tied to company-specific developments, elections, sports, government actions and economic data. These markets create a new channel for monetizing confidential information outside traditional securities trading.

The core risk is that an employee who cannot lawfully trade securities while aware of material nonpublic information (“MNPI”) may still profit by trading a prediction market contract tied to the same event, regardless of whether they possess MNPI. Critically, the information may not affect a company’s stock price but could be highly material to an event contract’s pricing.

Existing insider trading and confidentiality policies often were drafted for securities markets and may not cover event contracts or prediction market platforms. Public and private companies should not wait for regulatory clarity and should update their internal policies to address this risk, a trend we are observing among some public companies.

How Prediction Markets Work

Prediction markets allow participants to buy and sell contracts tied to whether a specified future event will occur. Many contracts are binary. To put it simply, a “Yes” contract pays $X if the event occurs and nothing if it does not. Event contracts can now reference merger timing, earnings metrics, executive departures, product launches, regulatory approvals, cybersecurity incidents, litigation outcomes, and even specific words used on an earnings call.

Regulatory and Litigation Developments

CFTC Enforcement

The Commodity Futures Trading Commission (“CFTC”) has a clear civil enforcement hook under Section 6(c)(1) of the Commodity Exchange Act and CFTC Regulation 180.1, which prohibit intentional or reckless fraud, deception, and fraud-based manipulation in connection with swaps, futures contracts, and contracts of sale of commodities in interstate commerce. DOJ may also pursue criminal charges, including wire fraud and commodities fraud, where a trader uses misappropriated confidential or material nonpublic information to trade or profit personally. The core legal risk, therefore, is not simply that a trader possesses an informational advantage; it is that the trader uses confidential or nonpublic information in a way that involves deception, misappropriation, breach of an existing duty, fraudulent concealment, or conduct prohibited by exchange or CFTC rules. The CFTC has made prediction markets an enforcement priority. Its February 2026  advisory stated the agency has full authority to police illegal trading on prediction markets, including misappropriation-based insider trading. In addition to enforcement activity, the CFTC has moved into active rulemaking: in March 2026 it issued an advanced notice of proposed rulemaking on prediction markets, and in June 2026 it issued a notice of proposed rulemaking focused on event contracts involving enumerated activities such as terrorism, assassination, war, gaming, and unlawful conduct.

Further, in April 2026, the CFTC and Department of Justice (“DOJ”) charged a U.S. Army soldier for allegedly using classified information about a military operation involving Nicolás Maduro to trade event contracts on Polymarket, generating over $400,000 in profits—the CFTC’s first insider trading case involving event contracts. In May 2026, they brought parallel actions against a Google software engineer who allegedly used confidential “Year in Search” data to profit approximately $1.2 million on prediction markets. This second case is particularly significant because the information misused was internal corporate data rather than classified government information.

SEC Enforcement

The Securities and Exchange Commission’s (“SEC’s”) role is emerging. Traditional securities insider-trading doctrine under Rule 10b-5 generally turns on trading securities on the basis of MNPI in breach of a duty, whether under the classical theory, involving duties owed by corporate insiders to shareholders, or the misappropriation theory, involving duties owed to the source of the information. Prediction markets complicate this framework because while many event contracts are not securities, a person may still use nonpublic information to trade contracts tied to corporate events or business metrics. Under the Supreme Court case United States v. O’Hagan (521 U.S. 642, 1997), the misappropriation theory reaches trading based on confidential information obtained in breach of a duty owed to the source of the information. Prediction-market enforcement actions by the SEC are likely to focus on misappropriation: whether the trader obtained confidential information through a position of trust and used it for personal gain in breach of that duty.

Corporate policies, confidentiality agreements, codes of conduct, and other internal controls can help establish or evidence duties of trust and confidence. Many prediction market contracts may fall primarily within the CFTC’s jurisdiction, but the analysis can change if an event contract is structured as a security or tied to an issuer’s securities or revenues. The SEC and CFTC have requested public input on definitions that could affect jurisdictional boundaries.

Implications for Public Companies

For public companies, prediction markets create trading opportunities around information that compliance programs already treat as sensitive, including earnings, mergers and acquisitions (“M&A”) activity, executive changes, regulatory approvals, cybersecurity incidents, litigation and major product developments. They also create opportunities around micro-events that traditional policies may not anticipate, such as the wording of an earnings script or the timing of a product launch.

Critically, prediction markets shift risk beyond senior executives. Because event contracts can reference granular corporate information, lower-level employees with narrow operational knowledge may be positioned to profit. The Google matter discussed above illustrates that prediction-market risk can arise from confidential corporate information that may not resemble traditional securities-market MNPI but can be highly probative of the outcome or value of an event contract.

Prediction markets also present leakage and manipulation risks. Because prediction market trading data is often public, insider trades can signal confidential corporate information to the broader market before any formal announcement. There is also the risk that insiders could manipulate controllable corporate events to ensure a prediction market payout.

Implications for Private Companies and Other Organizations

Private companies and other organizations face the same risks even without securities law reporting obligations. Event contracts may reference initial public offering timing, financing rounds, regulatory approvals, clinical-trial results, government contracts, litigation outcomes, product launches or executive moves. Personnel with access to that information may profit from it in prediction markets.

Many private companies have never maintained formal insider trading policies because they historically were not exposed to traditional securities trading risks. That gap now creates significant compliance and reputational risk, as employees may not understand that trading on confidential business information may lead to criminal or civil liability.

Why Existing Policies May Be Inadequate

Many companies rely on general confidentiality principles or derivatives provisions tied to company securities. These may help but are often not clear or robust enough. Common gaps include securities-only definitions of prohibited trading; failure to mention event contracts, swaps, or decentralized platforms; narrow coverage limited to directors and officers; definitions of material information tied only to stock-price impact; no coverage of client, vendor, or customer information; and pre-clearance procedures that apply only to brokerage accounts.

DOJ and the CFTC are now applying familiar fraud and misappropriation theories to prediction-market trading. Those theories can reach individuals who obtain confidential or material nonpublic information subject to a duty of trust or confidentiality and then use that information to trade for personal gain. Corporate confidentiality policies, employee training, and similar controls may therefore become critical evidence of the duty that the government must prove.

Emerging Public Company Policy Responses

As prediction-market enforcement risk is beginning to crystallize, a growing number of public companies have amended their insider trading policies in 2026 to address prediction markets and event contracts directly. A review of recent policy filings reveals a spectrum of approaches, ranging from outright bright-line bans on all company-related prediction market activity to more targeted prohibitions focused on the misuse of confidential information.

At one end of the spectrum, some companies have adopted blanket prohibitions on company-related prediction market trading regardless of whether the person possesses MNPI. Shore Bancshares, Inc., for example, “strictly prohibit[s]” covered persons from entering into company-related prediction-market or event-contract positions “whether or not” they possess MNPI, a bright-line ban that avoids disputes about possession, use, or intent. Snowflake Inc. takes a similar approach, providing that participants “may not bet on anything related to Snowflake, regardless of whether” they possess MNPI, while separately prohibiting the use of confidential information for non-company bets. Smith & Wesson Brands, Inc. likewise prohibits trading in prediction markets that “reference or relate to the Company’s securities, business operations, financial metrics, executives, products, or other Company-specific events,” regardless of MNPI, and further requires CFO pre-clearance before any prediction market trading involving company-related events. Other companies have taken a more permissive approach, prohibiting prediction market activity only where it involves the misuse of confidential information. JFrog Ltd., for instance, bars participation in prediction markets when the activity “is based on or involves confidential information” about the company or its business partners, but permits ordinary off-duty prediction market activity that does not implicate such information. 8×8, Inc. similarly prohibits transactions “based on, or informed by” MNPI obtained through employment, and includes an express safe harbor permitting employees to participate in prediction markets on unrelated topics.

These two approaches may offer different advantages depending on a company’s circumstances. A blanket ban, such as those adopted by Shore Bancshares, Inc. and Snowflake Inc., provides maximum clarity and protection while avoiding disputes over whether an employee possesses MNPI, an approach that may be particularly attractive to companies with fewer resources to devote to monitoring and administering their insider trading policies. In contrast, a targeted approach may require ongoing determinations of what constitutes trading based on confidential information, as well as more robust processes for granting pre-clearance for various prediction market contracts and scenarios. Companies that wish to adopt a less restrictive policy should therefore consider whether they have the resources necessary to implement and administer such policy effectively.

Several companies have also distinguished themselves through structural or definitional innovations. Intercontinental Exchange, Inc. (ICE) captures prediction markets by defining “Financial and Commodity Interests” broadly enough to include instruments subject to prediction market rules, so that existing MNPI-based trading prohibitions, tipping rules, and holding-period requirements automatically extend to event contracts without a standalone section. AeroVironment, Inc. frames the issue as a misuse-of-information matter rather than solely a securities-law concern, prohibiting the use of company confidential information for personal financial gain “including through wagering, betting, or trading on prediction markets or similar platforms” and specifying that the prohibition applies “regardless of whether the prediction market contract qualifies as a ‘security’ under securities laws.” Companies such as Northern Oil and Gas, Inc. and Itron, Inc. have extended their existing policy frameworks to cover prediction markets while also broadening the scope of covered information to include client, vendor, and business partner data, recognizing that prediction-market profit opportunities may arise from confidential information about third parties, not just the company itself.

Recommended Next Steps

Companies should consider the following steps to address prediction market activity within their compliance frameworks:

• Broaden Definitions of Prohibited Instruments. Policies should prohibit the misuse of confidential information in “any securities, derivatives, event contracts, swaps, prediction markets, binary options, contracts for difference, exchange funds, crypto-assets, digital tokens, or similar financial instruments,” whether regulated or unregulated.
• Define Covered Information Broadly. Policies should encompass nonpublic information about company finances, earnings, M&A, litigation, regulatory approvals, client and customer information, product launches, cybersecurity incidents, and any other information that could affect the value of a prediction market contract.
• Extend Coverage to All Relevant Persons. Policies should expand beyond officers and directors and apply broadly to employees, contractors, consultants, third-party vendors, and anyone with access to confidential information about the company. Companies may determine that individuals with access to particularly sensitive information should be prohibited from participating in specified categories of event contracts altogether.
• Expressly Reference Prediction Markets. A policy could provide that employees may not “purchase, sell, create, facilitate, or otherwise engage in transactions involving prediction markets, event contracts, or similar instruments, whether on regulated exchanges, decentralized platforms, or offshore markets, that relate to the company, its securities, business operations, or financial performance, while aware of material nonpublic or confidential business information obtained by virtue of their position.”
• Prohibit Tipping. Policies should prohibit disclosing confidential information to family, friends, online communities, or other market participants for the purpose of enabling prediction market trading.
• Require Account Disclosure. Policies may require employees to disclose whether they hold accounts on prediction market platforms. In heavily regulated sectors, a complete ban on maintaining such accounts may be appropriate.
• Enhance Training. Policies should incorporate guidance into employee training clarifying that insider trading and confidentiality obligations extend to prediction markets.
• Consider Enhanced Restrictions for Senior Personnel. Policies may prohibit insiders from participating in prediction markets involving company events altogether.
• Consider Which Approach is Best for Your Team. Companies should weigh whether the simplicity and clarity of a blanket ban on company-related prediction market activity better fits their compliance resources, or whether they have the infrastructure to administer a more targeted approach that permits prediction market participation in circumstances that do not implicate confidential information.

Conclusion

Prediction markets are not a regulatory safe zone. The CFTC and DOJ have taken the position, through recent civil and criminal actions, that existing commodities-fraud, wire-fraud, and Commodity Exchange Act antifraud authorities may reach certain prediction-market trading based on misappropriated confidential information. The SEC’s role remains more contingent and may depend on whether a particular product is a security, security-based swap, or mixed swap; the SEC and CFTC are currently seeking public input on definitional and jurisdictional questions involving event-based and other emerging products.

For companies, the immediate risk is that internal policies may be too narrow or too securities-focused to address this rapidly expanding market. Both public and private companies should update their insider trading and confidentiality policies now, before the next enforcement action turns a policy gap into a legal or reputational risk.

Please contact any member of our Securities and Corporate Finance practice for help updating your corporate policies.