Compliance professionals keep asking the same question: will digital assets, tokenised securities and prediction markets force regulators to rewrite insider trading law? Increasingly, the answer appears to be no. Rather than drafting new rules, regulators are stretching established legal theories across new instruments, venues and technologies.
According to StarCompliance, every case still begins with the classical theory of insider trading: directors, executives and employees who owe a fiduciary duty to shareholders cannot trade while holding material, nonpublic information (MNPI).
StarCompliance recently discussed four insider trading theories every compliance team should understand for digital markets.
If a security is tokenised, the underlying obligation does not change, only the wrapper does. Compliance teams should ensure trading policies are broad enough to cover emerging instruments, not just traditional shares.
Misappropriation theory extends liability beyond employees to anyone who receives confidential information through a relationship of trust, including bankers, consultants and technology vendors. This matters increasingly for prediction markets, where an individual could trade an event contract linked to a merger, regulatory decision or macroeconomic outcome rather than buying shares directly. Recent enforcement activity suggests regulators are already comfortable applying this theory to such platforms.
Shadow trading, made prominent by SEC v. Panuwat, shows that liability can extend to economically related assets rather than the security tied directly to the confidential information. This is especially relevant across interconnected blockchain ecosystems, where Layer 1 and Layer 2 protocols, tokenised real-world assets and prediction markets often move together. Static restricted lists were not built for this level of interconnection.
Prediction markets also raise a broader conduct question beyond trading itself: could someone influence an outcome they are trading on, or exploit confidential operational information before it reaches equity markets? These scenarios are moving from hypothetical to practical as regulators and exchanges sharpen their surveillance capabilities.
StarCompliance frames this shift as “Connected Compliance”, combining employee trading, digital assets, prediction markets and surveillance data within a single ecosystem to help firms spot risk earlier.
The overarching message for compliance leaders is that markets are evolving faster than the law needs to. Existing insider trading principles, applied with sufficient breadth and imagination, remain fit for purpose across digital assets, tokenised markets and prediction platforms alike.
Read the full StarCompliance post here.
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