The rapid rise of prediction markets is creating a compliance challenge that many investment advisers may not yet be equipped to handle. As event-contract trading gains popularity, firms face the risk that employees could profit from confidential, client-related or otherwise restricted information gathered in the course of their work.
According to ACA Group, prediction markets, sometimes called event-contract markets, let participants trade on the outcomes of future events.
These range from elections and economic data releases to regulatory rulings, corporate developments and sporting fixtures. For advisers, the appeal is obvious: the research and analysis produced for clients could suddenly become a tradeable asset in a new venue.
The risks themselves are not new. Conflicts of interest, insider trading and market manipulation are well-trodden ground for compliance teams.
What is new is the setting. Existing policies and surveillance systems often make no explicit reference to event contracts, particularly when trading takes place outside conventional securities accounts or when the link between a contract and a client, issuer or portfolio company is not immediately obvious.
A central concern is the use of firm and client information. Advisers should examine whether their policies make clear if research generated through client work can be used for personal or proprietary trading, whether employee event-contract activity needs preclearance or reporting, and whether controls properly separate public information from confidential material. The right approach will depend on each firm’s business model, research capabilities, client base and oversight resources.
Regulators are already paying attention. In 2026, the Commodity Futures Trading Commission (CFTC) published an enforcement advisory on prediction markets after cases involving fraud and the misuse of nonpublic information. The Department of Justice has also brought charges over the alleged use of confidential corporate information to trade on a prediction-market platform.
Firms should ensure their insider trading policies and training cover event contracts, MNPI that could sway an outcome, information from expert networks, due diligence and portfolio companies, and clear escalation procedures.
Personal trading programmes present further gaps. Staff may not realise that trading rules can extend beyond securities, and compliance teams may have little visibility into platforms not captured by current monitoring. Advisers should decide whether employees must disclose accounts, report trades, seek preclearance or certify compliance, and whether surveillance can connect event-contract activity to covered issuers, clients or confidential firm data.
There is also the distinctive issue of influence. Unlike most securities trades, event contracts may hinge on outcomes that an employee could shape, or appear able to shape, through commercial relationships or decision-making authority. Even without wrongdoing, such trading can raise reputational and conflict concerns.
Finally, because event-contract prices often serve as public probability signals that shape media coverage and investor sentiment, trading designed to move perceptions could spill into related markets. Advisers should review whether their market-manipulation, communications and surveillance controls address these cross-market risks.
Read the full ACA Group post here.
Copyright © 2026 RegTech Analyst
Copyright © 2026 RegTech Analyst
