A prediction market is an exchange where participants buy and sell event‑linked contracts – usually binary contracts that pay out if a specific future event occurs. These markets have surged into the financial mainstream, drawing more than three million unique users who have executed 757.6 million transactions. Combined, prediction markets have generated $162.65 billion in notional trading volume and sustained $939.9 million in open interest – figures that underscore how platforms like Polymarket and Kalshi have become major engines of today’s speculative economy. 

Given their rise, prediction markets have garnered increased interest from the public and scrutiny from regulators. Wagers on recent significant events such as the conflict in Iran have fueled speculation that individuals with inside, non-public information may have unfairly profited, leading to increased calls for the regulation of prediction markets.   

This article explores recent developments in the prediction markets, including proposals for regulation, litigation, and enforcement activity, and how companies may respond to address such risks.  In particular, we focus on the risks that public companies may face if their non-public information is being used by their employees and others through participation in such prediction markets.

How do prediction markets work?

Contracts related to the outcome of sporting events or an election draw the highest number of participants; however, the outcome of virtually any event can be the subject of a contract. In “all-or-nothing” binary contracts, the price of the contract is roughly tied to the probability of the event occurring with the contract paying only if the event occurs.  For example, one may purchase an event contract regarding whether a company will announce a dividend in the next fiscal quarter. If the market believed there was a 35-percent probability of that occurring, the purchase price for the contract would be $0.35, and the purchaser would receive $1.00 (for a profit of $0.65) if the dividend were, in fact, announced in the next quarter. Any purchasers buying contracts for the opposite proposition (i.e., that the company will not announce a dividend in the next fiscal quarter) would not make any money on the contract.

Commodity Futures Trading Commission (CFTC) regulation

Event contracts are regulated by the Commodity Exchange Act (CEA) as swaps or futures. A prediction market that offers swaps or futures contracts for trading by the general public must register as a designated contract market (DCM). The CFTC oversees DCMs. Prediction markets may also refer to swap execution facilities (SEFs). A prediction market that lists event contracts for trading or makes them available for clearing must comply with the same substantive and procedural requirements that govern the listing or clearing of derivative contracts. Section 5c(c)(5)(C) of the CEA allows the CFTC to prohibit agreements, contracts, or transactions from clearing or trading on an exchange if they involve unlawful activities such as violations of state or federal law, gaming, terrorism, war, or other similar activities determined to be contrary to the public interest.    

In 2008, the CFTC issued a Concept Release seeking input on the appropriate regulatory treatment for prediction markets but ultimately took no action. In 2024, the CFTC proposed rules specifying the types of contracts that would be regarded as against the public interest under Section 5c(c)(5)(C), but it later withdrew those rules in February 2026.

CFTC guidance

In February 2026, the CFTC issued an advisory following the public release of two cases involving the misuse of non-public information and fraud related to event contracts traded on a DCM operated by KalshiEx LLC. One matter concerned a political candidate’s event contracts regarding his own candidacy, while the other involved an employee of a company affiliated with a YouTube channel that traded event contracts related to that channel’s content. The advisory notes that while Kalshi’s internal enforcement program handled those matters, the CFTC has the authority to police illegal trading practices on DCMs, including:

• Insider trading
  
• Pre-arranged, non-competitive trading and wash sales
  
• Other prohibited trading practices, including disruptive trading
  
• Fraud and manipulation under various sections of the CEA

In addition, on March 12, 2026, the CFTC issued an advisory to DCMs, reminding them, among other things, to only list for trading contracts that are not “readily susceptible to manipulation.” The CFTC noted that CFTC regulations prohibit any person from employing “any device, scheme, or artifice to defraud or attempt to defraud any person or manipulate the price of any contract listed on a DCM,” which would include trading on confidential information in violation of a pre-existing duty of trust and confidence to the source of such information (i.e., insider trading).

The advisory stated that a DCM seeking a new product for trading, including an event contract, can provide a written certification that the product complies with the CEA or can seek prior CFTC approval. The CFTC also reminded DCMs that it retained the authority to stay the listing of self-certified contracts pending CFTC proceedings for filing a false certification or pending a petition to alter or amend the contract terms and conditions pursuant to Section 8a(7) of the CEA.

Proposed CFTC rulemaking

On March 12, 2026, the CFTC issued an Advance Notice of Proposed Rulemaking (ANPR) regarding prediction markets, seeking public comments for potential rulemaking by April 30, 2026. The topics for which the ANPR seeks feedback include:

• Statutory core principles contained in the CEA and CFTC regulations that apply to prediction markets
• The types of event contracts that may be prohibited as contrary to the public interest
• Cost benefit considerations related to prediction markets

According to the ANPR, since 2021, the CFTC has noticed a significant increase in the number of event contracts listed for trading on prediction markets, particularly within the past year, prompting the issuance of the ANPR. The timing for the issuance of any proposed rules related to prediction markets remains unclear.

CFTC and US Securities and Exchange Commission (SEC) collaboration

At the January 29, 2026 CFTC-SEC harmonization event, CFTC Chairman Michael S.  Selig revealed that the CFTC staff had been directed to draft event contracts rulemaking in order to clarify the existing regulatory framework and to work with the SEC to clarify regulatory responsibilities. SEC Chair Paul S. Atkins has indicated that both the SEC and CFTC are focused on prediction markets, while noting that jurisdiction is mainly with the CFTC. The memorandum of understanding entered into by the two agencies, which was announced on March 11, 2026, will likely facilitate efforts to determine regulatory jurisdiction, with the CFTC likely retaining primary regulation of prediction markets.  

State and federal rulemaking

Legislators in several states, including California, New York, Hawaii, Tennessee, and Kentucky, have introduced or adopted legislation intending to regulate the prediction markets. States have taken various approaches, including focusing on insider trading, prohibiting certain topics from being the subject of event contracts, and outlawing all event contracts.

On the federal level, legislators have proposed bills addressing the scope of event contracts and prohibiting trading on insider information. A bipartisan bill, S. 4160, the Prediction Markets Are Gambling Act, was proposed in March 2026 and would amend the CEA by prohibiting sporting, athletic competition, or casino-style game event contracts on prediction market platforms.  The bill is intended to clarify that “casino-style game” contracts would be regulated by state authorities instead of the CFTC.

Other proposed federal legislation includes:

• The Public Integrity in Financial Predictions Markets Act of 2026 (H.R.7004)
  
• The Preventing Real-time Exploitation and Deceptive Insider Congressional Trading (PREDICT) Act (H.R. 8076)
  
• The End Prediction Market Corruption Act (S. 4017)
  
• The Prediction Markets Security and Integrity Act of 2026 (S. 4060)
  
• The Public Integrity in Financial Prediction Markets Act of 2026 (S. 4188)
  
• The Event Contract Enforcement Act (H.R. 7840)
  
• The BETS OFF Act (S. 4115)
  
• The Stop Trading on Predictions and Corrupt Bets (STOP Corrupt Bets) Act of 2026 (S. 4226)

It is unclear if or when the Prediction Markets Are Gambling Act or any of the other proposed bills will be adopted.

Litigation and enforcement

Since the start of 2026, several state regulatory authorities have issued cease and desist orders against prediction market operators, claiming that their activities violate state gambling laws. Prediction market operators such as Kalshi and Polymarket have contested these efforts at state regulation, resulting in litigation and different court rulings. 

In March 2026, Arizona Attorney General Kris Mayes filed criminal charges against Kalshi, accusing it of running an illegal gambling operation under Arizona law. The charges, which relate to misdemeanor counts for alleged election wagering and unlawful betting, were brought despite Kalshi’s status as a CFTC-registered DCM. Similarly, in April 2026, New York Attorney General Letitia James sued two cryptocurrency exchanges, claiming their respective prediction market platforms facilitated illegal gambling and other violations of New York law.  As prediction market platform and CFTC court challenges of states’ attempts at regulating and enforcing have yielded mixed results, the US Supreme Court could ultimately be tasked with resolving the issue of oversight.

The CFTC has taken steps to assert its exclusive jurisdiction over prediction markets. In North American Derivatives Exchange Inc. v. State of Nevada, et al., the CFTC filed an amicus brief in support of Crypto.com’s appeal of a federal district court’s decision allowing the Nevada Gaming Control Board’s attempt to regulate Crypto.com’s sports contracts. In the amicus brief, the CFTC contended that states could not violate the CFTC’s exclusive jurisdiction over CFTC-regulated DCMs by re-characterizing swaps trading on DCMs as illegal gambling. Furthermore, CFTC argued that:

• The definition of “swap” under the CEA was intentionally broad and covered event contracts
  
• The CEA granted the CFTC exclusive jurisdiction over federally registered DCMs and their transactions, pre-empting state gambling laws
  
• Subjecting event contracts listed on CFTC-registered DCMs to state regulation would undermine Congress’s intent to establish federal oversight of derivatives markets

Furthermore, in April 2026, the CFTC announced that it brought lawsuits against Arizona, Connecticut, and Illinois for attempting to regulate event contracts on CFTC-registered DCMs.

On April 6, 2026, in KalshiEx LLC v. Flaherty et al., a panel of the US Court of Appeals for the Third Circuit held that the CFTC had jurisdiction over sports events contracts offered on Kalshi’s DCM exchange. In a split decision, the panel found that the CEA pre-empted New Jersey’s gambling laws and any state laws interfering with swaps traded on a DCM, affirming a lower court decision. Kalshi had sought injunctive relief for a March 2025 cease-and-desist request from New Jersey’s Division of Gaming and Enforcement. The cease-and-desist letter had claimed that Kalshi’s sports event contracts violated New Jersey’s constitution and gambling laws. 

Efforts to self-police

In order to address potential insider trading or fraudulent activity on their platforms, Polymarket and Kalshi have made efforts to tighten their rules. In March 2026, Polymarket announced updates to its terms of use and rule book to prohibit trades based on stolen confidential information, illegal tips, or individuals who can influence the outcome of a prediction market. Under these updates, users are barred from trading on confidential information where using such information would violate a pre-existing duty or obligation of trust or confidence. Similarly, in March 2026, Kalshi announced an expansion of its internal capabilities and policies against insider trading that pre-emptively blocks certain individuals, such as politicians and athletes, from trading in relevant markets where they are likely to have inside information or have the ability to influence the outcome of certain events.  Kalshi has also established a whistleblower mechanism allowing its users to flag potential violations.

Potential civil and criminal enforcement

While the CFTC has jurisdiction to regulate event contracts, the US Department of Justice (DOJ) may bring criminal cases in instances of fraud or insider trading. At a securities enforcement conference earlier this year and subsequently in an interview, US Attorney for the Southern District of New York Jay Clayton indicated that the DOJ would pursue prosecutions related to the prediction markets and insider trading.

Most event contracts would not be considered securities so enforcement actions for insider trading under Section 10(b) of the Exchange Act of 1933 (Exchange Act) and Rule 10b-5 thereunder are less likely to be brought by the DOJ.

However, CEA Section 6(c)(1) prohibits the use of any manipulative or deceptive device in connection with a swap, future, or cash contract in contravention of CFTC rules, and CFTC Regulation 180.1 prohibits fraud and fraud-based manipulation in connection with any swap, cash, or futures contract. The CEA also includes Section 4c(a)(3), which prohibits federal agency employees, members of Congress, congressional employees, and judicial officers and employees from using non-public information derived from their positions to trade commodity futures, options, or swaps. Similarly, Section 4c(a)(4) prohibits such individuals from sharing non-public information with others for trades in commodity futures, options, or swaps or anyone from using such non-public information to enter into trades.

The CFTC could bring civil enforcement actions for insider trading with respect to event contracts under such provisions. During a speech on March 31, 2026, CFTC Director of Enforcement David I. Miller specifically cited insider trading in prediction markets as a priority for CFTC enforcement. In addition, the DOJ has criminally prosecuted individuals for engaging in insider trading in the commodity markets under CEA Section 6(c) and Regulation 180.1. The DOJ could also bring claims under federal mail or wire fraud statutes; indeed, the DOJ has prosecuted alleged insider trading in crypto assets under 18 U.S.C. § 1343.

Implication for public companies

While the CFTC is considering rules to clarify the treatment of event contracts and market participants await legal resolution regarding regulatory authority from the courts, public companies are encouraged to assess the potential misuse of their non-public information for prediction market contracts.  As a wide range of corporate events and activities could be the subject of an event contract (e.g., whether a company will complete a merger by a certain date or the number of times its chief financial officer says “tariffs” during an earnings call), the possession or disclosure of seemingly innocuous information can present additional risks for companies if their employees or directors use their positions as insiders to profit from non-public information through the purchase of event contracts.   

Most public companies’ insider trading plans are designed to prevent securities trading while in possession of material non-public information and do not contemplate the use of non-public information by company insiders related to event contracts. Companies are encouraged to review their codes of conduct or insider trading policies to assess whether they prohibit the use of non-public information in connection with event contracts or whether to expand their application to cover event contracts. In the latter case, companies may consider revising their policies to specifically prohibit using non-public information regarding the company or otherwise gained through employment with or service to the company.

With the CFTC asserting its authority to police illegal trading practices on DCMs, there may be an uptick in enforcement activity for insider trading. Even if the focus of enforcement activity is placed on individual insiders, their affiliated companies could face reputational and other harm.  For example, incidents of insider trading related to event contracts may call into question whether a company has appropriate controls in place to prevent the misappropriation of corporate information, which could lead to additional scrutiny from investors and other stakeholders.

Key takeaways

Interest in the prediction markets is likely to remain for the foreseeable future. Amid attempts to provide more clarity around the regulation of event contracts through rulemaking, litigation and enforcement actions, public companies are encouraged to:

• Monitor developments in CFTC and other relevant rulemaking and guidance regarding the regulation of prediction markets
  
• Remind employees of existing obligations regarding the treatment of non-public information under insider trading policies, codes of conduct, employee handbooks, and other similar policies, and conduct training as necessary
  
• Amend or adopt new policies to address participation in event contracts related to the company or information learned through employment or board service
  
• Stay informed regarding litigation and enforcement trends related to event
  contracts that may determine their ultimate oversight and compliance obligations

 For more information, please contact the authors.