Advisory Firms Faced New Compliance Risks
Investment firms are scrutinizing prediction market activity following concerns over insider trading and data misuse.
Updated on Sept. 28, 2026 in Investing
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Should investment firm employees be restricted from trading in prediction markets to prevent conflicts of interest?
Investment advisory firms are confronting rising compliance challenges as prediction market activity grows, with 14% of firms identifying these platforms as a top concern. This shift follows evidence that employees may use nonpublic work information to trade event contracts.
Why it matters
Prediction markets allow users to monetize confidential information through mechanisms that bypass existing internal compliance and monitoring systems. Firms are now updating ethics codes to prevent staff from using restricted knowledge to trade on future economic reports or political outcomes.
A 2026 industry survey showed that 14% of advisory firms now view prediction markets as a primary compliance risk. These contracts often operate outside traditional brokerage surveillance systems, complicating internal oversight for financial entities.
The players
Commodity Futures Trading Commission
The CFTC is an independent federal agency that regulates the U.S. derivatives markets, including futures, options, and swaps.
Gabriel Perez
He is a former White House teleprompter operator who was sanctioned for trading contracts based on confidential presidential speech content.
New York Life Investment Management
This is a major global investment firm that recently updated its internal ethics standards to address risks associated with prediction markets.
Securities and Exchange Commission
The SEC is the U.S. federal government agency responsible for protecting investors and maintaining fair, orderly, and efficient markets.
The details
Employees may leverage material nonpublic information to trade event-based contracts that fall outside conventional securities preclearance procedures. The Commodity Exchange Act allows regulators to categorize the misuse of confidential data in these markets as insider trading, prompting firms like New York Life Investment Management to incorporate prediction market rules into their codes of ethics.
Timeline
June 2026: Morrison Foerster hosted a compliance program regarding event contracts.
July 2026: New York Life Investment Management updated its Code of Ethics.
August 2026: The CFTC ordered a federal employee to pay a $172,000 penalty.
September 2026: The ACA Group released a report on industry compliance risks.
Market Dynamics
The regulatory response follows the framework set by the Commodity Exchange Act, which allows authorities to prosecute the misuse of confidential information in new prediction market platforms. This marks an effort by regulators to catch up with financial activity that shifts outside traditional stock exchanges.
Retail investors should be aware that firms are tightening internal policies, which may limit the types of trades employees can execute on event-based platforms. These changes aim to protect market integrity, potentially impacting how individual brokers manage their personal portfolios.
The takeaway
Firms are increasingly treating prediction markets with the same regulatory scrutiny as traditional securities exchanges to prevent insider trading. Investors should expect stricter compliance monitoring as federal agencies move to define and regulate these event-based contracts.
Further reading
Learn more about evolving market regulations on the Investing page.
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Should investment firm employees be restricted from trading in prediction markets to prevent conflicts of interest?
