Compliance professionals keep asking the same question: will digital assets, tokenisation and prediction markets force regulators to rewrite insider trading law? Increasingly, the answer is no. Regulators are not scrapping decades of precedent. Instead, they are stretching familiar legal theories across new instruments, venues and technologies.
According to StarCompliance, every case still starts with the classical theory of insider trading. Directors, executives and employees who hold a fiduciary duty to shareholders cannot trade while sitting on material, nonpublic information (MNPI).
StarCompliance recently discussed four insider trading theories every compliance team should understand for digital markets.
That principle does not bend simply because exposure is created through a token rather than a traditional share. Compliance teams should therefore be writing trading policies broadly enough to capture tokenised instruments, not just conventional securities.
Misappropriation theory extends the net further. It applies to anyone, banker, consultant, accountant, lawyer or vendor, who gains confidential information through a relationship of trust and then trades on it for personal gain.
Recent enforcement activity around prediction markets shows regulators are already willing to apply this theory to contracts linked to regulatory decisions, mergers or macroeconomic events. Restricted lists and monitoring can no longer stop at brokerage accounts; prediction market platforms and digital asset exchanges now belong on that radar too.
Shadow trading, cemented by SEC v. Panuwat, adds another layer of complexity. Liability can extend to an economically related asset rather than the security tied directly to the confidential information.
In blockchain ecosystems, where Layer 1 and Layer 2 protocols and tokenised real-world assets often move together, this interconnectedness makes traditional, single-security monitoring insufficient. Compliance teams increasingly need to map relationships between assets, not just watch individual tickers.
Prediction markets raise a further, broader conduct risk beyond trading itself: whether individuals can influence the outcomes they are betting on, or exploit confidential operational information to move an event contract’s odds before it ever touches a company’s share price. These questions are moving from hypothetical to practical as regulators, exchanges and compliance teams sharpen their scrutiny of market integrity.
The overarching message for compliance leaders is that markets are evolving, but the underlying legal expectations, trust, confidentiality and market integrity, are not. Firms that succeed will be those extending existing insider trading frameworks across digital assets, tokenised markets and prediction platforms, rather than waiting for entirely new rules to arrive.
Read the full StarCompliance post here.
Copyright © 2026 FinTech Global
