The rapid rise of prediction markets is creating a fresh set of compliance challenges for investment advisers. When firms or their staff trade event contracts using confidential, client-related or otherwise restricted information gathered through their professional work, the regulatory and reputational exposure can be significant.
According to ACA Group, prediction markets, sometimes called event-contract markets, let participants trade contracts linked to the outcome of future events.
These range from elections and economic data releases to regulatory decisions, corporate developments and sporting fixtures. As participation grows, these platforms may offer new ways to profit from the research, data and analysis that advisers produce or acquire on behalf of clients.
The underlying risks are not new to the advisory world, but the way they surface may be. Many existing policies and surveillance frameworks were not designed with event contracts in mind. This is especially true where trading happens outside conventional securities accounts, or where the link between a contract and a portfolio company, issuer or client matter is not immediately clear.
A central concern is the use of firm and client information. Advisers should check whether their policies clearly state if research obtained through client work can be used for personal or proprietary trading.
They should also consider whether event-contract trading needs preclearance, reporting or both, whether conflicts are properly identified, mitigated and disclosed, and whether controls separate public information from confidential material. The right approach will depend on each firm’s business model, client base and oversight capacity.
Insider trading is another pressing issue. 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 in event contracts.
The Department of Justice has also charged individuals over the alleged use of confidential corporate information to trade on a prediction-market platform. Firms should ensure their training covers event contracts, material nonpublic information that could affect outcomes, information from expert networks, due diligence and portfolio companies, and clear escalation procedures.
Personal trading programmes face their own hurdles. Employees may not realise that trading rules extend beyond securities, and firms may lack visibility into platforms not covered by current surveillance. Advisers should decide whether staff must disclose accounts, report trades, seek preclearance or certify compliance.
Event contracts also raise a distinctive risk: the ability to influence an outcome. An employee with decision-making authority or key commercial relationships could affect a corporate, regulatory or operational event. Even without wrongdoing, trading in such contracts can create conflicts and damage reputations.
Finally, market manipulation remains a concern. Because contract prices act as visible probability estimates that can shape news coverage and investor sentiment, trading designed to sway perceptions could spill into related securities markets.
Read the full ACA Group post here.
Copyright © 2026 FinTech Global
