Betting on Company Information: Prediction Market Considerations for Public Companies

Prediction markets have grown from a niche curiosity into a live corporate governance issue. In a recent alert memorandum, we examine what the rapid growth of company-related event contracts means for public companies, and what boards and general counsel should be doing now. Although our analysis tracks U.S. law and  jurisdiction of the Commodity Futures Trading Commission (CFTC), the underlying tension between information-based trading and corporate confidentiality obligations is likely to resonate in any market where prediction-market activity is expanding.

Prediction Markets and Company-Related Event Contracts

Prediction markets allow participants to trade contracts on whether or not real-world events will occur. Event contracts are a type of derivative contract, often a swap with a binary payoff structure, whose settlement is based on the outcome of an underlying occurrence or event. Participants buy a “yes” or a “no” position, with pricing reflecting demand. Prediction markets operating in the United States typically register with the CFTC as designated contract markets (DCMs) or operate pursuant to an exemption from registration. To date, event contracts have generally been offered on DCMs as swap contracts, not securities.

While most public companies have adopted insider trading and related policies to regulate trading in the company’s securities, these policies are generally written for securities transactions, where prediction market event contracts are generally not offered or traded as securities in the traditional sense. 

Contracts tied to specific company activity are now actively trading on prediction markets, including contracts on IPOs, mergers and acquisitions, earnings call mentions, and sales and subscriber metrics. The implications for public companies warrant attention. An investor relations employee with advance knowledge of the earnings script, a legal assistant aware that a deal is closing, a finance analyst working on the company’s draft financial statements or 10-K – each could trade on a prediction market and profit from the use of confidential company information. No securities change hands. But even where no company securities are traded, employee wagers on company-related event contracts can constitute illegal trading, signal nonpublic information leakage to the market, harm the company’s reputation and expose the company to regulatory scrutiny. This makes prediction markets a corporate governance concern, not just an individual enforcement risk.

The Enforcement Reality 

Most existing insider trading policies are drafted with reference to trading in securities and may not expressly cover wagers on company-related event contracts. But the absence of an express securities law nexus does not eliminate enforcement risk. Employee misuse of nonpublic information on prediction markets may attract enforcement at multiple levels:

The CFTC has affirmed that it “has full authority to police illegal trading practices” on any prediction market, including insider trading, pursuant to Section 6(c)(1) of the Commodity Exchange Act and CFTC Regulation 180.1 (which is modeled on the SEC’s Rule 10b-5).

The CFTC highlighted two recent actions involving prediction markets platforms including for use of nonpublic information in breach of the marketplace’s rules. While these matters were handled through the platform’s internal enforcement program, the CFTC noted that the conduct also fell within its own enforcement authority under the Commodity Exchange Act.  Other charges and enforcement actions, including criminal claims from the Department of Justice could also apply to prediction market transactions.

What Companies Can Do Now

A company’s code of conduct should already prohibit employees from using confidential information for personal gain. Companies should consider, however, whether their existing policies adequately explain how those restrictions apply to participation in prediction markets. Several approaches are worth considering:

For many companies, the most practical starting point may be a short internal communication rather than a formal amendment to the insider trading policy or code of conduct. The message can be straightforward: participation in prediction markets is a direct application of the existing prohibition on using confidential information for personal gain and enforcement is already happening. This approach is particularly well suited to the current environment, where rulemaking is developing and policy language has not yet settled. It mirrors the approach many companies have taken to AI usage: a clear, practical reminder targeted at a new technology.

Regulatory Backdrop and Market Manipulation Theories

The regulatory environment is developing rapidly. On March 12, 2026, the CFTC issued an Advanced Notice of Proposed Rulemaking (ANPRM) seeking comment on prediction markets regulation and the CFTC and SEC signed a Memorandum of Understanding addressing jurisdictional and definitional issues and coordinating on enforcement. The CFTC has specifically requested comment on whether there is public interest utility in allowing persons with an information advantage on a particular event contract to trade on prediction markets.

Practical Takeaways

Companies need not wait for further rulemaking to take meaningful steps to mitigate the current potential risks. An internal communication reminding employees that existing prohibitions on misuse of confidential information apply to prediction markets may be a prudent first step. Companies that adopt flexible, lower-commitment vehicles now may be better positioned to update their approach as the rules develop.

Helena K. Grannis, Lillian Tsu, Deborah North, Michael J. Albano & Brian J. Morris are lawyers at Cleary Gottlieb Steen & Hamilton (New York office).