What happened
Compliance Week has published guidance for compliance teams on prediction market contracts, written by Alma Angotti, Michael Herde and Tyler Paretchan of FTI Consulting. The article argues that contracts offered mainly by Kalshi and Polymarket have moved beyond sports betting into election outcomes, military operations and corporate performance metrics, and that some now resemble capital markets derivatives while sitting outside the surveillance firms run over their own staff.
The regulatory hooks are not new. Section 15(g) of the Securities Exchange Act of 1934 and Rule 17j-1 of the Investment Company Act of 1940 exist to keep personal trading by employees with access to material non-public information free of actual or potential conflicts, and the SEC expects registered firms to take active steps to prevent conflicted transactions. FINRA has not announced specific monitoring of prediction markets, but its 2026 Annual Regulatory Oversight Report focuses on manipulative trading and cites Rule 3110, which requires supervisory procedures reasonably designed to identify trades violating insider trading and manipulative trading rules for the accounts of the firm and its associated persons.
The authors set out a practical sequence: bring compliance, legal and the business together to agree the firm's position, review which existing policies can be adjusted and which need to be written, look at surveillance tools that can monitor contracts the the way broker feeds are monitored, and tell employees plainly what is and is not allowed.
There is enforcement context on both sides of the argument. On May 6 the SEC charged 21 individuals over an insider trading scheme involving material non-public information about corporate transactions. The CFTC fined former Congressman George Santos $35,000 for betting on his own attendance at the State of the Union address on Kalshi.
Why this is a GRC story
This is a policy scope problem, and policy scope problems get discovered by enforcement. Most employee trading policies are written around brokers, accounts and pre-clearance workflows. A contract on a corporate outcome, bought on a platform that never touches the firm's broker feed, sits outside all of it while carrying the same conflict of interest.
The uncomfortable part is that a reminder that employees must not act on inside information is not, on its own, a control. A control produces evidence: training records, attestations, surveillance coverage, and a documented decision about which platforms are in scope. The authors make this point directly, noting that asking employees to behave is unlikely to be a strong defence under scrutiny.
Prediction markets also raise a data governance question for firms that use them. Where pricing on a corporate event is visible to anyone, some desks will treat it as market intelligence. That is a legitimate use until the same desk is advising on the event in question.
What to watch
Watch for the SEC or FINRA to state explicitly whether prediction market contracts fall within existing personal trading and supervision rules. Right now firms are reading the intent of rules written before these products existed.
Watch the SEC's work on exchange traded funds tied to prediction market contracts. Moving these products into regulated markets pulls them into regulated surveillance.
Watch the first enforcement case against an individual who used a prediction market instead of a derivative. That case will define the perimeter faster than any guidance.
Attribution: Analysis based on Compliance Week and related public reporting. This article is original commentary, not a repost of the source material.