Do Your Insider Trading Policies Cover The Prediction Markets? Should They? | Proskauer

Key events: the CFTC issued a prediction markets advisory and request for comment on March 12, 2026, and CFTC-registered exchange Kalshi publicly fined and suspended a user on Feb 25, 2026 for trading on nonpublic information. Prediction-market contracts may be subject to CFTC commodities-fraud and manipulation rules, could qualify as SEC-regulated security-based swaps, or trigger federal wire-fraud exposure, creating enforcement and platform-level risks. Companies should explicitly ban employee wagering on company information in codes of conduct and training to avoid legal, operational and reputational damage.

Analysis

Regulatory tightening around event contracts is a classic consolidation catalyst: compliance friction and enforcement uncertainty favor regulated incumbents that can certify surveillance, custodian relationships and audit trails. A modest reallocation of even low-single-digit billions of notional from fringe venues into regulated designated contract markets or security‑based swap gateways would be a multi‑year revenue tailwind for CME/ICE/CBOE because fees, clearing income and ancillary surveillance services scale faster than the marginal technology spend. Expect this migration to be lumpy — immediate enforcement headlines drive short bursts of flows into “safe” venues, while formal rulemaking and product approvals take 6–18 months to cement market structure shifts.

Second‑order winners are vendors that sell trade surveillance, onboarding/KYC software and post‑trade reporting — these capture recurring revenue as platforms and corporates upgrade controls. Conversely, consumer‑facing brokerages and offshore/unregulated venues face reputational and operational risk: a single high‑profile enforcement or corporate disclosure incident can depress retail account growth metrics and raise CAC by forcing tighter onboarding. For corporates, the fastest visible P&L impact will be disclosure windows and HR policy changes tied to 10‑K/20‑F cycles; expect episodic stock volatility around those filings as policy text becomes a proxy for insider‑risk exposure.

Tail risks: aggressive rulemaking that narrows allowable contract forms would compress volumes and hurt near‑term revenues for anyone relying on event products, while mass migration to decentralized offshore markets would blunt onshore incumbents’ upside. Catalysts to watch in the next 3–12 months: CFTC/SEC rulemaking notices, platform enforcement reports, and large corporates updating insider‑trading policies in their next annual filings. A prudent portfolio stance is to bias toward regulated exchanges and surveillance SaaS while hedging for a regulatory contraction scenario.

Key Decisions for Investors

• Buy CME Group (CME) 12–18 month call spread: go long Jan‑2028 ATM calls and sell a higher strike to fund ~50% of premium. Thesis: capture fee/clearing tail from migration to regulated venues; target 2:1 upside vs max loss = premium, stop‑loss 50% of premium.
• Pair: Long CBOE Global Markets (CBOE) vs Short Robinhood (HOOD) — 6–12 month horizon. Rationale: CBOE benefits from new regulated product demand and surveillance spend; Robinhood is more exposed to retail reputational churn. Target asymmetric 1.5:1 reward:risk; size as a small sector pair (<=2% net exposure).
• Buy ICE (ICE) 9–15 month call calendar: take long-dated call and sell nearer-term call to collect premium. Objective: capture structural migration to exchange‑cleared products while funding part of carry; limit max draw to paid premium and reassess on any adverse rulemaking within 6 months.