How insider trading could work on prediction markets

"People were surprised to learn that that wasn't a crime," said Peter Sanchez Guarda, who spent 22 years at the Commodity Futures Trading Commission before leaving in late 2024 and starting up Turnkey Family Office. The gap the film stumbled into eventually forced Washington's hand. In the aftermath of the 2008 financial crisis, Congress revised the Commodity Exchange Act to make clear that trading on misappropriated government information was off limits."

"Four decades after Trading Places, the twist is hard to ignore. The kind of conduct that once slipped through the cracks has resurfaced in a new venue. It is no longer confined to Wall Street trading desks or the Chicago Mercantile Exchange. Instead, it is playing out on prediction market platforms where users wager on everything from halftime show set lists to the outbreak of armed conflict."

"Prediction markets were once treated as quirky experiments, digital oddities where people could bet on election outcomes or award shows. Lately, they have edged into darker territory, with users trading on geopolitical events and armed conflicts. And this time, the watchdogs may be lagging even further behind in their ability to monitor and regulate these emerging platforms."

The 1983 film Trading Places depicted illegal insider trading in commodities markets, but the conduct shown was actually legal at the time. Congress later closed this loophole after the 2008 financial crisis by revising the Commodity Exchange Act, informally naming it the "Eddie Murphy Rule." Today, similar insider trading risks have emerged on prediction market platforms where users bet on various outcomes including geopolitical events. These platforms operate with minimal regulatory oversight, creating opportunities for misuse of non-public information. Regulatory agencies appear unprepared to address these emerging risks in prediction markets, leaving a significant enforcement gap similar to the one that existed in traditional commodities trading decades earlier.

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