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Abstract: 

Prediction markets have gone mainstream, and concerns around insider trading and manipulation have come under sharper focus. As these markets mature, so too must the surveillance frameworks that govern them. Where traditional derivatives surveillance asks whether trading distorted a price, prediction markets pose a more challenging question: did the trader merely forecast the event, or did the trader know, control, or influence the outcome? This paper terms that problem “outcome agency risk” and argues that it is the central reason these markets cannot simply borrow the playbook of traditional derivatives if prices are to remain a credit measure of honest judgment about the future.

Keywords: CFTC Division of Enforcement; Event Contracts; Insider Trading; Manipulation; Participant Eligibility; Rule 40.11(a); Enumerated Activities

Affiliations:  1: Dechert LLP; 2: Katten Muchin Rosenman LLP.