Prediction Markets and Your Compliance Program – Conflicts of Interest and Reputational Risks
Summary
Ropes & Gray LLP published guidance on April 2, 2026 alerting companies to conflicts of interest and reputational risks from employee participation in prediction markets. The alert advises that companies where employees have access to nonpublic information, client intelligence, licensed data, or proprietary analytical expertise should assess whether their compliance frameworks adequately address these risks. The guidance recommends updating codes of conduct and pre-clearance systems to specifically address prediction market activity.
What changed
Ropes & Gray LLP analyzed the emerging risks posed by employee participation in prediction markets, identifying conflicts of interest when employees with access to confidential company information, client data, or proprietary analysis place prediction market wagers based on that information. The guidance identifies three key risk categories: using client or counterparty confidential information to wager breaches confidentiality duties regardless of whether it meets MNPI thresholds; deploying a company's proprietary research and models for personal gain exploits organizational assets; and existing pre-clearance systems typically do not capture prediction market positions, allowing such activity to go undetected. The alert applies established conflict of interest, insider trading, and confidentiality principles to this emerging marketplace.\n\nCompliance officers at companies where employees have access to nonpublic information or proprietary analysis should review existing codes of conduct to determine if guidance specific to prediction market participation is needed, consider updating pre-clearance systems to capture such activity, and provide targeted training with clear examples of prohibited conduct. Companies with principles-based codes may be technically covered but should evaluate whether additional specific policies or training are appropriate given the growing size and accessibility of prediction markets.
What to do next
- Review existing Code of Conduct for gaps in addressing prediction market participation
- Develop specific policies or guidance on permissible and prohibited prediction market activities
- Evaluate whether pre-clearance systems need updating to monitor employee prediction market positions
Archived snapshot
Apr 3, 2026GovPing captured this document from the original source. If the source has since changed or been removed, this is the text as it existed at that time.
April 2, 2026
Prediction Markets and Your Compliance Program – Conflicts of Interest and Reputational Risks
Lisa Bebchick, Kathryn Daniels, Amy Jane Longo, Sean Seelinger Ropes & Gray LLP + Follow Contact LinkedIn Facebook X Send Embed
Introduction
Recent decisions by some companies to prohibit employee participation in prediction markets signal growing concerns about the reputational, conflicts of interest, and confidentiality risks posed by this rapidly expanding marketplace. Every company where employees have access to nonpublic information, client intelligence, licensed information or data, or proprietary analytical expertise should assess whether its compliance framework adequately addresses the risks these platforms present.
If your company has a principles-based Code of Conduct that provides guidance to employees on ownership of and misuse of data, confidentiality, and conflicts, your company may be technically covered, but you should consider whether additional training, guidance, or policies specific to prediction market activity is appropriate. Preventing prohibited or potentially problematic conduct before it occurs is easier than remediating the problem after the fact. Companies should consider providing clearer examples and rules. This alert explores these issues and provides some questions to ask.
Conflicts of Interest and Prediction Markets – the Risk
The classic formulation of a conflict asks whether, in fact or in appearance, an individual prefers their own interests over those of their client, employer, or another stakeholder. Prediction market participation by informed insiders fits squarely within this framework: an employee who profits from an outcome the company is analyzing or advising upon places personal financial gain in direct tension with their duty to their company to make the optimal business decision.
For example, assume an employee of an investment company has access to modeling on the impact of geopolitical events on the price or value of a securities portfolio. Most employees understand that they cannot take that information and trade in the securities in the portfolio (and are practically blocked by personal pre-clearance systems) and are often frequently trained on insider trading risk. The company information and analysis related to the likelihood of a geopolitical event happening, not MNPI related to a specific security, may nevertheless allow the employee to place a more informed bet on the geopolitical issue because of the company analysis.
If the employee places a prediction market position using the proprietary information learned on the job, the employee has exploited confidential information for personal gain. Existing pre-clearance systems do not cover such activity, thus allowing the prediction market position to be placed without detection. This type of conduct may also implicate other distinct categories of information. The first is client or counterparty information: confidential data, strategies, and intelligence shared by clients and counterparties, under a duty of confidentiality and often an NDA. Using that information to wager on a prediction market breaches the duty of confidentiality, regardless of whether the information meets the technical definition of material nonpublic information under securities law or violates other internal policies. The second is the company’s own proprietary information: its research, models, analysis, and intellectual property. This is a key organizational asset, developed at significant cost and entrusted to employees for defined purposes. Deploying it for personal gain in a prediction market is misuse of that asset and a fundamental breach of trust.
Theory of Harm and Reputational Risk
Misuse of confidential information in this way aligns with the misappropriation theory of insider trading. Confidential information is a company asset, and using it without authorization for personal gain is, in substance, theft. An informed insider who wagers on a prediction market commits precisely the same wrong: converting that asset for personal benefit in violation of duties owed to the company and its clients.
Clients and counterparties who learn their information was wagered upon will question whether they can trust your company. Such conduct may also breach contractual terms of a license agreement or NDA. Information owners who have granted use and access to information could also potentially assert contractual claims, over and above disappointment in the breach of trust.
While reputational consequences can be severe and lasting, to the extent that client or counterparty information or information with specific use restrictions, licensed data, or company analysis is used in connection with a personal predictive bet, multiple legal issues can arise, including the potential need to notify the original owner of the information.
Key Questions for Compliance Leaders
Compliance leaders should consider four key questions.
- First, does the Company want to take a position of specifically limiting/discouraging or prohibiting employee participation in prediction markets?
- Second, does the Code of Conduct (or another existing policy) expressly address prediction market participation, or does it rely on general conflicts and confidentiality provisions that predate the current marketplace? If you are relying on principles, consider adding examples specific to the predictive markets in training materials or consider sending alerts specific to predictive markets.
- Third, do existing conflicts policies require pre-clearance or disclosure of such predictive market trades, and does the company have tools to detect undisclosed activity?
- Fourth, are information barriers and conflict recusal procedures adequate to manage any conflicts that may be presented, or is a blanket prohibition on making predictive bets a better approach?
Conclusion
The compliance risks posed by prediction markets are real and likely to intensify. Organizations that review their codes of conduct, conflicts policies, and training programs will be better positioned to protect their stakeholders, their reputations, and their employees.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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