The WSJ reported earlier this week that predictions market operator Kalshi is tightening its security measures and asking some traders to identify their employers in response to concerns about insider trading. This Sidley blog says that it’s time for public to tweak their own insider trading policies to address the issues presented by prediction markets, and for other organizations to implement formal policies of their own. This excerpt explains the rationale for that position:

Historically, insider trading compliance programs were implemented only at publicly traded companies and focused primarily on securities transactions involving publicly traded stock. Because the use of online prediction markets is a relatively new phenomenon, those programs have not explicitly addressed prediction market activity.

In addition, prediction market trading may involve contracts unrelated to publicly traded securities and may implicate confidential information held by private companies, nonprofits, universities, healthcare systems, government contractors, and other organizations that historically may not have maintained formal insider trading policies. As a result, employees and other personnel at public or private companies may incorrectly assume that existing restrictions on the misuse of confidential or proprietary information do not apply to prediction market activity, creating potential ambiguity and increased compliance risk for organizations.

The blog goes on to make specific recommendations for actions that public companies and other organizations should take to appropriately update existing insider trading policies or to include in newly adopted policies to address prediction markets.

– John Jenkins