Market Conduct Surveillance in Prediction Markets: The Risks, the Challenges, and the Future of Surveillance
Prediction markets are growing at an exponential rate, and expectations around oversight and market integrity are evolving just as fast. To succeed in this fast-moving industry, firms need to treat surveillance, governance, and market integrity as prerequisites for growth, not barriers to it.
Trading volumes, participation, and product offerings in prediction markets have grown significantly in recent years, pushing them further into the mainstream. With that growth comes increased attention from regulators and market participants, particularly around how these markets manage risk and maintain integrity.
While the market integrity risks themselves are familiar, prediction markets introduce unique surveillance challenges. Contract outcomes are tied to real-world events, the pool of potential insiders can be vast, and regulatory expectations are still taking shape. Firms need to build surveillance and compliance frameworks in parallel with a market that is still maturing.
Key Takeaways
- Explosive industry growth matched by rising regulatory scrutiny
- Familiar market integrity issues, but novel surveillance challenges
- Insider trading is the central risk and the hardest to detect
- DCMs are the regulatory “first line of defense”
- Legal classification remains unsettled across courts and Congress
- Regulatory frameworks are still developing
- Strong governance and surveillance are critical for long-term growth
How A&M Can Help
A&M has the expertise to help organizations understand the evolving legal and regulatory landscape in the prediction market industry. We can help clients implement effective compliance and risk frameworks that are tailored to their specific market conduct risks.
For a closer look at the risks, challenges, and what effective market conduct surveillance requires, read the full white paper including a foreword from Joe Schifano, Global Head of Regulatory Affairs at Eventus.
