Polymarket Updates Rulebook to Block Insider Bets

Prediction market Polymarket has introduced new rules designed to stamp out insider trading.

The company on Monday (March 23) announced updated market integrity rules across both its decentralized finance (DeFi) platform and its Commodity Futures Trading Commission (CFTC)-regulated U.S. exchange.

The rules appear in the DeFi platform’s terms of use and the company’s U.S. rulebook and are designed to amplify Polymarket’s requirements dealing with insider trading and market manipulation, the company said in a news release.

“Markets thrive on clarity,” Neal Kumar, chief legal officer of Polymarket, said in the release. “These rule enhancements make our expectations abundantly clear for every participant across both platforms and highlight the compliance infrastructure we have already built.

“As Polymarket continues to scale, we will build on our foundation with clear communication to Polymarket’s users to ensure our markets do what they do best — surface truth,” he added.

According to the release, the updated rules cover three categories of forbidden insider trading, the first of which deals with trading on stolen confidential information.

Under this rule, “participants may not trade on any contract if they possess confidential information about the outcome or likely outcome of the underlying event, where using that information would violate a preexisting duty or obligation of trust or confidence owed to another person or entity,” Polymarket said.

In addition, users are prohibited from trading on confidential information shared by “someone who owed a preexisting duty of trust or confidence to someone else,” if they know the person who shared the information would be barred from trading on it themselves.

Lastly, the rules bar participants from trading on any contract where they hold a position of authority or enough influence to affect the outcome of the event in question.

The new rules come as the predictions sector is facing increasing pressure to police insider trading, with lawmakers crying foul after some users made millions from bets dealing with the Iran war made in the initial stages of that conflict.

Writing about the industry last fall, PYMNTS argued that despite the “appearance of financial-market sophistication” prediction markets nonetheless demonstrate troubling parallels with the world of gambling.

“That is most apparent when the event contracts track sports competitions, anecdotal political outcomes or entertainment awards,” that report said. “Such structures can resemble bets more than hedges on commodity futures.”

Although the structure of these markets aligns more with trading than betting, PYMNTS wrote, it also means users may not be protected by the “responsible-gaming guardrails, or by the licensing oversight intended to safeguard state-licensed gamblers.”