Polymarket Strengthens Rules to Curb Insider Activity in Prediction Markets

Polymarket has rolled out new market integrity rules for both its decentralized finance (DeFi) platform and its CFTC-regulated U.S. exchange. The update clearly defines prohibited activities and outlines enforcement procedures for suspicious trading.

The revised rules specify three key prohibitions: trading on stolen confidential information, trading on illegal tips, and trading by individuals who can influence an event's outcome. The platforms also explicitly ban manipulative practices such as spoofing, wash trading, self-dealing, and front-running.

This regulatory move coincides with increased scrutiny from Wall Street compliance desks, which are recognizing that prediction markets are as susceptible to insider trading as traditional equities or options. JPMorgan and other major banks have begun extending their insider-trading policies to cover platforms like Polymarket and Kalshi.

Polymarket states it employs a multi-tiered surveillance system. On the DeFi platform, all transactions are recorded on the Polygon blockchain for transparency. The company also works with technology partners to detect irregularities, with penalties ranging from wallet bans to law enforcement referrals.

The U.S. exchange operates under a Regulatory Services Agreement with the National Futures Association (NFA), utilizing external surveillance experts and an internal control desk. The action follows recent cases on other platforms where traders exploited privileged information, prompting a CFTC advisory that insider dealing in these markets falls under federal oversight.