Polymarket has announced new market integrity rules, marking a major change in its approach to handling insider trading.
The new set of rules is outlined in the platform’s Terms of Use and the Polymarket US Rulebook. It extends the definition of prohibited practices, as well as enhancing the platform’s compliance mechanisms.
The reform follows recent updates made to the Commodity Futures Trading Commission (CFTC) regulations.
It also marks an about-turn from Polymarket Founder and CEO Shayne Coplan’s previous assertion that insider trading is a “feature” that strengthens prediction markets.
The new guidelines set stricter limits for insider trading, and specifically target three types of misconduct.
They prohibit users from trading using stolen information regarding the outcome of an event when such trading would be a breach of trust.
The rules also prohibit trading based on illegal tips, where users knowingly act on privileged information shared by someone restricted from using it.
Moreover, those who have the power to influence the outcome of the contracts, such as decision-makers and those with access to information, are not permitted to trade on related contracts under the new rules.
According to Polymarket, the changes arise from the need for increased transparency and trust as the platform continues to grow.
The company stated that the change will help eliminate confusion and improve the integrity of its markets.
It has also launched dedicated Market Integrity pages to explain enforcement processes and provide channels for reporting suspicious activity.
Cracking down on manipulation
Apart from insider trading, the revised policies cover a wide range of manipulative activities. These activities include spoofing, wash trades, fictitious transactions, and front-running, among others.
The model also covers self-dealing and information-based manipulation. This is done in a way that covers direct and indirect attempts at market manipulation.
The enforcement mechanism of the model relies on surveillance. On the decentralised model, Polymarket uses a multi-layered surveillance mechanism which includes collaboration with technology partners.
Since all transactions occur on the Polygon blockchain, they are publicly available, enabling the company and everyone else to scrutinise transactions.
When suspicious patterns are noted, the platform can launch an investigation, ban a wallet address, or even report to law enforcement.
The timing of these changes aligns with broader industry pressure. Rival platform Kalshi has also announced expanded safeguards against insider trading and manipulation.
Its approach includes pre-emptive restrictions targeting politicians, athletes, and other individuals closely tied to specific markets.
New screening tools aim to block political candidates from trading on their own campaigns and prevent sports participants from engaging in markets related to their leagues.
Kalshi has also introduced a whistleblower feature to encourage user reporting of suspicious trades. The company acknowledged that no system is foolproof and that motivated actors may still attempt to bypass controls.
Its updated policies were developed in response to regulatory signals from the CFTC and proposed federal legislation addressing prediction markets.
Suspicious activity intensifies scrutiny
There has been a significant increase in regulatory scrutiny in recent months. The CFTC has issued federal guidelines that point to the risks associated with insider trading and manipulation.
There has been significant concern raised and media attention around trading activity that appears to be based on privileged information.
Legislation has been proposed that addresses these areas of concern, and recent activity on Polymarket continues to draw attention.
According to a new report from The Guardian, several accounts were created which were said to have placed nearly $70,000 in bets on a possible ceasefire between Iran and the US, which may yield more than $800,000 if correct.
Polymarket is already the subject of an investigation in Israel over some of the markets it has offered around the ongoing Iranian conflict.
Some of the notable actions included splitting the wallets, which may be a form of attempting to obscure identities or utilise inside information. Analysts were able to identify such actions as possibly being from large investors or those using inside information.
Such patterns have raised persistent questions about whether prediction markets can be exploited for profit using non-public information.
With the rising importance of prediction markets, there is a greater drive to secure them. Both Polymarket and Kalshi have exhibited a pragmatic approach, tightening controls in response to rising regulatory and public pressures.