Prediction markets and event contracts have gone mainstream. Prediction market platforms offer contracts on virtually any event you can imagine, and, increasingly, advisers and their personnel—including portfolio managers—are signing up. A wave of new developments, including the imminent launch of the first ETFs built around event contracts, means the pace of change is only accelerating.

Code of ethics / Personal trading policies

Most codes of ethics were written before event contracts existed. An adviser’s duty of loyalty to its clients may require it to take steps to protect clients from such abuses by the adviser’s personnel, and section 204A of the Investment Advisers Act of 1940, as amended (Advisers Act), requires the adviser to enforce its policies and procedures designed to prevent misuse of material non-public information (MNPI). An access person with MNPI on, for example, an FDA advisory committee vote or a merger arbitrage event, who then purchases an event contract tied to that information could be transacting on exactly the kind of information your MNPI controls are designed to protect against, but in a way you might not be able to easily monitor.

Should access persons be reporting event contract transactions even though these contracts are not “securities” under the federal securities laws? Firms that have not revisited their personal trading policies recently should ask whether their current preclearance and/or reporting requirements capture event contracts that could implicate the misuse of MNPI, and whether they need to be amended to do so explicitly. Alternatively, do your existing certifications cover these transactions? Event contracts can also raise questions about whether adviser personnel are taking positions contrary to trading they are engaged in on behalf of clients. While this risk is typically disclosed, the underlying fiduciary duty remains important, as does compliance monitoring. A portfolio manager who is short a stock for a client account while holding a long position in a prediction market contract that profits from negative news about the same company presents a conflict that your existing monitoring may not detect. Such holdings can also raise reputational risks.

While the Commodity Futures Trading Commission (CFTC) lacks a direct Rule 10b-5 equivalent, it has several Commodity Exchange Act of 1936, as amended (CEA), tools to address MNPI misuse in derivatives markets. Under CEA Section 6(c)(1) and CFTC Regulation 180.1, the CFTC can pursue misappropriation-based fraud claims against anyone who breaches a confidentiality duty by trading on MNPI. The “Eddie Murphy rule” (CEA Section 4c(a)(4)(C)) separately prohibits misappropriating non-public government information to trade futures or swaps. Finally, CEA Section 4c(a)(3) bars government employees, members of Congress, and judicial officers from trading derivatives on non-public information obtained through their positions.

Direct investments and research tools

Some portfolio managers are already trading event contracts directly or using prediction market pricing as a research signal. Neither is inherently problematic, but both require careful thought. Are event contracts within your investment mandate? How are they valued for NAV purposes—a question that becomes acute when the underlying contract has a binary settlement structure. If you are using event contract prices to inform investment selections, has the adviser accurately disclosed the strategy? Does trading such contracts—which are typically listed as swaps on CFTC-regulated designated contract markets—implicate CFTC registration requirements for the adviser or its personnel? These are not theoretical questions; they are ones your legal and compliance teams should be able to answer today.

The new frontier: Prediction market ETFs

In early 2026, several ETF providers filed with the Securities and Exchange Commission (SEC) to launch ETFs built entirely around political event contracts. These funds cover political outcomes for the 2028 presidential race and the 2026 House and Senate midterms. Other fund groups filed near-identical slates of ETFs shortly after.

The structure of these products is straightforward but unforgiving. Each fund will have exposure to swap agreements linked to those binary contracts. Those exchange-listed contracts settle at US$1 if the referenced outcome occurs and at US$0 if it does not—meaning a fund backing the wrong party will lose substantially all of its value on or shortly after election day. While some of these funds are designed to roll into the next election cycle once an outcome is determined; others would simply terminate. In April 2026, sponsors filed registration statements with the SEC for additional prediction market ETFs on other topics such as the price of crypto and oil next year and whether there will be a recession in 2026.  

For investment advisers, recommending or allocating client assets to a fund that will either double or go to zero based on a binary political outcome requires careful suitability and best interest analyses. How does an adviser document that such a fund is consistent with a client’s investment objectives? What risk disclosures must accompany any recommendation? The fact that the underlying exposure will now be available through ordinary brokerage accounts—and, potentially, retirement accounts—only expands how many advisers will encounter these issues.

Training

Training employees is also critical. Many may think that event contracts are just “bets” and completely out of scope of compliance rules. That is not always true. The potential arrival of SEC-registered ETFs that hold CFTC-regulated event contracts on political and other outcomes shows that prediction markets are only growing. They may soon be offered to anyone through an ETF structure, accessible through standard brokerage accounts, and your firm’s policies, training materials, and monitoring tools should reflect that reality.

Conclusion

Prediction markets have moved from the fringe to the mainstream faster than most compliance programs have adapted. The arrival of registered ETFs holding political event contracts is not the end of this evolution—it is the beginning of a broader wave of event-contract-based products that will test the boundaries of existing regulatory frameworks. Advisers who treat this moment as a prompt to review and update their policies, training, and monitoring now will be better positioned than those who wait for the first regulatory inquiry to arrive.