'Maximal' ban on insider trading would hurt prediction markets, says researcher

Written by Martin Youngstaff writerReviewed by Felix Ngstaff editorWritten by Martin Youngstaff writerReviewed by Felix Ngstaff editor'Maximal' ban on insider trading would hurt prediction markets, says researcherLatest NewsPublishedJun 10, 2026“The same insider trade that improves the accuracy of the price today can reduce the participation that makes the price informative tomorrow,” said Balbinder Singh Gill. Prediction market regulators should consider a measured approach to insider trading enforcement as opposed to an outright ban, according to research from an academic at the Stevens Institute of Technology.In a paper released on June 2, assistant professor of finance Balbinder Singh Gill developed a formal economic model to answer the question of how strictly insider trading in prediction markets should be policed.A paradox exists in that “the same insider trade that improves the accuracy of the price today can reduce the participation that makes the price informative tomorrow,” he said. The model showed that prediction market price accuracy is “hump-shaped” in enforcement intensity, with too little enforcement letting insiders crowd out participants, while too much enforcement removes the insider’s genuine informational contribution.“Tougher enforcement curbs the insider, raising participation, so accuracy is hump-shaped and optimal enforcement is interior, neither laissez-faire nor a ban,” he said.Insider trading has been a persistent problem for prediction markets, with regulators pushing for crackdowns or banning platforms outright.The CFTC’s chief enforcement director warned prediction market insider traders in April that violators would face enforcement action. In May, US House lawmakers launched a probe into Kalshi and Polymarket over insider trading. Different levels of enforcement neededSingh Gill argued that the level of enforcement should be determined by where the insider information comes from.Researched information where a trader has worked ha…

'Maximal' ban on insider trading would hurt prediction markets, says researcher

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