Unlike other industries, biopharma's clinical trial process grants confidential data access to a wide range of individuals—researchers, contractors, and regulators—magnifying the risk of misuse in prediction markets.
Beyond financial fraud, prediction markets pose a scientific threat. Trial participants, seeing market odds or having a financial stake, may alter their behavior, potentially compromising the integrity and validity of the clinical trial's results.
Whether prediction market contracts are securities or commodities is irrelevant for wrongdoers. The government can leverage tools from the CFTC, the Justice Department, and general criminal fraud statutes to prosecute the improper use of confidential information.
Regulators are less likely to second-guess companies that make a good-faith effort to assess and mitigate new risks from prediction markets. Proactively updating policies provides a stronger defense against liability from a rogue employee's actions.
Instead of creating new legislation, regulators will likely police prediction markets by making examples of violators. They will bring high-profile insider trading cases to send a strong signal and deter future misconduct across the industry.