US lawmakers are preparing to impose new restrictions on who can trade political- and policy-linked prediction contracts. This is due to growing concerns that public officials may be exploiting insider information.

Representative Ritchie Torres is set to introduce the Public Integrity in Financial Prediction Markets Act of 2026. This legislation would prohibit federal elected officials, political appointees, and Executive Branch employees from trading prediction market contracts under specific conditions.

According to people familiar with the proposal, the bill targets situations in which government officials either possess material nonpublic information or could reasonably obtain it through their official duties. The restrictions would apply to contracts linked to government policy, government action, or political outcomes on platforms that engage in interstate commerce.

The legislation follows renewed scrutiny of prediction markets after reports surfaced of a trader generating roughly $400,000 in profit within 24 hours from a bet on a forced leadership change in Venezuela. The trade was executed on Polymarket, a platform that allows users to speculate on political and geopolitical outcomes using onchain contracts.

The incident intensified debate around whether prediction markets create incentives for insiders to monetize privileged information. However, no evidence has been made public linking the trader to government officials.

Supporters of the bill argue that even the perception of insider trading by public officials can reduce trust in government institutions and emerging financial markets.

NEW — RITCHIE TORRES (D-N.Y.) will introduce a bill on this.

Bill will be called the Public Integrity in Financial Prediction Markets Act of 2026

Description, per a source:

This bill prohibits federal elected officials, political appointees, and Executive Branch employees… https://t.co/eZZ9BmAMgJ

Some prediction market operators have already implemented internal safeguards. Kalshi, a federally regulated platform, publicly stated that it already prohibits the type of activity described in the bill. Kalshi cited provisions in its rulebook that prohibit trading by individuals with access to material nonpublic information about listed contracts.

Those rules, enforced under Kalshi’s regulatory framework, are intended to prevent market manipulation and conflicts of interest. The company’s response indicates a growing divide between regulated platforms and less constrained on-chain markets, where enforcement mechanisms are often limited.

If passed, the legislation could set a precedent for how governments globally approach the regulation of prediction markets tied to political outcomes. The bill aims to reduce reputational and ethical risks while addressing insider access.

For the prediction market industry, the proposal suggests that regulatory scrutiny will likely increase as adoption grows. Platforms that can show strong compliance frameworks may find themselves at an advantage. On the other hand, others may face pressure to adopt clearer rules around participant eligibility.

As prediction markets continue to expand, the debate over who gets to trade on political knowledge is moving from social media to formal legislation.

The post Lawmakers Move to Bar Government Insiders from Trading Prediction Markets appeared first on DeFi Rate.

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