CFTC says it will use AI tools to spot insider trading on prediction markets

In short: The US Commodity Futures Trading Commission says it is using AI and other software to help catch insider trading and market manipulation in prediction markets.

What happened

The Commodity Futures Trading Commission, or CFTC, is the US agency that oversees prediction markets. These are markets where people place bets on real world events, like elections or wars, and the prices act like a crowd based forecast.

The agency’s chairman, Michael Selig, told WIRED that the CFTC is watching for suspicious trading by people in the United States, including people who access offshore platforms such as Polymarket. Polymarket is crypto-based and is blocked in the US, but some users can still reach it with a VPN, which is a tool that can hide your location online (like taking a back road to avoid a checkpoint).

Selig said the CFTC is staffing up and leaning on automation to handle large amounts of trading data. In simple terms, this means software looks for patterns that do not pass the smell test, then flags them for investigators. The CFTC also uses outside tools, including Chainalysis, which tracks activity on crypto networks, and Nasdaq Smarts, which helps detect market abuse.

The scrutiny comes after reports of suspiciously timed bets on major geopolitical events. So far, the story notes one US criminal case tied to Polymarket trades, involving a US Army special forces soldier arrested in April.

Why it matters

Prediction markets can reward people who have inside information, which can look a lot like insider trading. The CFTC’s message is that being offshore does not necessarily put these bets out of reach, especially if US based traders are involved.

Source: Arstechnica