Tuesday, September 29
Skinners’ Hall, London
5 Key Takeaways from the TT Regulatory Roundtable
The institutional adoption of prediction markets, artificial intelligence and the potential of 24/7 trading is injecting unprecedented complexity into compliance programs. But while the markets are evolving at breakneck speed, one fundamental truth remains: the regulatory requirements have not changed. For trading firms, this means compliance workflows must urgently evolve to accommodate entirely new asset classes and contracts. To help firms navigate this shifting landscape and avoid regulatory scrutiny, together with Foley & Lardner, we recently co-hosted an exclusive regulatory roundtable in Chicago.
1. Event contracts are new products, but the same old rules apply.
The rapid rise of prediction markets and event contracts presents massive opportunities for institutional trading firms. However, it also brings a cloud of regulatory uncertainty.
The panel’s consensus was clear: if a contract is traded as a futures product, futures rules apply. Wash trading, spoofing and trading on material non-public information are strictly prohibited, whether you are trading a gold future or an event contract on a high-profile election.
The CFTC has already begun enforcing its rules in prediction markets. Jim Lundy, Partner in Foley & Lardner’s Securities Enforcement & Litigation department, warned that regulators are actively investigating breaches: “Those who engage in insider trading and other illegal activities in prediction markets are going to see parallel criminal actions.”
2. Calibrating surveillance for event contracts is a challenge, but imperfect action is better than waiting for perfect guidance.
The threat of sanctions means firms must adapt their surveillance processes to the unique, binary nature of event contracts. However, compliance teams face a data deficit.
Because many native prediction market venues were originally built for retail participants, traditional institutional data points—like drop copies, granular timestamps or trader IDs—are often missing.
As Head of Surveillance at TT, I am increasingly asked how to configure alerts under these constraints. My advice? Don’t wait for perfect guidance. Use the frameworks you already have.
- Be proactive: Base your prediction market surveillance on existing models designed to catch spoofing, wash trading and price ramping.
- Mitigate retroactive risk: Treating event contracts like traditional futures right now safeguards your firm against future retroactive regulatory enforcement while industry best practices catch up.
3. Effective AI surveillance is based on a hybrid of probabilistic and deterministic approaches.
AI in surveillance is longstanding, but the governance frameworks and approaches to its deployment are fast changing. I have worked with machine learning-based surveillance models since the mid-2010s. At the event, I drew an important distinction between probabilistic and deterministic models of AI.
Probabilistic AI, which is typically based on unsupervised, pattern-finding models, can identify manipulation signals that a human analyst would not have thought to look for. Deterministic AI, on the other hand, operates within set parameters defined in advance and, crucially, can be explained to regulators or internal committees.
In practice the most effective approach is a hybrid between the two. This combines the explainability regulators require with the pattern-discovery power that makes AI genuinely valuable.
The panel also raised important governance questions around AI. These cover monitoring but also the threat of data leakage.
Shifra Katz, CCO, DV Trading, warned that AI models train on the data you provide and that there was a risk of the loss of IP by allowing people to use them broadly. She said that there were further compliance questions: “To what extent are prompts discoverable?” she asked. “Are we expected to treat them as business communications? If we deploy AI agents in a compliance context, do those prompts need to be retained the same way we would retain any other business record?”
4. 24/7 trading is coming, but the operational and compliance infrastructure is not ready.
There was broad consensus that markets are on an inevitable path to round-the-clock trading in all asset classes, not just crypto. The question today is how risk teams and compliance functions can build out their capabilities to support it.
Aaron Leong, CCO of the FCM at Societe Generale, said: “If we are going to offer 24/7 trading, we need to ensure we can staff our systems on a 24/7 basis. If a compliance issue arises, someone needs to be available.”
Stablecoins are seen as an essential component of moving money in a 24/7 environment. However, the regulatory framework governing their use, including questions of who counts as the depository and whether holdings are sufficiently liquid under existing CFTC rules, remains unsettled.
Colin Love, head of compliance at Arb Trading, also pointed to a deeper structural challenge: “The documentation and supervision standards we have always applied are going to matter more, not less, as markets run continuously,” he said.
“Kill switches, limits and credit controls provide the overarching guardrails, but ultimately you cannot get away from the need for a human watching those trading systems, capable of shutting things down if necessary.”
5. FCMs and prop firms face different challenges, but have the same obligations.
A major takeaway from the roundtable was the necessity of tailoring compliance programs to a firm’s specific risk profile.
FCMs face a challenge of breadth: Clearing for diverse customers across various strategies requires highly flexible, wide-reaching surveillance.
Prop firms face a challenge of depth: They must intimately understand and document their internal trading strategies to respond credibly under regulatory scrutiny.
Regardless of your business model, documentation and the ability to demonstrate a reasonable, good-faith supervisory process are your ultimate shields in a fast-moving regulatory environment.
Future-Proof Your Compliance with Trading Technologies
As markets grow more complex, the burden on compliance teams will only increase. TT’s multi-asset trade surveillance platform is purpose-built to alleviate this pressure—offering highly configurable models, AI-assisted alerting and the agility to adapt to new products as they emerge.
Get in touch with the TT team today to learn how we can support and scale your compliance program.