SACRAMENTO – California Governor Gavin Newsom signed a landmark executive order on Friday prohibiting state public officials from using non-public information to trade on prediction markets. The move is a first-of-its-kind effort at the state level to address the growing concern of “political insider trading” on platforms where users bet on the outcomes of political and civic events.
The order establishes a clear ethical boundary, making it a violation of public trust for officials to leverage privileged information for personal financial gain on these emerging markets. Prediction markets, which operate on cryptocurrency and blockchain platforms like Polymarket as well as regulated financial exchanges like Kalshi, allow users to buy and sell shares in the outcome of future events, from election results to regulatory decisions.
“Public service is a public trust, and this action ensures that our officials are held to the highest ethical standards,” an official from the governor’s office said in a statement. “As new technologies create new opportunities, they also create new risks. We are closing a potential loophole before it can be widely exploited.”
Ethics watchdogs have warned that without clear rules, officials with advance knowledge—such as the outcome of a regulatory hearing, the details of a forthcoming policy, or a pending judicial appointment—could unfairly profit. This executive action treats such conduct as analogous to traditional insider trading in the stock market.
Legal analysts suggest this order modernizes state ethics rules for the digital age. “This is a necessary and proactive step,” said one ethics policy analyst. “The existing laws were written before anyone contemplated a market for political outcomes. California is setting a clear precedent that other states and even federal regulators will be watching closely.”
The long-term impact of the order may extend beyond California. It could increase pressure on the U.S. Commodity Futures Trading Commission (CFTC), which has federal oversight of these markets, to establish a national standard. It also sends a strong signal to prediction market operators that they must consider the legal and ethical guardrails of the jurisdictions they operate in, potentially influencing the types of markets they offer in the future.