Manipulation, Insider Information, and Regulation in Leveraged Event-Linked Markets
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arXiv
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| Format: | Preprint |
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2026
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| _version_ | 1866914553782075392 |
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| author | Nechepurenko, Maksym |
| author_facet | Nechepurenko, Maksym |
| contents | The introduction of leverage on prediction-market event contracts raises three structurally distinct questions that have not been addressed jointly: how leverage changes manipulation incentives, how it interacts with informed-trading rents, and how regulatory frameworks should respond. This paper develops a theoretical framework for the first two and a synthesis of the existing regulatory landscape for the third. The principal analytical move is a two-axis manipulation taxonomy distinguishing market-price manipulation from real-world outcome manipulation, where the manipulator affects the underlying event itself. Continuous-underlying derivative markets generally do not make outcome manipulation a venue-level payoff channel; event-linked markets do. Within this taxonomy, leverage plays asymmetric roles: it scales market-price manipulation linearly but shifts the cost-benefit threshold for outcome manipulation, and it scales informed-trading rents in three ways (direct multiplication, Sharpe-ratio preservation, detection-cost amortization). Section 7 connects Paper 1's pre-emption and halt-protocol findings (CC-007b, CC-008) to three manipulation channels: pre-emption introduced by the dynamic-margin engine, halt-arbitrage introduced by the resolution-zone halt protocol, and strategic bad-debt-shifting that no engine in Paper 1's framework family addresses. The framework's manipulation-resistance contribution is a re-allocation of attack surface, not a net reduction. The regulatory synthesis covers principal jurisdictions (US, EU, UK, Singapore, offshore) and identifies three regulatory-arbitrage pathways. The paper concludes with 14 recommendations for venue operators, regulatory bodies, and the research community, separated into framework-independent and framework-conditional categories. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2605_10486 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Manipulation, Insider Information, and Regulation in Leveraged Event-Linked Markets Nechepurenko, Maksym Trading and Market Microstructure General Economics Economics General Finance The introduction of leverage on prediction-market event contracts raises three structurally distinct questions that have not been addressed jointly: how leverage changes manipulation incentives, how it interacts with informed-trading rents, and how regulatory frameworks should respond. This paper develops a theoretical framework for the first two and a synthesis of the existing regulatory landscape for the third. The principal analytical move is a two-axis manipulation taxonomy distinguishing market-price manipulation from real-world outcome manipulation, where the manipulator affects the underlying event itself. Continuous-underlying derivative markets generally do not make outcome manipulation a venue-level payoff channel; event-linked markets do. Within this taxonomy, leverage plays asymmetric roles: it scales market-price manipulation linearly but shifts the cost-benefit threshold for outcome manipulation, and it scales informed-trading rents in three ways (direct multiplication, Sharpe-ratio preservation, detection-cost amortization). Section 7 connects Paper 1's pre-emption and halt-protocol findings (CC-007b, CC-008) to three manipulation channels: pre-emption introduced by the dynamic-margin engine, halt-arbitrage introduced by the resolution-zone halt protocol, and strategic bad-debt-shifting that no engine in Paper 1's framework family addresses. The framework's manipulation-resistance contribution is a re-allocation of attack surface, not a net reduction. The regulatory synthesis covers principal jurisdictions (US, EU, UK, Singapore, offshore) and identifies three regulatory-arbitrage pathways. The paper concludes with 14 recommendations for venue operators, regulatory bodies, and the research community, separated into framework-independent and framework-conditional categories. |
| title | Manipulation, Insider Information, and Regulation in Leveraged Event-Linked Markets |
| topic | Trading and Market Microstructure General Economics Economics General Finance |
| url | https://arxiv.org/abs/2605.10486 |