Key facts
- Prediction markets are expanding into US stock-related wagers, raising concerns about investor protection and market oversight.
- Platforms like Polymarket and Kalshi are offering bets on stock movements and corporate events.
- Nearly 60% of the $220 million wagered on Polymarket's equity-linked markets was on individual stock moves, with Nvidia, Alphabet, Apple, and Tesla being the most popular.
- Legal experts warn that these markets could eventually influence underlying share trading and undermine regulators' ability to police the market.
- The SEC and CFTC are reviewing the regulation of equity-linked prediction markets and have jointly sought public feedback.
- US Senator Adam Schiff expressed concern that these markets could be used to sidestep securities laws.
Prediction markets are rapidly expanding into US stock-related wagers, creating new venues for speculation outside traditional financial regulations and raising alarms among regulatory experts and lawmakers. Platforms like Polymarket and Kalshi, which initially focused on events like elections and sports, are now offering markets on stock price movements, company data, and corporate events that typically drive share prices.
According to analysis by blockchain research firm Allium for Reuters, traders have bet over $220 million on approximately 31,000 equity-linked markets on Polymarket since its launch of individual stock markets last October. Nearly 60% of these bets were on markets tied to individual stock moves, with Nvidia, Alphabet, Apple, and Tesla being the most popular. The remaining wagers were on markets based on ETFs or stock indexes.
Legal experts warn that the growth of these markets could eventually influence trading in the underlying shares and complicate regulators' ability to police the market. Yesha Yadav, associate dean at Vanderbilt University Law School, described the situation as a "new frontier for market structure" and urged watchdogs to be "urgent and creative."
Polymarket and Kalshi state they monitor for misconduct and collaborate with regulators. A Polymarket spokesperson emphasized market integrity as central to their operations and noted efforts to block US users from its international platform. The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have stated they are reviewing the regulation of these markets and jointly sought public feedback in June.
James Angel, a finance professor at Georgetown University, expressed concern about Polymarket's offshore legal structure, which he believes places it beyond the reach of US watchdogs. While the CFTC asserts jurisdiction over prediction markets as derivatives, calls are growing for the SEC to take the lead, as contracts tied to single stocks are generally considered security-based swaps overseen by the SEC.
US Senator Adam Schiff has also voiced concerns, stating that Congress should not permit the industry to "sidestep America's securities laws by wrapping traditional financial products in the guise of prediction contracts."