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Points of Focus
- ESMA said insider trading and manipulation risks “reach new levels” in prediction markets, citing crypto trading, wash trading, and coordinated manipulation.
- European companies must assess whether event contracts fall under existing restrictions on binary options and other investor-protection rules.
- US event exchanges continue adding new contracts while facing state-level legal challenges and CFTC enforcement over insider trading.
The European Securities and Markets Authority (ESMA) has warned that prediction markets are “rife with insider trading,” as European regulators scrutinize the sector and US platforms face growing legal and enforcement pressure.
The ESMA said the growing use of prediction markets for sports, elections, wars, and other real-world events is creating new market-integrity risks. Crypto-based trading can make insider trading, wash trading, and coordinated manipulation harder to detect, according to the regulator.
“Market manipulation and insider trading risks reach new levels in the context of prediction markets,” the ESMA said in its latest risk assessment, pointing to a growing number of incidents involving traders with access to confidential information.
Europe applies existing binary option rules
In July, the ESMA told companies to assess whether their event contracts fall under existing measures covering binary options. Contracts that qualify as financial instruments can fall under national measures restricting the marketing, distribution, or sale of binary options to retail investors. The ESMA said some products may also qualify as bets under national gambling laws.
Polymarket and Kalshi are still pursuing European expansion, with Polymarket joining Brussels-based Blockchain for Europe and Kalshi holding discussions with regulators outside the US.
US exchanges keep adding event contracts
The US product pipeline has continued growing. Commodity Futures Trading Commission records show that KalshiEX certified three new weather contract series on Sept. 9, covering New York City, the Chicago metropolitan area, and coastal Los Angeles.
Sports have become one of the sector’s largest areas of expansion. Gemini recently added NFL game and quarter totals to its prediction-market offering, while a recent study found that three of the five major US professional sports leagues have prediction-market partners.
Expansion has also triggered state-level legal fights. An August Ninth Circuit ruling allowed Nevada to apply its gaming laws to Kalshi sports contracts, part of a broader battle over federal event-contract oversight and state betting rules.
Insider cases put market surveillance under pressure
The CFTC has also begun building an enforcement record around the use of confidential information in prediction markets.
On Aug. 28, the CFTC ordered former White House teleprompter operator Gabriel Perez to pay about $172,000 after finding that he used advance access to presidential speeches to trade mention contracts. Perez generated $107,539 in profits and received a three-year trading ban.
The case followed two other CFTC actions this year involving confidential Google data and classified information about the operation to capture former Venezuelan President Nicolás Maduro. The agency alleges those trades generated around $1.2 million and more than $404,000 in prediction-market profits, respectively.
A Sept. 9 study of more than 11,000 markets found that 94% experienced a probability shift of at least 10 percentage points from a single trade. Kalshi and Polymarket disputed the methodology.
Europe and the US are now developing distinct regulatory paths around the same market-integrity risks.
In Europe, companies must assess whether qualifying event contracts fall under existing binary-option restrictions and other investor-protection rules.
US exchanges continue listing new products under the federal derivatives framework, alongside CFTC enforcement and an unresolved fight with states over sports event contracts.
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