EU regulator ESMA warns prediction markets are rife with insider trading and questions inconsistent geographic restrictions at Kalshi and Polymarket.
Regulation & Gov ·
The European Securities and Markets Authority has flagged prediction markets as riddled with insider trading, citing three documented cases including wallets that profited $1.2 million hours before a February strike on Iran and a U.S. Army master sergeant charged over $400,000 in Polymarket gains tied to Venezuelan political events. ESMA's latest risk monitor dedicates a chapter to the sector, noting that platform responses to such incidents tend to be reactive rather than preventative.
The regulator has also raised questions about the geographic enforcement practices of major platforms. Kalshi and Polymarket restrict access in some EU member states but not others, with ESMA questioning why coverage remains inconsistent across the bloc. Both platforms prohibit VPN use to enforce these restrictions, though their practical effectiveness remains uncertain. The limited uptake of prediction markets within the EU stems largely from regulatory barriers—binary options rules classify event contracts as derivatives and bar their sale to retail investors—rather than demand.
Meanwhile, U.S. regulators have pursued an opposite strategy. The CFTC has defended its authority to oversee prediction markets and proposed restrictions on specific contract types rather than the instruments as a whole. Prediction market volumes have surged significantly since ESMA's data collection window ended, reaching combined monthly volume of $44.8 billion by June, though the concentration of gains remains stark: research cited by ESMA found that 0.1% of Polymarket accounts captured 67% of all platform profits.