From sports and elections to Apple and Tesla: Predicting market expansion as Wall Street regulatory concerns heat up
The Zhitong Finance App learned that independent data and regulatory experts pointed out that the prediction market is rapidly becoming an alternative place for traders to bet on US companies such as Tesla (TSLA.US) and Apple (AAPL.US), raising concerns about investor protection and market supervision.
This booming industry, pioneered by Polymarket and Kalshi, is famous for allowing speculators to bet on almost anything, from sporting events to elections and military operations. Over the past year, according to independent research and review — which further revealed this rapidly growing segment of the industry — they have expanded to more traditional Wall Street sites, providing tens of thousands of markets on stock price trends, company data, and other corporate events that often drive stock prices.
Although still insignificant compared to the underlying stock market, the equity-linked prediction market is opening up a new venue for investors to bet on US securities outside of many investor protection and market monitoring rules applicable to regulated exchanges. Legal experts warn that if these products continue to expand rapidly, they may eventually affect underlying stock transactions and reduce the ability of regulators to monitor the market.
“This is a new frontier in market structure. “This is a bloodshot innovation,” said Yesha Yadav, associate dean of Vanderbilt University Law School, adding that regulators should respond “urgently and creatively” to these new products.
Polymarket and Kalshi said they closely monitor misconduct and regularly refer cases to US authorities to cooperate with regulators. “Market integrity is at the core of our operations,” a Polymarket spokesperson said, adding that the company is also working to prevent US users from using its international platform. The US Securities and Exchange Commission (SEC) declined to comment, and the Commodity Futures Trading Commission (CFTC) did not respond to requests for comment. The agencies said they are reviewing the regulation of the forecasting market linked to stocks.
Nvidia and Alphabet are among the most popular targets
Polymarket International launched an individual stock market in October last year. According to an analysis prepared by blockchain research firm Allium, as of early September, traders were betting more than $220 million on about 31,000 equity-linked markets. Allium found that nearly 60% of the bets were related to individual stock trends; Nvidia, Google's parent company Alphabet, Apple, and Tesla were the most popular, while the rest were betting on ETF or stock index-based markets. The listed companies did not respond to requests for comment.
Traders usually bet “yes” or “no” on a stock or index reaching a certain level by a specific date. One wallet identified by Allium generated $175,000 in transaction volume through approximately 1,300 Apple transactions, and structured positions to generate small profits regardless of whether the “yes” or “no” contract paid out.
Kalshi currently does not offer individual stock bets, but according to a review of the Kalshi website and the data it provides, one day it provides about 2,500 markets for indices and the company's “key performance indicators” (KPIs), such as iPhone releases and Tesla deliveries. Kalshi did not respond to requests for trading volume data.
Although aimed at retail investors, the forecasting market is also attracting institutional investors by marketing event contracts as an alternative way to hedge against traditional economic and market risks. Unlike the stock market, the prediction market allows investors to trade around the clock and express multiple opinions about a company and its performance. But legal experts say they don't provide the same protections and rights, and multiple studies have shown that the vast majority of traders lose money.
James Angel, a finance professor at Georgetown University, said that Polymarket International's offshore legal structure makes it largely immune to US regulators, which also makes it difficult for the authorities to understand what is happening in these markets. “This is clearly something our regulators should have nightmares about,” he added. PolyMarket's newer CFTC-regulated US exchange doesn't offer individual stock markets, but it does offer a few KPI markets.
Regulatory ownership disputes heat up
The CFTC said it should monitor the forecasting market because they are actually trading derivatives contracts, but calls for the SEC to also step in are growing louder.
Under US law, contracts linked to a single share are generally considered securities swaps (SBS), which are a type of derivative regulated by the SEC and are mainly restricted to professional investors. Legal experts said that some KPI contracts may also qualify for SBS, although Kalshi's spokesperson objected otherwise. A Polymarket spokesperson said the company is working with the two institutions to study how the swap and SBS definitions apply to new event contracts.
The two regulators jointly solicited public comments in June to discuss these issues and whether one of them should become the main regulator. Traditional finance companies and consumer groups want the SEC to take the lead because it has the expertise. “You can imagine insider trading happening in these KPIs as easy as in stocks,” said Ben Schiffrin, a former SEC official and now head of securities policy at the non-profit organization Better Markets. It's the “SEC's responsibility” to regulate, he said.
Several lawmakers, including California Democratic Senator Adam Schiff, also raised concerns about predicting the market. In a statement, Schiff said Congress should not allow the industry to “circumvent US securities laws by packaging traditional financial products in the name of predictive contracts.”