Prediction markets are expanding further into US equities, raising questions over how contracts linked to stocks and corporate events should be regulated, according to Reuters.
Polymarket International introduced individual stock markets last October, with more than $220m wagered across approximately 31,000 equity-linked markets through early September, according to blockchain research firm Allium's analysis for Reuters.
Nearly 60% of that activity involved individual stock movements, with Nvidia, Alphabet, Apple and Tesla among the most popular companies. Other contracts were tied to exchange-traded funds and stock indexes.
The contracts typically allow traders to take yes-or-no positions on whether a share price or index will reach a specified level by a particular date.
Kalshi does not currently offer individual stock contracts. However, it offers around 2,500 markets on indexes and corporate key performance indicators on a given day. These include events such as iPhone launches and Tesla vehicle deliveries.
The growth is creating regulatory questions because prediction markets do not operate under all the same investor-protection and market-surveillance requirements as traditional securities exchanges.
Under US law, contracts linked to individual stocks can generally qualify as security-based swaps, which fall under Securities and Exchange Commission oversight and are largely restricted to professional investors. Legal experts told Reuters that some corporate performance contracts could potentially fall into the same category.
The SEC and Commodity Futures Trading Commission jointly sought public feedback on the issue in June, including which regulator should take the primary role.
Concerns also extend to potential insider trading involving company-specific events and the ability of regulators to monitor offshore activity.
The scrutiny comes amid rapid industry growth. In June, Polymarket's annualized revenue exceeded $1bn, about six weeks after the company opened its US exchange.
Polymarket's annualised revenue surpassed $1bn in June, Reuters previously reported
