Focus: Prediction markets' push into US stocks raises regulatory alarm bells

• Nearly 60% of Polymarket's equity-linked bets target individual stock moves, with Nvidia, Alphabet, Apple, and Tesla being the most popular, according to blockchain research firm Allium's analysis through early September
• Under US law, single-stock contracts are generally classified as security-based swaps regulated by the SEC and restricted to professional investors, but prediction markets are marketing these products to retail customers outside traditional protections
• Polymarket International's offshore structure places it largely beyond US regulatory reach, creating surveillance challenges for authorities, while regulators debate whether the CFTC or SEC should serve as primary watchdog

Summary: Prediction Markets Expansion into US Equities Raises Regulatory Concerns

Prediction markets like Polymarket and Kalshi are rapidly expanding into equity-linked trading, drawing regulatory scrutiny over investor protection and market oversight concerns. According to blockchain research firm Allium, Polymarket traders have wagered over $220 million across approximately 31,000 equity-linked markets through early September.

Key Figures:

• Nearly 60% of Polymarket's equity-linked bets target individual stock movements
• Most popular stocks: Nvidia, Alphabet (Google), Apple, and Tesla
• One trading wallet generated $175,000 in volume through roughly 1,300 Apple trades
• Kalshi currently offers around 2,500 markets on indexes and corporate Key Performance Indicators (KPIs)

Regulatory Issues:

US law generally classifies single-stock contracts as security-based swaps (SBS), which are SEC-regulated and typically restricted to professional investors. Legal experts warn that prediction markets operate outside many investor protections and market surveillance rules governing traditional exchanges. The SEC and CFTC are reviewing regulations, with both agencies seeking public feedback on oversight responsibilities.

Market Implications:

While still small compared to traditional stock markets, these platforms allow 24/7 trading and multiple betting positions on company performance—features not available in standard equity markets. However, they lack equivalent investor protections, and studies indicate most traders lose money.

Polymarket's offshore structure particularly concerns regulators, as it operates largely beyond US watchdog reach. Concerns include potential insider trading on KPI contracts and market manipulation risks. California Democrat Representative Adam Schiff and other lawmakers have called for stricter oversight, arguing the industry shouldn't circumvent securities laws by repackaging traditional financial products as prediction contracts.

Both platforms claim they monitor for misconduct and collaborate with regulators, with Polymarket stating it blocks US users from its international platform.