EU Regulator Says Prediction Markets Are 'Rife With Inside Trading'

In brief

• EU regulator ESMA devoted a section of its latest risk monitor to prediction markets, citing insider trading, manipulation and retail harm.
• It says the platforms have gained little traction in the EU because binary options rules bar selling event contracts to retail investors.
• U.S. regulators have taken the opposite course, arguing over which contracts to allow rather than whether to allow any.

Prediction markets are "rife with inside trading," the European Securities and Markets Authority said in a risk monitor giving the sector its own chapter.

It lists three episodes. New wallets made $1.2 million hours before February's strike on Iran; by May, Bubblemaps had traced nine linked accounts to $2.4 million of Iran bets that won 98% of the time. A U.S. Army master sergeant was charged over $400,000 of Polymarket profits on the capture of Venezuelan president Nicolás Maduro. And in April, suspected tampering with the weather sensors used to settle Polymarket contracts prompted Météo-France to file a police complaint.

Platform responses are "largely reactive," ESMA said, beginning after the profits are taken. Polymarket's chief legal officer, Neal Kumar, drew the opposite lesson from the Maduro case, arguing that, "It's not anonymous—you will be found just like this guy."