From Sports and Elections to Apple and Tesla: Prediction Markets Expand to Wall Street as Regulatory Concerns Grow

Independent data and regulatory experts point out that prediction markets are rapidly becoming an alternative venue for traders to bet on U.S. companies such as Tesla, Inc. (TSLA.US) and Apple Inc. (AAPL.US), raising concerns about investor protection and market oversight. This booming industry, pioneered by Polymarket and Kalshi, gained fame by allowing speculators to bet on almost anything, covering sports events, elections, and military actions. Over the past year, according to independent research and reviewswhich further reveals this rapidly growing segment of the industrythey have expanded into more traditional Wall Street territory, offering tens of thousands of markets on stock price movements, company data, and other corporate events that often drive share prices. Although still insignificant compared to the underlying stock market, equity-linked prediction markets are opening up a new venue for investors to bet on U.S. securities outside many of the investor protection and market surveillance rules applicable to regulated exchanges. Legal experts warn that if these products continue to expand rapidly, they could eventually affect trading in the underlying stocks and weaken regulators' ability to oversee the market. "This is a new frontier in market structure. This is innovation on steroids," said Yesha Yadav, vice dean of Vanderbilt University Law School, adding that regulators should respond to these new products "urgently and creatively." Polymarket and Kalshi say they closely monitor misconduct and regularly refer cases to U.S. authorities, cooperating with regulators. "Market integrity is at the core of our operations," a Polymarket spokesperson said, adding that the company also works to prevent U.S. users from using its international platform. The U.S. Securities and Exchange Commission (SEC) declined to comment, and the Commodity Futures Trading Commission (CFTC) did not respond to requests for comment. These agencies say they are reviewing the regulation of equity-linked prediction markets. NVIDIA Corporation, Alphabet Among the Most Popular Underlyings Polymarket International launched individual stock markets last October. According to an analysis prepared by blockchain research firm Allium, as of early September, traders had bet more than $220 million across about 31,000 stock-linked markets. Allium found that nearly 60% of those bets were related to individual stock movements, with NVIDIA Corporation, Alphabet Inc. Class C parent Alphabet, Apple Inc., and Tesla, Inc. being the most popular, while the rest were bets on markets based on ETFs or stock indices. These listed companies did not respond to requests for comment. Traders typically bet "yes" or "no" on whether a stock or index will reach a certain level by a specific date. One wallet identified by Allium generated $175,000 in trading volume through about 1,300 Apple Inc. trades, building positions to produce small profits regardless of whether the "yes" or "no" contracts paid out. Kalshi currently does not offer individual stock bets, but according to reviews of Kalshi's website and the data it provides, on a given day it offers about 2,500 markets on indices and company "key performance indicators" (KPIs), such as iPhone launches and Tesla, Inc. delivery volumes. Kalshi did not respond to a request for trading volume data. Although aimed at retail investors, prediction markets are also attracting institutional investors by marketing event contracts as an alternative way to hedge traditional economic and market risks. Unlike the stock market, prediction markets allow investors to trade around the clock and express multiple views on a company and its performance. But legal experts say they do not provide the same protections and rights, and multiple studies show that the vast majority of traders lose money. James Angel, a finance professor at Georgetown University, said Polymarket International's offshore legal structure makes it largely beyond the jurisdiction of U.S. regulators, which also makes it difficult for authorities to know what is happening in these markets. "This is clearly the kind of thing our regulators should have nightmares about," he added. Polymarket's newer CFTC-regulated U.S. exchange does not offer individual stock markets, but it does offer a handful of KPI markets. Dispute Over Regulatory Jurisdiction Heats Up The CFTC says it should regulate prediction markets because they are effectively trading derivative contracts, but calls are growing for the SEC to also step in. Under U.S. law, contracts linked to a single stock are generally treated as security-based swaps (SBS), a category of derivatives regulated by the SEC and largely limited to professional investors. Legal experts say some KPI contracts may also qualify as SBS, although a Kalshi spokesperson disagreed. A Polymarket spokesperson said the company is working with both agencies to study how swap and SBS definitions apply to new types of event contracts. The two regulators jointly sought public comment in June to discuss these issues and whether one of them should become the primary regulator. Traditional financial firms and consumer groups want the SEC to lead because it has the expertise. "You can imagine insider trading happening in these KPIs just as easily as in stocks," said Ben Schiffrin, a former SEC official who is now director of securities policy at the nonprofit Better Markets. Regulating this is "the SEC's job," he said. Several lawmakers, including California Democratic Senator Adam Schiff, have also raised concerns about prediction markets. In a statement, Schiff said Congress should not allow the industry to "wrap traditional financial products in the guise of prediction contracts" to circumvent U.S. securities laws.