The Rise of Equity‑Linked Prediction Platforms
Prediction markets that let users bet on the future performance of companies have moved beyond sports and elections into the heart of Wall Street. Polymarket and Kalshi, the two most visible players, now host tens of thousands of markets that track individual stock moves, key performance indicators (KPIs) and index levels.
A blockchain‑based analysis by Allium, commissioned for Reuters, shows that traders have wagered more than $220 million on roughly 31,000 markets through early September. Nearly 60 % of that volume is tied to single‑stock outcomes, with Nvidia, Alphabet, Apple and Tesla topping the list.
How the Bets Work
Unlike traditional exchanges, these platforms allow a “yes” or “no” wager on whether a stock will hit a specified price by a set date. Some traders employ arbitrage strategies that profit regardless of the outcome, as one wallet identified in the Allium study generated $175,000 from about 1,300 Apple‑related trades.
Kalshi, which does not yet offer individual‑stock contracts, provides around 2,500 daily markets on indexes and corporate KPIs such as iPhone launches and Tesla deliveries. Both platforms operate 24/7, appealing to retail traders and institutional investors looking for alternative hedging tools.
Regulatory Gaps and Growing Concerns
Equity‑linked contracts fall outside the protections and surveillance that govern regulated exchanges. Legal scholars warn that if these markets expand, they could influence the very stocks they track and erode regulators’ ability to police trading.
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have both indicated that they are reviewing the appropriate regulatory framework. Under U.S. law, contracts tied to a single stock are generally treated as security‑based swaps (SBS), a derivative category overseen by the SEC and largely restricted to professional investors.
Polymarket’s offshore legal structure, which places it largely beyond U.S. jurisdiction, further complicates oversight. The company claims to monitor for misconduct and to refer suspicious activity to U.S. authorities, while a spokesperson emphasised that “market integrity is central to how we operate.”
Who Should Take the Lead?
In June, the SEC and CFTC jointly sought public comment on whether one agency should assume primary responsibility. Traditional financial firms and consumer groups favour the SEC, citing its expertise in securities law. Former SEC official Ben Schiffrin, now with the nonprofit Better Markets, argues that the SEC is best positioned to police potential insider trading in KPI contracts.
Senator Adam Schiff has also called for Congress to prevent the industry from sidestepping securities laws by packaging conventional financial products as prediction contracts.
The Bottom Line
While still a small fraction of the overall U.S. equity market, the rapid growth of prediction markets introduces new risks for investors and regulators alike. The lack of standard protections, the potential for market manipulation, and the challenges of cross‑border enforcement all point to a need for clear regulatory guidance.
What to Watch
- Upcoming rule‑making or guidance from the SEC or CFTC on the classification and oversight of equity‑linked prediction contracts. - Any enforcement actions or investigations into market manipulation or insider trading within these platforms. - Further expansion of individual‑stock markets by Kalshi or new entrants, which could increase the scale of the issue. - Legislative proposals that might tighten securities law coverage for prediction markets.
Keeping an eye on these developments will be crucial for traders, regulators and policymakers as the industry continues to evolve.