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."
Why Europe has barely seen them
Prediction markets have not gained significant traction in the EU, ESMA said, putting that down to the rules rather than a lack of appetite. Event contracts can qualify as financial instruments under MiFID II, fall under MiCA, or count as gambling under national law. Where they are financial instruments they count as derivatives, and national rules mirroring ESMA's binary options intervention bar selling them to retail investors at all.
Kalshi and Polymarket restrict users in some EU countries but not all, and "it is unclear why all EU Member States are not included," ESMA said. Both ban VPNs, but their "practical effectiveness" remains uncertain. Malta alone is drafting a framework.
Volumes have surged since ESMA's data was collected. Its chart stops in November 2025 for Kalshi and January 2026 for Polymarket, at quarterly volumes of $8.8 billion and $12 billion. By June, The Block put their combined monthly volume at $44.8 billion in June, Kalshi alone taking $31.5 billion as the World Cup drew bettors in. ESMA reported that sports make up 73% of Kalshi's volume, while Polymarket splits across politics, sports and crypto.
The regulator cites a Wall Street Journal finding that 67% of Polymarket gains went to 0.1% of accounts, and a Bloomberg analysis that most users lose money.
Washington has taken the opposite course. The CFTC has defended its jurisdiction against states and proposed barring war and assassination contracts, while it and the SEC bring crypto perps onshore. The argument there is over which contracts are acceptable, with CME's Terry Duffy and Kalshi's Luana Lopes Lara clashing over manipulation at a CFTC roundtable in August.