Prediction markets' push into US stocks raises regulatory alarm bells

Washington, September 28 - Prediction markets, once a niche form of trading, are expanding into US stocks, sparking regulatory concerns about investor protection and market oversight, according to data and regulatory experts. The industry, led by Polymarket and Kalshi, has seen tremendous growth, offering tens of thousands of markets on stock moves, company data, and other corporate events that can influence share prices, according to research and a Reuters analysis.

While still a small fraction of the overall stock market, these equity-linked prediction markets provide a new platform for speculating on US securities outside the protections and surveillance rules that govern regulated exchanges. Legal experts warn that the rapid growth of these markets could eventually affect trading in the underlying shares and make it harder for regulators to monitor the market.

Experts urge regulatory agencies to address these new products "urgent and creative" and prevent potential insider trading within these markets.