The European Securities and Markets Authority (ESMA) has dedicated a separate section to market forecasting in its latest risk monitoring, indicating that there are significant risks of insider trading and market manipulation in this area. The agency also pointed out that relevant platforms have not yet formed large-scale markets within the EU, and the main reason is not a lack of demand, but rather that existing regulatory rules set relatively high barriers for retail participation.
ESMA Lists three cases
ESMA mentions three types of events in the report to illustrate the risk characteristics of predicting markets.
- Just a few hours before Iran was attacked in February this year, a group of newly created wallets placed bets in advance and made a profit of about $1.2 million.
- By May, according to the on-chain analysis firm Bubblemaps, 9 associated accounts had been identified, with a cumulative profit of approximately $2.4 million from bets related to Iranian events, achieving a win rate of 98%.
- A U.S. Army master sergeant was prosecuted for profiting over $400,000 on Polymarket due to news surrounding the arrest of Venezuelan President Maduro.
The report also mentioned that in April, data sensors used for settling the Polymarket weather contract appeared to have been subject to human intervention, and France's national meteorological service, Météo o-France, has reported this incident to the police.
The platform should carry out its actions mostly afterwards.
ESMA believes that most of the platform's response measures occur after the profit has been realized, which is generally passive in nature. In other words, abnormal transactions often happen first, and then the platform investigates the accounts, restricts access, or cooperates with investigations based on the results.
However, Polymarket, the Chief Legal Officer Neal Kumar, provided a different interpretation of the cases related to Maduro. He stated that such markets are not truly anonymous, and those who violate the rules may still be identified and held accountable in the end.
The EU applies multiple rules.
ESMA indicates that the limited development of the market in the EU is more due to the complex classification of regulations. Event contracts may be identified as financial instruments under MiFID II, or they may fall within the scope of MiCA, or in some member states, they may be regarded as gambling activities.
If these related products are classified as financial instruments, they are usually categorized as derivatives. According to the rules of various countries that are consistent with the ESMA binary options intervention measures, such products are in principle not allowed to be sold to retail investors.
Kalshi and Polymarket are currently restricted for users in some EU countries, but not all member states are affected. ESMA stated that it is unclear why not all EU member states are included in the restrictions. Both platforms prohibit the use of VPN, but regulatory authorities believe that the effectiveness of such measures in practice remains uncertain. Currently, only Malta is drafting a specific framework.
Trading volume is still on the rise.
The data used in ESMA is from an earlier period, while the chart for Kalshi covers up to November 2025, and that for Polymarket covers up to January 2026. At that time, the quarterly trading volumes for both were approximately 8.8 billion US dollars and 12 billion US dollars respectively.
But as of June this year, The Block reported that the combined monthly trading volume of the two platforms had risen to 44.8 billion US dollars, with Kalshi reaching 31.5 billion US dollars in a single month. The World Cup-related bets drove the growth in trading. ESMA also stated that sports contracts accounted for 73% of Kalshi's trading volume, while Polymarket's trading was distributed across political, sports, and crypto themes.
In addition, ESMA cites research from The Wall Street Journal and Bloomberg stating that the profits of Polymarket are highly concentrated, with 67% of the earnings going to 0.1% of the accounts, while the majority of users are in a state of loss overall.
Additional information:Compared to Europe's more cautious attitude, the U.S. Commodity Futures Trading Commission (CFTC) is engaged in discussions regarding the legal boundaries of event-based contracts. The focus of the controversy has shifted from whether such contracts are allowed at all to which types of contracts are more likely to facilitate manipulation.
