EU Regulator ESMA Identifies Insider Trading Risk in Prediction Markets

The European Securities and Markets Authority (ESMA) highlighted insider trading, market manipulation, and potential harm to retail investors within prediction markets. This assessment was included in a recent risk monitor report published on September 11, 2026.

What Happened

The European Securities and Markets Authority (ESMA) dedicated a section of its recent risk monitor to prediction markets, identifying them as “rife with inside trading.” According to the report, ESMA cited three specific incidents. In one case, new digital wallets reportedly acquired $1.2 million hours prior to a February strike on Iran. By May, Bubblemaps reportedly traced nine linked accounts to $2.4 million in Iran-related bets, achieving a 98% success rate.

Additionally, a U.S. Army master sergeant faced charges for reportedly securing over $400,000 in profits from Polymarket related to the capture of Venezuelan president Nicolás Maduro. In April, suspected tampering with weather sensors, used to settle Polymarket contracts, led Météo-France to file a police complaint. ESMA characterized platform responses to these incidents as “largely reactive,” often occurring after profits had been realized.

Key Details

• ESMA’s risk monitor dedicated a chapter to prediction markets, citing insider trading, manipulation, and retail harm (according to Decrypt).
• Prediction markets have reportedly gained minimal traction in the EU due to regulatory frameworks classifying event contracts as financial instruments or gambling (according to Decrypt).
• Where considered financial instruments, they are deemed derivatives, and national rules prohibit their sale to retail investors, mirroring ESMA’s binary options intervention (according to Decrypt).
• Kalshi and Polymarket restrict users in some EU countries, but not all, and ESMA noted uncertainty regarding the rationale for this selective restriction (according to Decrypt).
• ESMA reported that sports constitute 73% of Kalshi’s volume, while Polymarket’s volume is distributed across politics, sports, and crypto (according to Decrypt).
• A Wall Street Journal finding cited by ESMA indicates that 67% of Polymarket gains were reportedly concentrated among 0.1% of accounts (according to Decrypt).

Why It Matters

ESMA’s findings suggest that current European regulations, particularly those concerning binary options and the classification of event contracts under MiFID II or MiCA, have largely prevented significant retail investor engagement with prediction markets within the EU. The regulator’s concerns about insider trading, market manipulation, and potential retail harm underscore the regulatory challenges associated with these platforms. The reported disproportionate distribution of gains, with a small percentage of accounts receiving a large share of profits, and a Bloomberg analysis indicating that most users lose money, raise questions about market fairness and investor protection within the sector.

What’s Next

Malta is reportedly the only EU member state currently drafting a specific regulatory framework for prediction markets (according to Decrypt).

Originally reported by Decrypt·Published 11 Sep 2026, 12:06