ESMA calls prediction markets 'rife with insider trading' in its biannual risk report

The phrase does different work depending on which contract it describes. Nobody trading a hurricane contract can change whether the storm reaches Hawaii before 2027, so an informed buyer pushes the price toward the answer, and Hanke and Koppl grant that case ^[10]. On the Polymarket contract that pays a dollar if the Fed leaves rate policy unchanged in September, an FOMC member who holds it also sets the outcome, and the authors argue the price then cannot be treated as objective truth ^[11]. Information leakage makes a forecast sharper and the trade worse for whoever is on the other side of it.

Their evidence that policymaker trading is not hypothetical is 2021. Fortune reported that two Fed officials had engaged in "extensive stock trading in 2020, when the Fed was spending trillions of dollars stabilizing financial markets and boosting the economy" ^[12]. One of the two, Fortune reported, "had invested in funds that owned mortgage-backed bonds, the same kind that the Fed" had been buying ^[13].

Then the money. 1789 Capital bought Polymarket shares after the 2024 election, when the company was worth under a billion dollars ^[6][7]. The column puts the value now at $21 billion ^[8]: more than twenty-one times the entry mark, and more than $20 billion of implied value on a stake bought below a billion ^[17][18]. The column calls that "naked Big Playerism" ^[15]. What the column reports as the intervening event is a permission. Citing the New York Times, it says the government had banned Polymarket from taking monetary wagers from US residents, "but last year a federal regulator granted it an operating license in the United States" ^[9].

That matters for who can act. The column does not say how many incidents ESMA counted or describe any ESMA measure against a named venue ^[19]. It does identify the agency tasked with regulating these markets in the US as the CFTC, and its chairman, Michael S. Selig, as one of the promoters ^[5].

In my view, the $21 billion mark prices a licence far more than it prices a European risk report. A sentence in a biannual publication changes the value of Polymarket only through people who need a document to justify staying out. Run it the other way. If European allocators, index providers or exchange counterparties start quoting the ESMA line in diligence, the volume that supports a $21 billion mark thins, and the mark was written when the venue was worth under a billion two years ago ^[7][17]. There is a third reading. Insiders trade, and insiders trading is volume. So a venue described as rife with insider trading can be worth more as a fee business while being worth less as a probability feed, and the buyers of those two things are not the same buyers ^[16].

The report is not an enforcement file, and the authors of the Fortune piece, Steve Hanke of Johns Hopkins and Roger Koppl of Syracuse, are writing commentary in their own names ^[14].