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SCMP Editorial
Editorial
SCMP Editorial

Hongkongers should beware of prediction markets

Concerns including the potential for insider trading and contractual disputes make prediction markets a dangerous bet

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Online platforms style themselves as offering financial products similar to stocks or futures, but they are a form of gambling. Photo: Getty Images
SCMP Editorial
Editorials represent the views of the South China Morning Post on the issues of the day.
The surge in the popularity of prediction markets is troubling governments around the world amid concerns about the potential impact of their largely unregulated operations. Their customers buy and sell “shares” in the outcome of a diverse variety of events, from wars to the weather, election results and sport. The online platforms style themselves as offering financial products similar to stocks or futures, but they are a form of gambling, even though their operations differ from traditional bookmakers.

The two biggest players, Polymarket and Kalshi, both based in the United States, have seen transactions on their platforms soar in recent years. Their combined trading volume reached US$25.66 billion in May, a rise of more than 1,200 per cent from a year earlier. The growth is dramatic, and it raises concerns.

The platforms came under the spotlight in Hong Kong in April, when the government shelved plans to legalise betting on basketball because of uncertainty caused by the popularity of prediction markets. It was a prudent move. Chief Executive John Lee Ka-chiu described the extensive use of the platforms for sports betting as a worrying trend and said the government should regularly review the situation and mitigate potential risks.

The legal position of prediction markets and those who use them is coming under scrutiny. They operate in a grey area, apparently outside the regulatory framework provided by gambling laws and for financial products. There is a need for the situation to be critically examined and for clarity to be provided.

Concerns about the platforms include the potential for insider trading and ambiguous terms for prediction outcomes that might lead to contractual disputes over refusal to pay out.

Regulation is needed but will be difficult to enforce, especially with offshore sites that accept cryptocurrency from anonymous customers. The government should continue with its review of the situation and establish a way forward. Meanwhile, anyone in Hong Kong tempted to place wagers with the platforms should be wary of doing so. They lack the usual protection provided to consumers, and their use might be illegal.

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