By Anirban Sen and Manya Saini
March 10 (Reuters) - Executives from top U.S. exchanges said on Tuesday prediction markets require consistent regulation to protect investors as the fast-growing asset class draws a surge of new users.
Prediction markets let users trade contracts tied to the outcome of real-world events, ranging from elections and policy decisions to economic indicators and sports results.
Supporters say the markets aggregate collective forecasts into prices that reflect the likelihood
of an outcome, though critics argue they resemble gambling and are susceptible to market manipulation.
"Markets thrive when we have consistent regulation, and it allows investors, first of all, to be protected," Nasdaq CEO Adena Friedman said at a panel discussion at the FIA Global Cleared Markets Conference.
"We are going to the SEC, because the options markets are governed by the SEC, and we want to make sure that within the confines of the rule base that we operate it in, we can create a construct that will work for investors."
Interest in prediction markets surged during the 2024 U.S. presidential race, when traders flocked to platforms to wager on the outcome, and the sector has since attracted billions in funding from venture investors and traditional financial heavyweights.
CME Group CEO Terry Duffy also said the best way for prediction markets to grow was to have "solid regulation" around them that can endure across multiple administrations and not be subject to changes with each new government.
"I think that's the biggest problem we have, especially with crypto and especially with predictions," Duffy added.
Executives also emphasized the need to protect customers from market manipulation as novel trades emerge. Some markets on Polymarket's platform include the number of posts billionaire Elon Musk will make on his social media platform in a week and whether the Iranian regime will fall by June 30.
For exchanges, prediction markets represent a potential new frontier in derivatives trading. Analysts say the products can draw a wider pool of retail traders and boost trading volumes, offering exchanges a chance to diversify revenue as competition intensifies in traditional futures and options markets.
NYSE-parent Intercontinental Exchange said in October it would invest up to $2 billion in Polymarket, while CME launched a prediction markets platform in five U.S. states in December with sports betting firm FanDuel.
Earlier this month, Nasdaq also sought approval from the U.S. Securities and Exchange Commission to roll out prediction markets options on a major stock index.
(Reporting by Anirban Sen in Boca Raton, Florida and Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri)
