Securities regulators in Massachusetts have launched an investigation into Robinhood’s prediction markets.
Massachusetts Secretary of State Bill Galvin confirmed that his office issued a subpoena to Robinhood to gather details on its marketing strategies and the number of Massachusetts-based users who participated in sports event contracts linked to college basketball tournaments.
Concerns over gambling and brokerage accounts.
Galvin has expressed concerns about Robinhood’s prediction markets, stating that the platform links a gambling event to a brokerage account. He pointed to the connection between a popular college sports event and young investors, raising regulatory questions about the company’s approach.
Robinhood introduced its prediction markets on March 17, partnering with Kalshi, a platform regulated by the US Commodity Futures Trading Commission (CFTC). The offering allows users to place bets on the outcomes of events, including college basketball tournaments and the May federal funds rate.
This development follows Robinhood’s decision to cancel betting contracts for the Super Bowl on March 18 after the CFTC requested it. Despite this, a CFTC spokesperson stated there was no legal reason preventing Robinhood from offering such contracts.
Stock market response and regulator’s criticism.
Following the announcement of its prediction markets, Robinhood’s stock (HOOD) surged approximately 8% on the Nasdaq, according to data from Google Finance. Over the past 24 hours, HOOD’s stock rose by 9%, though pre-market trading slightly reduced those gains.Galvin criticized Robinhood’s new offering, referring to it as another marketing tactic to attract investors. He stated that the company has a history of using gimmicks to lure individuals away from traditional investing.
Growth of prediction markets and industry competition
Robinhood’s move into prediction markets comes as the industry gains traction. Betting contracts tied to real-world events have become increasingly popular, drawing interest from both retail and institutional investors.
Competing platform Polymarket gained significant attention ahead of the US presidential election, with users placing millions in bets on various outcomes. Supporters of different political candidates wagered on their preferred outcomes, with some securing substantial profits.
Sports betting has become one of the major sections within the expanding domain of prediction markets. According to a Robinhood spokesperson, these prediction markets will continue to increase in importance because the company intends to create a safe, regulated environment for retail investors.