Massachusetts’ high securities regulator has initiated an investigation into Robinhood’s latest determination to launch a prediction-markets hub. This platform permits customers to wager on the outcomes of varied occasions, together with the favored NCAA “March Madness” faculty basketball tournaments.
The investigation, led by Secretary of State Invoice Galvin, seeks to scrutinize the implications of linking sports activities betting to brokerage accounts, notably amongst youthful traders.
Robinhood Defends New Prediction Markets
Galvin expressed his considerations in an interview with Reuters, stating that Robinhood’s actions might be seen as a tactic to draw younger traders by what he described as a “gambling event.” He remarked, “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing.”
As a part of the investigation, Galvin’s workplace issued a subpoena to Robinhood, requesting detailed details about its customers in Massachusetts who’ve expressed curiosity in buying and selling faculty sports activities occasion contracts.
These occasion contracts allow merchants to guess on particular outcomes, creating alternatives for revenue throughout numerous sectors, together with sports activities, leisure, and politics. Nevertheless, their growing reputation has sparked a contentious debate, with proponents viewing them as a brand new asset class and critics likening them to playing.
The subpoena not solely seeks to establish customers with brokerage accounts who’ve requested to commerce these contracts but in addition calls for copies of Robinhood’s advertising supplies.
A spokesperson for Robinhood defended the prediction markets, asserting that they’re regulated by the US Commodity Futures Buying and selling Fee (CFTC) and are provided by CFTC-registered entities.
“Prediction markets have become increasingly relevant for retail and institutional investors alike,” the spokesperson acknowledged, emphasizing Robinhood’s dedication to offering these merchandise in a secure and controlled method.
Renewed Authorized Challenges
Robinhood has acknowledged that its prediction markets will likely be accessible throughout the US through the derivatives buying and selling platform KalshiEX, permitting prospects to guess on outcomes for the NCAA tournaments.
This launch on March 17 adopted the corporate’s latest scrapping of occasion contracts for the Tremendous Bowl, which occurred only a day after they had been launched on the request of the CFTC.
Regardless of the regulatory scrutiny, a CFTC spokesperson confirmed that the company discovered no authorized grounds to stop Robinhood from providing these contracts, as they’re listed on a CFTC-registered alternate.
Nevertheless, Galvin’s investigation is specializing in Robinhood’s inside communications relating to the choice to supply faculty sports activities occasion contracts, notably in gentle of the CFTC’s prior steerage.
This investigation shouldn’t be the primary authorized problem Robinhood has confronted from Galvin’s workplace. In 2020, the platform was accused of encouraging “inexperienced investors” to make “risky trades” by gamified options, resembling celebratory confetti for every executed commerce. The corporate finally agreed to pay $7.5 million in 2024 to resolve these claims and associated points from a knowledge safety breach investigation.
Featured picture from Shutterstock, chart from TradingView.com
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