Robinhood Markets Inc. and Susquehanna International Group are reportedly acquiring a regulated exchange that was previously affiliated with the now-closed cryptocurrency firm FTX. With this move in place, these companies are making a play for the expanding area of prediction markets.

Regarding this newly adopted strategy, reports indicate that the two firms are acquiring a majority stake in LedgerX. Currently, it is managed by Miami International Holdings Inc.

For this purchase to be effective, both buyers already have established strong ties to prediction markets. Susquehanna stated it serves as a market maker on Kalshi, a US-based leading prediction market exchange. On the other hand, Robinhood provides Kalshi’s event contracts to its retail investors. 

Analysts believe that this new agreement will enable Robinhood and Susquehanna to directly control the systems required to create and settle event contracts on their own terms, particularly as Wall Street, sports leagues, and crypto firms are competing to shape the future of regulated speculation.

Robinhood and Susquehanna’s move ignites controversy in the industry 

In a statement, JB Mackenzie, Vice President and General Manager of Futures and International at Robinhood Markets, acknowledged that Robinhood is receiving considerable attention from clients in prediction markets. “Our investment in infrastructure will help us provide an even better experience and more innovative products for our customers,” he added.

However, reports from reliable sources noted that the specifics of the agreement were not disclosed. The details that were made public are a recent statement from Miami International Holdings, Inc., trading as MIAX, revealing that it will sell about 90% of the exchange to a group headed by Robinhood. 

Additionally, it was reported that Robinhood would be the “controlling partner” in this new initiative. At the same time, Susquehanna would play the role of a “day-one liquidity provider,” ensuring that clients have a reliable trading partner.

Meanwhile, like other initiatives, Robinhood and Susquehanna’s project also has a shortcoming. According to sources, the development raises concerns among individuals in the ecosystem about undermining Kalshi. This is because it depends on its collaboration with Robinhood to expand its reach for its contracts. The funding was concluded after analysts realized that more than half of Kalshi’s business was recently derived from Robinhood. 

This conclusion was drawn after Robinhood shared its latest earnings report, which stated that its clients traded 2.3 billion event contracts in the third quarter, more than twice the number traded in the previous quarter.

“I’m sure Kalshi is counting all the activity we send their way, and it’s quite significant,” said Jason Warnick, Robinhood’s chief financial officer, during a call with analysts this month. 

Warnick’s remarks created a demand for more information from Kalshi. However, when reporters reached out to Kalshi for comment about the MIAX deal, the prediction market exchange declined to respond.

Notably, Kalshi was among the first firms to secure approval from the Commodity Futures Trading Commission to introduce an exchange for trading financial contracts that depend on the outcomes of events. This year, their business has thrived since they began providing trades on sports games via their exchange. 

The US positions itself as a hub for prediction markets

Reports indicate that numerous legal uncertainties still surround Kalshi’s business. In an attempt to address this situation, a federal judge in Nevada ruled that Kalshi must strictly adhere to the gaming regulators’ rules. These directives required the company to halt offering sports contracts in the state. 

On Tuesday, November 25, the same judge also denied Robinhood a temporary restraining order that would stop Nevada’s gaming regulator from taking action against them. Robinhood intends to appeal this decision.

In the meantime, reports mention that several firms with an interest in prediction markets have purchased US-regulated derivatives exchanges to begin offering contracts that will compete with Kalshi.

Examples of these companies include DraftKings, a sports betting firm that purchased its own exchange, and FanDuel, part of Flutter Entertainment Plc, which partnered with CME Group Inc. to develop a new platform for placing bets on sports and other events.

Polymarket, which has offered prediction markets in other countries, announced this week that it has just received new approval to enter the US through QCX, an exchange it recently acquired.

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