WEBVTT - Thomas Peterffy on Interactive Brokers' Plan to Professionalize Prediction Markets 0:00:00.040 --> 0:00:02.280 Hey, there are all blots listeners. Joe and I are 0:00:02.520 --> 0:00:05.440 very excited to announce that we will be hosting a 0:00:05.640 --> 0:00:09.920 live show in London on Thursday May seventh. 0:00:10.480 --> 0:00:13.039 Yep, that's right. We've never been to London before. Well, 0:00:13.080 --> 0:00:15.440 we've been to London before, but in other capacities. We've 0:00:15.440 --> 0:00:18.400 never done a public episode of public show in London. 0:00:18.440 --> 0:00:21.959 We've done them in other cities New York City, DC, Chicago, 0:00:22.079 --> 0:00:25.239 San Francisco, SOTH. This will be our first London one 0:00:25.239 --> 0:00:25.840 and I'm really. 0:00:25.680 --> 0:00:28.400 Excited about it, very exciting. So if you want to 0:00:28.440 --> 0:00:32.600 hear some fantastic conversations being recorded live on stage, if 0:00:32.640 --> 0:00:34.840 you want to hang out with Joe and me, or 0:00:35.159 --> 0:00:37.400 if you want to hang out with other ad Thloughts listeners, 0:00:37.680 --> 0:00:40.800 you should definitely save the date for your calendar. It's 0:00:40.840 --> 0:00:43.440 going to be at Wilton's Music Hall in East London 0:00:43.680 --> 0:00:47.680 again on Thursday May seventh, doors opening at six pm. 0:00:48.120 --> 0:00:49.920 And the key thing is, you know, every time we 0:00:49.960 --> 0:00:52.239 do the live show and they sell out, people can 0:00:52.280 --> 0:00:54.080 plain and like, oh I didn't see the link. I 0:00:54.160 --> 0:00:56.320 wish I would have bought them sooner. We're going to 0:00:56.360 --> 0:00:58.600 be putting the link in the ad Lotte newsletter. So 0:00:58.760 --> 0:01:01.120 go find the out of Lott's newsletter. Just search for 0:01:01.520 --> 0:01:04.840 subscribe to it, and the link will be there before 0:01:05.000 --> 0:01:08.560 it's anywhere else. So this is your chance place if 0:01:08.600 --> 0:01:11.240 you like odd Laws, Like, if you're listening to the podcast, 0:01:11.400 --> 0:01:14.600 you probably really like the newsletter. You should really subscribe anyway. 0:01:14.680 --> 0:01:17.240 So if you like the podcast and so forth, subscribe 0:01:17.240 --> 0:01:19.880 to the newsletter, get the newsletter and get first crack 0:01:19.920 --> 0:01:20.440 at tickets. 0:01:20.880 --> 0:01:21.720 Hope to see you there. 0:01:24.640 --> 0:01:36.000 Bloomberg Audio Studios, Podcasts, Radio News. 0:01:40.080 --> 0:01:42.880 Hello and welcome to another episode of the Odd Lots Podcast. 0:01:42.959 --> 0:01:46.480 I'm Tracy Allaway and I'm Joe Wysn't thal Joe. Sometimes 0:01:46.680 --> 0:01:49.760 sometimes I go on prediction market, Yeah, and I see 0:01:49.760 --> 0:01:53.720 some of the contracts being traded, and you know, we 0:01:53.760 --> 0:01:56.240 hear the argument all the time that there might be 0:01:56.400 --> 0:02:01.080 a real economic reason, yes, why predict market should exist. 0:02:01.360 --> 0:02:06.720 So maybe you know, maybe you run a studio in Hollywood. Yeah, so, 0:02:06.880 --> 0:02:09.840 like it's actually really important who will be in the 0:02:09.880 --> 0:02:13.640 next cast of whatever Avengers Moving is coming out. But 0:02:13.720 --> 0:02:17.160 I have a hard time thinking that betting on whether 0:02:17.240 --> 0:02:19.000 or not Jesus Christ is going to return to the 0:02:19.000 --> 0:02:21.720 world is economically important, right. 0:02:21.720 --> 0:02:23.600 Yeah, No, I think there's a great point. I mean, 0:02:23.600 --> 0:02:27.120 I think you're being generous actually with the Avengers thing. 0:02:27.120 --> 0:02:31.560 I mean maybe maybe GOODRCT. But you know, for example, 0:02:32.080 --> 0:02:34.119 there is a market and it's actually you can track 0:02:34.120 --> 0:02:36.680 it on the Bloomberg that says on Kelshy will there 0:02:36.680 --> 0:02:39.920 be a recession before twenty twenty seven, and that is 0:02:40.080 --> 0:02:43.160 at thirty three percent right now, And that is something 0:02:43.240 --> 0:02:45.440 that like, it's amazing in a sense that there's an 0:02:45.480 --> 0:02:48.200 instrument where you could bet on this very important question 0:02:48.280 --> 0:02:52.240 to investors and express it very purely in a way 0:02:52.280 --> 0:02:54.799 that if you're using other instruments like stocks or bonds, 0:02:54.800 --> 0:02:57.120 you'd only be using a proxy for it. So the 0:02:57.160 --> 0:02:59.360 potential there, in my mind, for some of these things 0:02:59.440 --> 0:03:00.440 is obviously high. 0:03:00.680 --> 0:03:04.160 What you could say, certainly in our current economic environment, 0:03:04.480 --> 0:03:07.440 being able to bet on things like is the US 0:03:07.520 --> 0:03:10.280 going to strike carc Island or something like that could 0:03:10.360 --> 0:03:13.640 be actually useful if you are a large institutional investor 0:03:13.720 --> 0:03:15.680 versus just betting on the price of oil or the 0:03:15.720 --> 0:03:18.760 direction of exactly or something like that. However, I have 0:03:18.800 --> 0:03:22.040 a hard time thinking that institutional investors are going to 0:03:22.080 --> 0:03:25.320 flock to a platform that contains questions that are both 0:03:25.720 --> 0:03:28.720 is there going to be a recession and also some 0:03:29.160 --> 0:03:33.320 completely out there pop culture kind of contract. 0:03:33.120 --> 0:03:36.760 Totally or you know, obviously beyond the pop culture, they're 0:03:36.800 --> 0:03:42.040 dominated by sports betting and so forth, So that's another question. Also, 0:03:42.360 --> 0:03:45.560 you know, the marketing tactics used by the major prediction 0:03:45.600 --> 0:03:49.280 market companies are very different than anything, pretty different than 0:03:49.320 --> 0:03:53.320 anything we see in traditional futures, et cetera. So I 0:03:53.320 --> 0:03:56.440 think we both Yeah, Like I do want to fully 0:03:56.600 --> 0:03:59.240 think that, like there could be legitimate use cases where 0:03:59.240 --> 0:04:02.880 their natural heads, natural liquidity providers for some of these, 0:04:02.960 --> 0:04:06.840 like SWAB some of these pure binary instruments, et cetera. 0:04:07.440 --> 0:04:09.720 But there are some pretty big chicken and egg problems 0:04:09.760 --> 0:04:11.800 and other things to like actually get there where there's 0:04:11.800 --> 0:04:14.120 a volume. You know, for example, some of the weather 0:04:14.200 --> 0:04:17.320 related ones, Absolutely they're great, No one's better. You know, 0:04:17.360 --> 0:04:19.560 there's like twenty thousand dollars on some of that that's 0:04:19.680 --> 0:04:23.960 beneath any order of magnitude of usefulness to any economic 0:04:24.080 --> 0:04:25.159 or real specutive actor. 0:04:25.320 --> 0:04:27.160 That's right. No hedge fund gets out of bed for 0:04:27.279 --> 0:04:30.160 less than twenty thousand. Okay, So I do, in fact 0:04:30.200 --> 0:04:32.360 have the perfect guest to discuss all of this someone 0:04:32.360 --> 0:04:35.160 who is trying to solve that chicken and egg problem 0:04:35.360 --> 0:04:38.520 and actually create a prediction market that is more geared 0:04:38.560 --> 0:04:43.279 towards institutional investors. And we are going to be speaking 0:04:43.320 --> 0:04:46.039 with Thomas Petrofe. He is, of course the founder and 0:04:46.160 --> 0:04:49.800 chairman of Interactive Markers, someone who's not just interesting from 0:04:49.800 --> 0:04:52.080 a prediction market perspective, by the way, but someone who 0:04:52.080 --> 0:04:57.720 has been incredibly influential in the development of markets globally. Absolutely, 0:04:57.920 --> 0:05:00.120 so we're going to get into the overall you know, 0:05:00.600 --> 0:05:03.680 market structure, AI, all that good stuff, but we'll start 0:05:03.720 --> 0:05:06.279 with prediction markets. So Tamas, thank you so much for 0:05:06.400 --> 0:05:07.599 coming on our thoughts. 0:05:08.000 --> 0:05:09.520 Thank you very much for having me. 0:05:10.240 --> 0:05:14.040 So when you think about prediction markets for institutional investors, 0:05:14.040 --> 0:05:18.520 in your mind, what is the actual differentiating factor between 0:05:18.839 --> 0:05:21.600 you know, a retail investor who maybe is playing around 0:05:21.640 --> 0:05:23.920 a little bit on something like Calshi or poly market 0:05:24.040 --> 0:05:26.400 versus someone with a lot of money who might be 0:05:26.480 --> 0:05:28.920 interested in trading in size. 0:05:29.200 --> 0:05:32.120 So from that point of view, the prediction market is 0:05:32.160 --> 0:05:36.480 no different than the stock market. Accepted address is much 0:05:36.640 --> 0:05:41.640 larger and more important on the one hand, on the 0:05:41.720 --> 0:05:47.120 other hand, much sillier and less important. Questions, So It 0:05:47.240 --> 0:05:51.479 all depends on why you ask. So the stock market 0:05:51.600 --> 0:05:57.440 has Microsoft and Nvidia and also has you know, the 0:05:57.480 --> 0:06:03.720 game Stop and other silly stocks, right, so it is 0:06:04.040 --> 0:06:09.359 a parallel situation. So you cannot blame prediction market the 0:06:09.440 --> 0:06:15.000 mechanism itself for the silly things that some platforms list. 0:06:15.680 --> 0:06:15.880 Right. 0:06:16.440 --> 0:06:22.080 The idea here is to deal with questions, to gather 0:06:22.279 --> 0:06:29.800 the consensus opinion of people who are preferably experts or 0:06:30.160 --> 0:06:34.800 are deep thinkers, and the questions that we're going to ask, 0:06:35.480 --> 0:06:40.760 and to gather their consensus so that we can all 0:06:40.760 --> 0:06:45.839 include that in our decision making and planning for the future. 0:06:47.240 --> 0:06:48.960 That was excellent, And first of all, I think that's 0:06:48.960 --> 0:06:51.960 a great point obviously that you know, the stock market 0:06:52.040 --> 0:06:56.040 contains both Microsoft and a video and it also includes 0:06:56.240 --> 0:06:57.000 game stock. 0:06:58.320 --> 0:07:02.840 Development. Yeah, when game Stop happened, we were all sort 0:07:02.839 --> 0:07:06.400 of in shock that people were treating a stock as Yeah, 0:07:06.440 --> 0:07:06.880 that's true. 0:07:06.920 --> 0:07:09.120 But you know, I paid for part of college trading 0:07:09.240 --> 0:07:12.040 penny stocks, et cetera, so I know that. And if 0:07:12.080 --> 0:07:13.280 you go back to you know. 0:07:13.480 --> 0:07:15.480 Penny stocks are the original just market. 0:07:15.560 --> 0:07:19.360 Go back to the Jesse Livermore era of true bucket shops, 0:07:19.440 --> 0:07:24.040 and it was like pretty messy, et cetera. So from 0:07:24.080 --> 0:07:28.200 your perspective right now, if we're talking about prediction markets 0:07:28.240 --> 0:07:31.120 in the US, you know, it's really heavily sports betting. 0:07:31.800 --> 0:07:35.280 Then there's some election stuff, and then there's some silly things, 0:07:35.440 --> 0:07:37.720 et cetera. First of all, let's zoom out for the 0:07:37.720 --> 0:07:42.200 big question. Do you think that eventually institutional investors will 0:07:42.320 --> 0:07:47.240 use prediction market like instruments to trade things like will 0:07:47.280 --> 0:07:50.240 there be a recession in the year twenty twenty six? 0:07:50.600 --> 0:07:54.480 Do you expect these to become big volume contracts at 0:07:54.480 --> 0:07:54.880 some point? 0:07:56.040 --> 0:08:00.840 Definitely, I'm absolutely convinced. So the stock market that gives 0:08:00.960 --> 0:08:06.480 us a venue to invest in the future, basically in 0:08:06.520 --> 0:08:12.120 the future of different companies, but you know, some of 0:08:12.160 --> 0:08:16.880 how those companies are actually going to end up faring 0:08:16.960 --> 0:08:19.120 in the future has a lot to do with the 0:08:19.480 --> 0:08:25.840 economic environment and social environment in the future, and basically 0:08:25.880 --> 0:08:29.320 we are left to our own devices to decipher what 0:08:29.400 --> 0:08:33.520 the future holds. So the prediction market gives them an 0:08:33.559 --> 0:08:38.000 opportunity to gather experts around who are not afraid to 0:08:38.120 --> 0:08:42.200 put their money on the line and express what they think, 0:08:42.400 --> 0:08:46.200 and to collect a consensus opinion so that we all 0:08:46.240 --> 0:08:52.640 know what we can possibly expect if it's probably a 0:08:52.679 --> 0:08:56.120 better guest than what we individually could come up with. 0:08:56.880 --> 0:08:58.679 So a lot of the prediction markets, one of the 0:08:58.760 --> 0:09:01.640 problems that they currently have is that volumes are still 0:09:01.679 --> 0:09:04.280 pretty low. Right, the markets are very i liquid. When 0:09:04.280 --> 0:09:07.400 you talk to institutional investors, you know, people you would 0:09:07.480 --> 0:09:10.320 like to be clients on your platform, which is called 0:09:10.480 --> 0:09:13.560 forecast trader. By the way, what are the big hurdles 0:09:13.559 --> 0:09:16.480 for them? Like, what are they what's stopping them from 0:09:16.520 --> 0:09:18.839 going all in on prediction markets at. 0:09:18.800 --> 0:09:22.800 The moment, Well, at this point, just it's very similar 0:09:22.840 --> 0:09:26.800 to any other market. Then it starts. Liquidity is always 0:09:26.880 --> 0:09:30.120 a big question, and it takes a long time to 0:09:30.280 --> 0:09:34.800 gather sufficient liquidity. If you look at, for example, the 0:09:34.880 --> 0:09:39.600 options markets that have been run off for fifty four years, 0:09:39.679 --> 0:09:43.439 I think initially there was very little liquidity and it 0:09:43.520 --> 0:09:46.880 was very difficult to trade more than say twenty or 0:09:46.920 --> 0:09:51.120 thirty contracts at the time. Nowadays you can trade thousands 0:09:51.200 --> 0:09:56.160 or maybe the millions of contracts. So it has developed 0:09:56.280 --> 0:10:01.600 over the past five decades really well. And the stock 0:10:01.679 --> 0:10:03.320 market is basically similar. 0:10:04.880 --> 0:10:10.760 What unlocked the liquidity was there a market design choice, 0:10:10.840 --> 0:10:12.600 Like if you go back and you're thinking about, Okay, 0:10:12.600 --> 0:10:16.280 the history of the options market, etc. Was it just 0:10:16.960 --> 0:10:21.000 time and existence or were there certain either regulatory or 0:10:21.080 --> 0:10:24.840 market structured decisions that had to be made that truly 0:10:24.960 --> 0:10:27.880 unlocked the opportunity to take it to the next level 0:10:28.000 --> 0:10:28.600 volume wise. 0:10:28.720 --> 0:10:31.920 Yeah, Well, I think over time people have become more 0:10:32.000 --> 0:10:36.280 familiar with the idea of what an option is, and 0:10:36.600 --> 0:10:40.240 it is a fairly complex idea or relative to what 0:10:40.320 --> 0:10:43.760 the prediction markets are. That's why we try to come 0:10:43.840 --> 0:10:48.720 up with something simpler than options, And as far as 0:10:49.440 --> 0:10:52.719 that is concerned, I think we have done that. So 0:10:52.800 --> 0:10:55.720 it is not going to be as complex for people 0:10:55.760 --> 0:10:59.719 to understand a prediction contract as it is to understand 0:10:59.720 --> 0:11:04.080 the options contract. So I think that it will not 0:11:04.280 --> 0:11:08.719 take equally long time to develop sufficient liquidity. 0:11:09.679 --> 0:11:12.640 So when I go on forecast Trader right now, I 0:11:12.760 --> 0:11:16.080 see bets like, you know, will the United States economy 0:11:16.200 --> 0:11:18.360 enter recession by the end of the second quarter of 0:11:18.400 --> 0:11:20.640 twenty twenty six, or will twenty twenty six be the 0:11:20.679 --> 0:11:23.520 warmest year on record, which, as we were talking about earlier, 0:11:23.559 --> 0:11:27.120 these are all things that I would say have economic 0:11:27.440 --> 0:11:32.360 implications when you compare what interactive brokers is doing versus 0:11:32.440 --> 0:11:35.959 say a calshie or a poly market. Is that how 0:11:36.000 --> 0:11:39.439 you're trying to differentiate yourself with more, you know, quote, 0:11:39.880 --> 0:11:43.400 serious economically serious contracts. Is that your edge? 0:11:44.320 --> 0:11:48.200 So don't forget that we are very different companies. Interactive 0:11:48.240 --> 0:11:56.679 Brokers has a large following of serious, successful institutional investors 0:11:56.760 --> 0:12:02.439 and serious investors who are managing ultiply large portfolios on 0:12:02.520 --> 0:12:07.520 our platform. Call she doesn't have that. So for us, 0:12:07.840 --> 0:12:12.800 prediction markets are in a dndom that enables us to 0:12:13.000 --> 0:12:18.959 basically run out our offering and our customers now have 0:12:19.040 --> 0:12:24.040 the ability to gauge such questions as a weather, a recession, 0:12:24.200 --> 0:12:28.360 but highlightlyation. 0:12:27.280 --> 0:12:30.920 Is going to be call. She has no. 0:12:32.600 --> 0:12:37.400 Investors basically other than investors in the prediction markets. So 0:12:37.960 --> 0:12:42.439 for them it's first of all, it is hard to 0:12:42.520 --> 0:12:47.560 maintain yourself only on up until it really takes off. 0:12:47.640 --> 0:12:52.280 It's hard to generate enough trading volume to make a profit, 0:12:52.679 --> 0:12:57.360 so they had to add things like sports, and of 0:12:57.400 --> 0:13:01.319 course that has become their mainstay and they are now 0:13:01.440 --> 0:13:03.320 very profitabout. 0:13:02.600 --> 0:13:03.520 You to sports. 0:13:04.080 --> 0:13:07.560 So if they didn't do sports, maybe they couldn't even 0:13:07.760 --> 0:13:08.840 support the platform. 0:13:08.960 --> 0:13:12.880 I don't know, but just to be clear, do you 0:13:12.960 --> 0:13:17.200 get the impression that from the perspective of this broad 0:13:17.320 --> 0:13:22.040 institutional world that's going to come to prediction markets, that 0:13:22.160 --> 0:13:25.920 one of your edges will be this focus that you're 0:13:25.960 --> 0:13:29.320 not a sports, that you're not in random pop culture, 0:13:29.760 --> 0:13:32.960 that this is going to be contracts that have the 0:13:33.000 --> 0:13:35.960 sort of quote serious investor in mind. Is that part 0:13:36.000 --> 0:13:36.559 of why you. 0:13:36.840 --> 0:13:39.240 Have ad this is by choice. 0:13:39.920 --> 0:13:47.120 We prefer to focus and concentrate on serious questions having 0:13:47.200 --> 0:13:52.160 to do with our clients' investments. Maybe some of them 0:13:52.200 --> 0:13:55.560 would like us to have sports, but we just don't 0:13:55.559 --> 0:13:57.240 want to distract them with that. 0:13:57.440 --> 0:13:59.760 Say more about that, So how are you actually choosing 0:14:00.120 --> 0:14:03.640 the contracts that you're presenting as options to investors? 0:14:05.040 --> 0:14:10.560 So we are choosing contracts that, in our minds have questions, 0:14:11.000 --> 0:14:16.960 the answers to which have serious economic consequences. So, for example, 0:14:17.400 --> 0:14:22.200 global warming, I think it's a huge question, maybe not 0:14:22.600 --> 0:14:26.240 this year, but ten twenty years from night certainly will be, 0:14:26.920 --> 0:14:30.360 or the rate of adoption of AI or I mean, 0:14:30.720 --> 0:14:36.120 you know, really significant questions that basically will determine how 0:14:36.200 --> 0:14:39.440 we live our lives ten to twenty years from now, 0:14:39.520 --> 0:14:43.400 and therefore it's important for us to have questions to 0:14:43.520 --> 0:14:48.960 those answers so that people that enter schools today, or 0:14:49.360 --> 0:14:54.200 decide to buy a house somewhere, or decide what profession 0:14:54.640 --> 0:14:59.480 they are going to study and develop into these sorts 0:14:59.480 --> 0:15:05.640 of questions deserved to have serious answers so. 0:15:05.640 --> 0:15:07.440 That that can be signed about to do it. 0:15:23.280 --> 0:15:28.760 IBKR, of the brokerage platforms that a retail ish person 0:15:28.800 --> 0:15:32.080 could access, always been like one of the most sophisticated 0:15:32.240 --> 0:15:35.880 in terms of the wide range of instruments that are available, 0:15:36.040 --> 0:15:40.160 from stocks to bonds to futures, et cetera. Is this 0:15:40.560 --> 0:15:43.840 the first time that you have a sort of your 0:15:43.920 --> 0:15:48.000 own market that you built on the platform, rather than 0:15:48.200 --> 0:15:55.520 IBKR simply being a window or a venue to trade 0:15:56.000 --> 0:15:58.800 on some other market. Is this new for you in 0:15:58.960 --> 0:15:59.440 a big way? 0:16:00.240 --> 0:16:04.440 It's never done anything as large as this, that is 0:16:04.520 --> 0:16:09.880 so different than what already existed. But as we are 0:16:09.920 --> 0:16:14.800 going along building out the platform over the last almost 0:16:14.840 --> 0:16:20.040 five decades, we certainly have always been on the edge 0:16:20.080 --> 0:16:22.400 of trying to bring in new things. 0:16:22.520 --> 0:16:25.840 Sure, but in terms of like, okay, like if I 0:16:26.000 --> 0:16:31.160 trade a share of Microsoft on IBKR, there are established 0:16:31.240 --> 0:16:35.240 exchanges that presumably that trade is going to be routed through, 0:16:35.640 --> 0:16:39.440 whereas with forecast trader. You are the market. You're the 0:16:39.440 --> 0:16:41.680 broker and the venue at the same time. And part 0:16:41.680 --> 0:16:45.520 of what's novel about prediction markets generally is this thing 0:16:45.680 --> 0:16:48.600 where the broker and the market venue are fusing in 0:16:48.640 --> 0:16:51.600 a way that has not been the case historically with say, 0:16:51.720 --> 0:16:54.960 CME futures. It's not been the same way with stocks. 0:16:55.160 --> 0:16:59.560 So from a market structure standpoint, is IBKR in a 0:16:59.600 --> 0:17:03.120 new position by the fact that it's essentially both the 0:17:03.160 --> 0:17:06.200 broker and the exchange for these instruments. 0:17:06.760 --> 0:17:11.560 You're probably correct in that although we have had in 0:17:11.600 --> 0:17:18.679 the past started several indexes and various futures contructs, but 0:17:19.840 --> 0:17:24.480 indexes and futures contruct different ones, but they already existed. 0:17:25.000 --> 0:17:29.639 So the prediction market as such is yes, it's you 0:17:29.760 --> 0:17:34.800 are correct, it's the first market where nothing has has 0:17:34.840 --> 0:17:35.840 existed like it. 0:17:36.640 --> 0:17:39.200 Actually. On that note, you know, I alluded to your 0:17:39.480 --> 0:17:43.600 history in the markets, very long history and formative history. 0:17:43.920 --> 0:17:48.119 But how come we didn't get prediction markets sooner? You know, 0:17:48.320 --> 0:17:50.920 like we could have been betting on global warming five 0:17:51.000 --> 0:17:54.440 or ten years ago, And it doesn't seem until I was. 0:17:54.359 --> 0:17:59.600 Reading about prediction we started developing the prediction markets roughly 0:17:59.680 --> 0:18:04.680 than years ago, and the problem was that we had 0:18:04.720 --> 0:18:09.840 some consultants at the firm that were doing some other 0:18:09.960 --> 0:18:14.800 work and they found out that we were working on 0:18:14.920 --> 0:18:19.800 prediction market and at that time we were trying to 0:18:19.840 --> 0:18:23.720 go for a banking license, and they said, well, you 0:18:23.800 --> 0:18:27.439 will never get your banking license if you come up 0:18:27.480 --> 0:18:31.439 with this prediction market as an aerofact. The SEC will 0:18:31.480 --> 0:18:34.280 not take kindly to it, and you will have all 0:18:34.400 --> 0:18:38.920 kinds of problems if you really do this. So what 0:18:39.000 --> 0:18:44.040 we did, we already had built the whole system. So 0:18:44.280 --> 0:18:47.760 what we did was we released it for phantom money, 0:18:49.880 --> 0:18:54.760 and people were playing around on it for phantom money, 0:18:54.760 --> 0:18:57.960 and that eventually petered out because pentom money is not 0:18:58.119 --> 0:19:04.600 really interesting. Yeah, and but it it took hold enough 0:19:04.960 --> 0:19:08.119 for the people who found that poly market and calls 0:19:08.760 --> 0:19:11.800 to see it and to play with it, and then 0:19:11.880 --> 0:19:16.040 they had a better idea and they went forward with it. 0:19:16.520 --> 0:19:19.720 And you know, she went to Masur went to the 0:19:19.760 --> 0:19:25.480 CFTC and got himself licensed. And I was really upset 0:19:25.520 --> 0:19:28.760 when I saw that. And then of course, you see, 0:19:28.840 --> 0:19:31.280 it was easy for him because they had nothing, so 0:19:31.320 --> 0:19:33.960 they had nothing to lose. You see the problem is 0:19:34.000 --> 0:19:36.880 that when you have when you have a flourishing business, 0:19:36.960 --> 0:19:40.600 it's very hard to do new things because the downside 0:19:40.720 --> 0:19:43.639 is so big for you. So even and then I 0:19:43.760 --> 0:19:49.120 wanted to buy Cauche, but he wouldn't They wouldn't entertain, say, 0:19:50.280 --> 0:19:51.399 they didn't even give. 0:19:51.320 --> 0:19:55.159 Me a price. So what year was that? Then? I? Sorry? 0:19:55.400 --> 0:19:57.240 What year was that that you were trying to buy? 0:19:58.640 --> 0:20:01.640 Oh? I think about five years ago? 0:20:02.640 --> 0:20:03.840 I was my next question? 0:20:03.880 --> 0:20:05.840 Why didn't you just buy Calshi at that point? 0:20:06.720 --> 0:20:09.919 Are So? Then I went to the CFTC and I 0:20:10.040 --> 0:20:14.399 asked for our own license and they took three years 0:20:14.440 --> 0:20:17.439 to work it through and give it to us, but 0:20:18.000 --> 0:20:19.760 we eventually got it last year. 0:20:20.680 --> 0:20:23.520 How actually we got it in twenty four, just before 0:20:23.560 --> 0:20:24.280 the elections. 0:20:24.800 --> 0:20:28.000 Well that's interesting. So I was just about to ask you, like, 0:20:28.240 --> 0:20:32.000 was it the election that enabled you to get into it? 0:20:32.040 --> 0:20:34.000 But it sounds like actually you would have been able 0:20:34.000 --> 0:20:37.840 to get into the space even without the change in administration. 0:20:38.200 --> 0:20:41.680 Well, look, I mean, we are in a very lucky circumstances. 0:20:41.920 --> 0:20:46.919 We have a flourishing, profitable business, so we can support 0:20:46.960 --> 0:20:53.439 this crazy addiction to develop the prediction market that is 0:20:53.480 --> 0:20:57.040 basically a lost leader, and we are very sure that 0:20:57.560 --> 0:20:59.879 eventually it will be very profitable. 0:21:00.840 --> 0:21:04.800 I'm just one other quick market structure ish question. Are 0:21:04.840 --> 0:21:08.359 you going to provide leverage? How does that work for 0:21:08.480 --> 0:21:10.199 these instruments? 0:21:10.240 --> 0:21:14.680 For reorking on that right now? Up TONI it's been 0:21:14.760 --> 0:21:20.280 a very easy situation because of it. You see, a 0:21:20.320 --> 0:21:27.240 broker always has to worry about providing leverage. So most 0:21:28.040 --> 0:21:32.120 brokerage firms when they go bust because of the leverage 0:21:32.160 --> 0:21:32.920 they provide. 0:21:33.280 --> 0:21:34.720 And if you look at. 0:21:34.600 --> 0:21:37.600 The Big Walls three crisis, they all have to do 0:21:37.720 --> 0:21:42.280 with leverage always so. But eventually we will have to 0:21:42.400 --> 0:21:46.440 provide leverage. The question is how do you track structure? 0:21:47.160 --> 0:21:52.479 And that is going to be I'm sure there'll be 0:21:52.560 --> 0:21:57.480 some firms that will go bust on leverage in prediction markets. 0:21:57.560 --> 0:21:59.480 Yes, do you. 0:21:59.400 --> 0:22:03.280 See a world where I guess prediction market prices kind 0:22:03.320 --> 0:22:07.200 of kind of become standard reference data, like the same 0:22:07.240 --> 0:22:09.240 way we look up credit spreads or something. 0:22:09.320 --> 0:22:12.400 Yeah. Absolutely, yeah, certainly, certainly. 0:22:12.800 --> 0:22:16.480 You know right now you're saying that is they say 0:22:16.520 --> 0:22:19.800 the fat going to cut reads or not? I mean, yeah, 0:22:20.320 --> 0:22:24.199 people are consulting economies and say that's that's what the 0:22:24.359 --> 0:22:28.480 consensus is, opinion is, But it's not as clear as 0:22:28.640 --> 0:22:32.240 just look at the clean probability. 0:22:31.560 --> 0:22:34.360 That the prediction market provides, just. 0:22:34.359 --> 0:22:38.560 One plane number to see what the probability is that. 0:22:39.000 --> 0:22:42.120 Wait, why is it not as clear? Because I can 0:22:42.160 --> 0:22:45.240 go I can go to the bond market and back 0:22:45.280 --> 0:22:48.760 out what the bond market thinks about future Fed moves, 0:22:49.200 --> 0:22:51.800 and that's a huge market. Why would you need the 0:22:51.800 --> 0:22:53.080 prediction market to do that? 0:22:53.280 --> 0:22:56.200 Well, no, you can go to the fat funds markets. Yeah, 0:22:56.400 --> 0:22:59.280 not the bond markets. Okay, you can go to the 0:22:59.320 --> 0:23:04.240 fat funds. That's that, that is true. But that's another 0:23:04.320 --> 0:23:08.920 interesting thing. So fat onund's markets existed for a long time, 0:23:09.440 --> 0:23:14.960 and it only recently that people really consult the fat 0:23:15.040 --> 0:23:18.760 fund markets when they are wondering about trades and no 0:23:18.880 --> 0:23:23.560 longer talk to the economists because just two years ago 0:23:24.280 --> 0:23:28.879 people kept talking about what which economists says about? 0:23:29.200 --> 0:23:32.080 Right, one day, We're never going to have to consult 0:23:32.400 --> 0:23:36.440 in economists again. That's like, that's the triggers dream. 0:23:36.800 --> 0:23:37.920 World prediction market. 0:23:38.400 --> 0:23:39.320 I think you see. 0:23:39.359 --> 0:23:43.840 I think that what will happen is that economists will 0:23:44.359 --> 0:23:49.399 begin to participate in the prediction markets, and instead of 0:23:50.119 --> 0:23:57.560 issuing their predictions, they will trade their own positions, and 0:23:57.880 --> 0:24:00.640 good ones will make a lot of money and bad 0:24:00.720 --> 0:24:01.560 ones we lose. 0:24:02.400 --> 0:24:05.680 But can we be just among the three of us here? 0:24:06.160 --> 0:24:09.480 No one else is just among the three of us 0:24:09.480 --> 0:24:13.920 here for a second. Like traders, you guys really don't 0:24:14.000 --> 0:24:14.960 like economists, do you? 0:24:15.160 --> 0:24:15.280 Like? 0:24:15.320 --> 0:24:19.320 You hold you do not hold them in particularly high esteem? Right, Like, 0:24:19.440 --> 0:24:21.880 let's be honest, it's just the three of us chatting here. 0:24:22.480 --> 0:24:26.120 Well, for a trader and economist is very confusing because 0:24:26.160 --> 0:24:28.000 it depends on which one you talk to. 0:24:28.160 --> 0:24:28.360 Right. 0:24:30.680 --> 0:24:34.520 The prediction markets cure that deficiency. 0:24:34.080 --> 0:24:37.439 Right yeah, So right now, you could go to robin 0:24:37.440 --> 0:24:40.920 Hood and you could trade markets on you could trade 0:24:41.000 --> 0:24:44.639 Kelsy markets via Robinhood, and we have the CEO of 0:24:44.720 --> 0:24:48.600 Robinhood on Flatteneve, and they also might be building their 0:24:48.640 --> 0:24:53.040 own prediction markets venue. Is there ever a scenario in 0:24:53.080 --> 0:24:57.880 which ib kr both has a its own prediction markets 0:24:58.040 --> 0:25:01.760 but is also a broke that would allow a user 0:25:01.880 --> 0:25:06.120 I could like trade futures via my ibk our account. 0:25:06.920 --> 0:25:07.920 Absolutely. So. 0:25:07.960 --> 0:25:11.199