Why Susquehanna Is Building a Prediction Markets Business
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What are prediction markets and why are they important?
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How does Susquehanna International Group participate in prediction markets?
Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Wiesenthal.
And I'm Tracy Alloway.
So Tracy, we're still rolling out shows from our live show on May 28th in New York City at City Winery. As we discussed in our last episode from this show, it had a sort of future of markets, future of trading theme to the night's conversation.
Right. And if you're talking about future of markets and trading, we have to talk prediction markets, right?
Yeah, that's right. So in addition to the fact that there is the, quote, AI trade, unquote, the other big thing going on in markets is the sheer explosion of instruments with which people can trade. Right.
What role do market makers play in prediction markets?
So it's like you have stocks and bonds and options. And then the options started getting more exotic, like zero day options, which you love and so forth. But now it's like if you could think of something that would resolve in some way, whether it is snowfall in New York City, Tesla deliveries or how long a halftime show is at the Super Bowl, there probably is a way to bet on it.
Right. And so one of the big questions is whether or not these markets are going to take off from an institutional perspective, whether or not you're going to see more professional investors get into the business of betting on not just snowfall in New York, but maybe halftime shows and that sort of thing. But that said, we do have some institutional participation in the market already because you have market makers that are starting to come in to try to make these markets more liquid.
Yeah, but you really said the key thing here, which is we know there's like a ton of liquidity for like the sports betting, et cetera. Like that's not the problem that needs to be solved. It's these other things where in theory, these might be useful instruments for hedging some sort of economic risk. Maybe not the Taylor Swift one or the halftime show ones, but some of these other ones.
How can prediction markets be used for hedging economic risks?
But like in theory, some of these contracts could be useful for hedging. And so the question is, yeah, but will anyone use them? And so on this discussion, we really had the pleasure of someone who has done very little media in general and who is right in the heart of trying to essentially solve this chicken and egg problem. Listen to our conversation with Jeremy Mallitz, the head of prediction markets at Susquehanna International Group. All right, why don't you tell us, just let's start really simply. What does the prediction markets desk at Susquehanna do?
So essentially, the main function that we do is market making. So we're the main liquidity provider, one of the main liquidity providers on quite a lot of platforms. And that means we're providing liquidity in everything from sports to economics to politics. But I'd say also a big part of what we do is we were the first institution that got involved in prediction markets in the first place.
What challenges do prediction markets face in attracting institutional investors?
So we're really trying to have a role of kind of being a shepherd for other institutions as they get involved. So I'd say it's a two-pronged goal really of providing the liquidity for the ecosystem to help it to grow and then bringing others into the ecosystem, which I think has been one of possibly even the more important role of what we've done to this point in time.
Wait, can I ask an even simpler question, which is I kind of feel like Susquehanna is like the sales force of the finance world where I have this like vague idea of what you do, but also not really.
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Chapters
8 chapters
1
What are prediction markets and why are they important?
0:00–0:50
2
How does Susquehanna International Group participate in prediction markets?
0:50–1:30
3
What role do market makers play in prediction markets?
1:30–2:39
4
How can prediction markets be used for hedging economic risks?
2:39–3:36
5
What challenges do prediction markets face in attracting institutional investors?
3:36–4:22
6
How does liquidity impact the success of prediction markets?
4:22–5:07
7
What are the implications of insider trading in prediction markets?
5:07–5:59
8
How does Susquehanna envision the future of prediction markets?
5:59–32:41
Speakers
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