A lesser-known exchange with an office in downtown Miami and under a year of public trading might offer investors opportunities to cash in on prediction markets expected to reach $1 trillion in volume by 2030, according to Piper Sandler.
That's alongside established firms like CME Group (CME), which are seeing a rising number of bets placed on economic data from retail investors already lured in by sports predictions.
Miami International (MIAX), which offers trading in equities, options and futures, sold an exchange license in January to Rothera, a joint venture between Robinhood Markets (HOOD) and options powerhouse Susquehanna International Group. The exchange retained a 10% stake in Rothera, where Robinhood intends to migrate its current prediction markets business and Susquehanna serves as a market maker.
"The potential upside from (Miami International's) 10% ownership in what could be one of the largest prediction market venues, given the players that are involved, could be very impactful to their earnings," Piper Sandler analyst Patrick Moley said in an interview with.
The company's shares have gained about 35% since going public in August, and Moley said there's still room for growth.
"There is an expectation that that will be a driver of their earnings growth going forward," he said. Andy Nybo, a spokesman for Miami International, declined to comment.
CME Chief Executive Terrence Duffy negotiated a deal last year to list Flutter Entertainment's (FLUT) FanDuel sports event-based contracts in part to bring more retail traders to the world's largest futures market. Along with sports, the contracts include whether stock indices will rise or fall, where commodity prices are headed and what the unemployment rate will be at month's end.
And a growing number of investors and researchers are betting that crowdsourcing economic data offers a better guide than current economic forecasts.
A Federal Reserve study earlier this year measured economic indicators on Kalshi and said prediction markets may be "a new benchmark for measuring expectations and informing monetary policy decisions."
The researchers compared Kalshi predictions to data from the Fed's Survey of Market Expectations, federal funds futures markets, the consumer price index, gross-domestic product forecasts, surveys by Bloomberg and other traditional economic indicators.
"Kalshi's forecasts for the federal funds rate and CPI provide statistically significant improvements over fed funds futures and professional forecasters, all while providing continuously updated full distributions rather than infrequent point estimates," the report said.
Shares of Robinhood also may benefit from the expansion of prediction markets because of the potential for increased revenue through the Rothera deal, according to Piper Sandler's Moley. The stock is up 36% over the past year.
"If they keep the pricing the same, it's a 45% boost in Robinhood's economics for whatever they route through Rothera," he said.
Still, prediction markets have been controversial. Lawsuits are pitting the federal government against states, heated legislative hearings have been held and a host of interested parties including the casino industry, Native American tribes, anti-gambling advocates, exchanges and sports-betting companies all have a dog in the fight.
CME's Duffy said he has a complicated relationship with prediction markets. "I will say personally, I believe that sports predictions are gambling," Duffy said in an interview with. "I list them because the government says I can. It doesn't mean I have to like it."
He welcomed the customers FanDuel brings to CME and said ensuring they understand the risks of trading is an important concern. Duffy doesn't, however, subscribe to the theory that prediction markets are an improvement on current forecasting tools.
"These are not replacement vehicles for markets," he said. "These are a sentiment not too dissimilar than a dot plot by the Fed governors or other participants who think what the economic indicators may or may not be."
He also took issue with contracts that can be easily manipulated or cause harm. A US soldier earlier this year was accused of allegedly using classified intelligence to win over $400,000 on Polymarket through a contract on when Venezuelan president Nicolas Maduro would be captured.
The soldier was indicted in April for "unlawful use of confidential government information for personal gain," wire fraud and other charges.
"If the prediction is, 'will Maduro be captured by a certain date?' my answer to you is all those people should be in jail," Duffy said. "I'm not talking about the soldier, I'm talking about the people who list those kind of markets and the people who approve those kind of markets that are susceptible to manipulation."
Susquehanna has been among the first investors to stake a claim on the data-driven part of prediction markets. Jeremy Maletz, head of macro trading and prediction markets at Susquehanna, said in a recent Futures Industry Association podcast that the field was wide open after regulators cleared the way for how prediction markets can operate.
"The life cycle went from a year to a day in terms of how you create a product, and it means that you can kind of create whatever there is and respond to the changing demands of the market," Maletz said on the podcast.
Susquehanna and Robinhood declined to make executives available for comment.
Rothera began trading June 1 and recorded $26 million in volume as of June 8, according to a weekly report by Piper Sandler's Moley. Sports still dominates prediction market volumes, but the analyst said non-sports contracts continue to grow.
"A lot of the contracts on economic indicators, they lack a ton of liquidity, but the data and its relevance to large institutions is very valuable," Moley said.
Matthew Leising
