Ken Griffin’s market-making giant Citadel Securities is monitoring the fast-moving prediction-markets industry as it evaluates when to enter one of the hottest new derivatives spaces.
Citadel Securities isn’t involved in trading event contracts currently, but the firm is “absolutely, keeping an eye on developments in the market,” President Jim Esposito said Thursday at the Semafor World Economy conference.
The entry of players such as Citadel Securities would indicate that prediction markets are gaining greater traction in the finance industry even as legal uncertainties around the business linger and institutional investors stay mostly on the sidelines. Susquehanna International Group and Jump Trading are among Citadel Securities’ peers that have entered the space.
“We’re not there yet. There is not that much liquidity,” Esposito said. But prediction markets are likely “to ramp and scale,” he said, and “as it does, will we continue to look at it and potentially get involved.”
Esposito said he sees a purpose for certain event contracts to be used, for both retail and institutional traders who are looking for protections in their investment portfolios. The contracts can be used as a form of protection around real-world, market-moving events such as elections, he said.
“Having a clean and distinct way to hedge certain risks, there is a good use case and industrial logic to it,” Esposito said.
Prediction-market exchanges including Kalshi Inc and Polymarket offer contracts that allow users to bet on elections, sports and other events. Unlike a sports book, which takes the other side of every bet from customers, the firms offer a venue where people on both sides of trades can meet, similar to the way that stock and derivatives exchanges work.
Citadel Securities isn’t looking at sport contracts, Esposito said. He sees other types of event contracts as “interesting” to the market-maker, particularly if they are growing in popularity with retail investors.
Susquehanna, the trading business run by former professional gambler Jeff Yass, was the first financial trading firm to publicly discuss its role as a market-maker in prediction markets. It has a unit that specialises in sports betting, based in Dublin. Chicago-based proprietary-trading firm Jump Trading also became active on prediction markets such as Kalshi, Bloomberg News reported.
Citadel Securities may enter prediction markets faster if there is more activity and interest from the retail-trading community, Esposito said. Should more brokerage firms, such as Charles Schwab Corp, join Robinhood Markets Inc in offering event contracts to retail investors, that might “pull” the market-maker in, he said. Schwab is likely to launch prediction markets tied to financial events, Chief Executive Officer Rick Wurster said Thursday, giving no timeline for the addition.
Esposito also said he met recently with Kalshi co-founder Tarek Mansour.
“We have built a good relationship,” he said, “and I am following his and other business models quite closely at the moment.”
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