Kalshi’s main source of volume, Robinhood, and most notable outside market maker, Susquehanna International Group, will team up to launch their own prediction market without Kalshi, having bought an exchange that is already registered with the Commodity Futures Trading Commission (CFTC).
However, Robinhood will not be abandoning Kalshi, instead planning to continue offering access to Kalshi’s contracts alongside those offered by its new exchange.
Stock trading platform Robinhood and trading giant Susquehanna will set up a new joint venture to create their own exchange, after acquiring a designated contract market (DCM) named MIAXdx, which was previously owned by financial firm Miami International Holdings. Robinhood announced the partnership via press release Tuesday.
Robinhood will be the controlling partner in the joint venture, while Susquehanna will be a “key partner and day-one liquidity provider.” MIAX will continue to hold a 10% stake.
Currently, Robinhood — licensed as a futures commission merchant (FCM) — offers access to contracts that are created by Kalshi, which is a registered DCM. The Robinhood app features a “predictions hub” where users can buy and sell contracts made by Kalshi. It also offers some contracts made by ForecastEx.
Susquehanna acts as a market maker — offering odds on both sides for other traders to accept on many markets. It receives rebates in return for providing liquidity on Kalshi, and it is widely believed to be among the largest traders on Kalshi.
“Robinhood is seeing strong customer demand for prediction markets, and we’re excited to build on that momentum,” JB Mackenzie, VP and general manager of futures and international at Robinhood, said. “Our investment in infrastructure will position us to deliver an even better experience and more innovative products for customers.”
Robinhood to continue to partner with others
The deal appears to be a major blow to Kalshi, as Robinhood is a key distribution channel for the exchange.
Users accessing Kalshi’s contracts via Robinhood contribute roughly half of Kalshi’s volume, according to figures from the company’s quarterly reports. It charges a one-cent fee on every dollar of contracts traded, on top of Kalshi’s own fees. The business said that users traded around $2.5 billion worth of contracts in October alone, meaning that Robinhood made around $25 million in revenue.
However, a Robinhood spokesperson told InGame that the company will continue to offer access to multiple exchanges, indicating that the Kalshi partnership will continue.
“Robinhood has maintained relationships with multiple exchanges since the inception of prediction markets (Kalshi and ForecastEx),” the spokesperson said. “Robinhood Derivatives plans to continue to partner with multiple DCM/DCO partners, supporting access to a diversity of market venues for our customers.”
What this means in practice remains to be seen, however. Robinhood may still be able to prioritize its own markets on its app.
A Kalshi spokesperson declined to comment on the deal.
MIAXdx is latest DCM to be acquired
MIAXdx is the latest registered DCM to be purchased by a company looking to offer regulated event contracts. In July, Polymarket bought QCEX as part of its plans to return to the U.S. In October, DraftKings bought Railbird and announced plans to launch its prediction market. Fanatics also appears to be using an acquisition, though not of a DCM, as its way into prediction markets, buying at least a stake in a licensed introducing broker named Paragon.
However, unlike QCEX and Railbird, MIAXdx is already operational as an exchange, currently focused on cryptocurrency. The business received DCM approval from the CFTC in 2019. MIAXdx also operates a licensed clearinghouse, which handles the paperwork and moving of money for the actual contracts on the exchange. It provided clearing services for Kalshi until 2023.
MIAX Chairman and CEO Thomas P. Gallagher said in a press release that the deal would allow his business to see the benefits from prediction markets in the immediate term.
“Through our retained equity stake, the transaction announced today will provide MIAX with access to the growing prediction markets on an expedited basis,” Gallagher said. “The transaction with Robinhood closely aligns with our strategy of partnering with industry leaders to offer innovative trading products to the market, and we’re excited about the opportunity to gain exposure to prediction markets through this initiative. The transaction represents a logical step forward for MIAX as we continue to focus on strategic growth opportunities within our core exchanges.”
Gallagher added that MIAX also looked at other prediction market options.
“We have evaluated alternatives to facilitate our entry to the prediction markets, and we believe that today’s strategic alignment is the right lever for offering institutional and retail futures traders exposure in the growing prediction markets while providing MIAX with potential long-term value,” he said.
