Thomas Peterffy on Interactive Brokers' Plan to Professionalize Prediction Markets 的完整文字稿

a proxy for it. So the potential there, in my mind, for some of these things is obviously high. 00:03:00 Speaker 1: What you could say, certainly in our current economic environment, being able to bet on things like is the US going to strike carc Island or something like that could be actually useful if you are a large institutional investor versus just betting on the price of oil or the direction of exactly or something like that. However, I have a hard time thinking that institutional investors are going to flock to a platform that contains questions that are both is there going to be a recession and also some completely out there pop culture kind of contract. 00:03:33 Speaker 2: Totally or you know, obviously beyond the pop culture, they're dominated by sports betting and so forth, So that's another question. Also, you know, the marketing tactics used by the major prediction market companies are very different than anything, pretty different than anything we see in traditional futures, et cetera. So I think we both Yeah, Like I do want to fully think that, like there could be legitimate use cases where their natural heads, natural liquidity providers for some of these, like SWAB some of these pure binary instruments, et cetera. But there are some pretty big chicken and egg problems and other things to like actually get there where there's a volume. You know, for example, some of the weather related ones, Absolutely they're great, No one's better. You know, there's like twenty thousand dollars on some of that that's beneath any order of magnitude of usefulness to any economic or real specutive actor. 00:04:25 Speaker 1: That's right. No hedge fund gets out of bed for less than twenty thousand. Okay, So I do, in fact have the perfect guest to discuss all of this someone who is trying to solve that chicken and egg problem and actually create a prediction market that is more geared towards institutional investors. And we are going to be speaking with Thomas Petrofe. He is, of course the founder and chairman of Interactive Markers, someone who's not just interesting from a prediction market perspective, by the way, but someone who has been incredibly influential in the development of markets globally. Absolutely, so we're going to get into the overall you know, market structure, AI, all that good stuff, but we'll start with prediction markets. So Tamas, thank you so much for coming on our thoughts. 00:05:08 Speaker 4: Thank you very much for having me. 00:05:10 Speaker 1: So when you think about prediction markets for institutional investors, in your mind, what is the actual differentiating factor between you know, a retail investor who maybe is playing around a little bit on something like Calshi or poly market versus someone with a lot of money who might be interested in trading in size. 00:05:29 Speaker 5: So from that point of view, the prediction market is no different than the stock market. Accepted address is much larger and more important on the one hand, on the other hand, much sillier and less important. Questions, So It all depends on why you ask. So the stock market has Microsoft and Nvidia and also has you know, the game Stop and other silly stocks, right, so it is a parallel situation. So you cannot blame prediction market the mechanism itself for the silly things that some platforms list. 00:06:15 Speaker 4: Right. 00:06:16 Speaker 5: The idea here is to deal with questions, to gather the consensus opinion of people who are preferably experts or are deep thinkers, and the questions that we're going to ask, and to gather their consensus so that we can all include that in our decision making and planning for the future. 00:06:47 Speaker 2: That was excellent, And first of all, I think that's a great point obviously that you know, the stock market contains both Microsoft and a video and it also includes game stock. 00:06:58 Speaker 1: Development. Yeah, when game Stop happened, we were all sort of in shock that people were treating a stock as Yeah, that's true. 00:07:06 Speaker 2: But you know, I paid for part of college trading penny stocks, et cetera, so I know that. And if you go back to you know. 00:07:13 Speaker 1: Penny stocks are the original just market. 00:07:15 Speaker 2: Go back to the Jesse Livermore era of true bucket shops, and it was like pretty messy, et cetera. So from your perspective right now, if we're talking about prediction markets in the US, you know, it's really heavily sports betting. Then there's some election stuff, and then there's some silly things, et cetera. First of all, let's zoom out for the big question. Do you think that eventually institutional investors will use prediction market like instruments to trade things like will there be a recession in the year twenty twenty six? Do you expect these to become big volume contracts at some point? 00:07:56 Speaker 5: Definitely, I'm absolutely convinced. So the stock market that gives us a venue to invest in the future, basically in the future of different companies, but you know, some of how those companies are actually going to end up faring in the future has a lot to do with the economic environment and social environment in the future, and basically we are left to our own devices to decipher what the future holds. So the prediction market gives them an opportunity to gather experts around who are not afraid to put their money on the line and express what they think, and to collect a consensus opinion so that we all know what we can possibly expect if it's probably a better guest than what we individually could come up with. 00:08:56 Speaker 1: So a lot of the prediction markets, one of the problems that they currently have is that volumes are still pretty low. Right, the markets are very i liquid. When you talk to institutional investors, you know, people you would like to be clients on your platform, which is called forecast trader. By the way, what are the big hurdles for them? Like, what are

they what's stopping them from going all in on prediction markets at. 00:09:18 Speaker 5: The moment, Well, at this point, just it's very similar to any other market. Then it starts. Liquidity is always a big question, and it takes a long time to gather sufficient liquidity. If you look at, for example, the options markets that have been run off for fifty four years, I think initially there was very little liquidity and it was very difficult to trade more than say twenty or thirty contracts at the time. Nowadays you can trade thousands or maybe the millions of contracts. So it has developed over the past five decades really well. And the stock market is basically similar. 00:10:04 Speaker 2: What unlocked the liquidity was there a market design choice, Like if you go back and you're thinking about, Okay, the history of the options market, etc. Was it just time and existence or were there certain either regulatory or market structured decisions that had to be made that truly unlocked the opportunity to take it to the next level volume wise. 00:10:28 Speaker 5: Yeah, Well, I think over time people have become more familiar with the idea of what an option is, and it is a fairly complex idea or relative to what the prediction markets are. That's why we try to come up with something simpler than options, And as far as that is concerned, I think we have done that. So it is not going to be as complex for people to understand a prediction contract as it is to understand the options contract. So I think that it will not take equally long time to develop sufficient liquidity. 00:11:09 Speaker 1: So when I go on forecast Trader right now, I see bets like, you know, will the United States economy enter recession by the end of the second quarter of twenty twenty six, or will twenty twenty six be the warmest year on record, which, as we were talking about earlier, these are all things that I would say have economic implications when you compare what interactive brokers is doing versus say a calshie or a poly market. Is that how you're trying to differentiate yourself with more, you know, quote, serious economically serious contracts. Is that your edge? 00:11:44 Speaker 5: So don't forget that we are very different companies. Interactive Brokers has a large following of serious, successful institutional investors and serious investors who are managing ultiply large portfolios on our platform. Call she doesn't have that. So for us, prediction markets are in a dndom that enables us to basically run out our offering and our customers now have the ability to gauge such questions as a weather, a recession, but highlightlyation. 00:12:27 Speaker 4: Is going to be call. She has no. 00:12:32 Speaker 5: Investors basically other than investors in the prediction markets. So for them it's first of all, it is hard to maintain yourself only on up until it really takes off. It's hard to generate enough trading volume to make a profit, so they had to add things like sports, and of course that has become their mainstay and they are now very profitabout. 00:13:02 Speaker 4: You to sports. 00:13:04 Speaker 5: So if they didn't do sports, maybe they couldn't even support the platform. 00:13:08 Speaker 2: I don't know, but just to be clear, do you get the impression that from the perspective of this broad institutional world that's going to come to prediction markets, that one of your edges will be this focus that you're not a sports, that you're not in random pop culture, that this is going to be contracts that have the sort of quote serious investor in mind. Is that part of why you. 00:13:36 Speaker 4: Have ad this is by choice. 00:13:39 Speaker 5: We prefer to focus and concentrate on serious questions having to do with our clients' investments. Maybe some of them would like us to have sports, but we just don't want to distract them with that. 00:13:57 Speaker 1: Say more about that, So how are you actually choosing the contracts that you're presenting as options to investors? 00:14:05 Speaker 5: So we are choosing contracts that, in our minds have questions, the answers to which have serious economic consequences. So, for example, global warming, I think it's a huge question, maybe not this year, but ten twenty years from night certainly will be, or the rate of adoption of AI or I mean, you know, really significant questions that basically will determine how we live our lives ten to twenty years from now, and therefore it's important for us to have questions to those answers so that people that enter schools today, or decide to buy a house somewhere, or decide what profession they are going to study and develop into these sorts of questions deserved to have serious answers so. 00:15:05 Speaker 4: That that can be signed about to do it. 00:15:23 Speaker 2: IBKR, of the brokerage platforms that a retail ish person could access, always been like one of the most sophisticated in terms of the wide range of instruments that are available, from stocks to bonds to futures, et cetera. Is this the first time that you have a sort of your own market that you built on the platform, rather than IBKR simply being a window or a venue to trade on some other market. Is this new for you in a big way? 00:16:00 Speaker 5: It's never done anything as large as this, that is so different than what already existed. But as we are going along building out the platform over the last almost five decades, we certainly have always been on the edge of trying to bring in new things. 00:16:22 Speaker 2: Sure, but in terms of like, okay, like if I trade a share of Microsoft on IBKR, there are established exchanges that presumably that trade is going to be routed through, whereas with forecast trader. You are the market. You're the broker and the venue at the same time. And part of what's novel about prediction markets generally is this thing where the broker and the market venue are fusing in a way that has not been the case historically with say, CME

futures. It's not been the same way with stocks. So from a market structure standpoint, is IBKR in a new position by the fact that it's essentially both the broker and the exchange for these instruments. 00:17:06 Speaker 5: You're probably correct in that although we have had in the past started several indexes and various futures contructs, but indexes and futures contruct different ones, but they already existed. So the prediction market as such is yes, it's you are correct, it's the first market where nothing has has existed like it. 00:17:36 Speaker 1: Actually. On that note, you know, I alluded to your history in the markets, very long history and formative history. But how come we didn't get prediction markets sooner? You know, like we could have been betting on global warming five or ten years ago, And it doesn't seem until I was. 00:17:54 Speaker 5: Reading about prediction we started developing the prediction markets roughly than years ago, and the problem was that we had some consultants at the firm that were doing some other work and they found out that we were working on prediction market and at that time we were trying to go for a banking license, and they said, well, you will never get your banking license if you come up with this prediction market as an aerofact. The SEC will not take kindly to it, and you will have all kinds of problems if you really do this. So what we did, we already had built the whole system. So what we did was we released it for phantom money, and people were playing around on it for phantom money, and that eventually petered out because pentom money is not really interesting. Yeah, and but it it took hold enough for the people who found that poly market and calls to see it and to play with it, and then they had a better idea and they went forward with it. And you know, she went to Masur went to the CFTC and got himself licensed. And I was really upset when I saw that. And then of course, you see, it was easy for him because they had nothing, so they had nothing to lose. You see the problem is that when you have when you have a flourishing business, it's very hard to do new things because the downside is so big for you. So even and then I wanted to buy Cauche, but he wouldn't They wouldn't entertain, say, they didn't even give. 00:19:51 Speaker 4: Me a price. So what year was that? Then? I? Sorry? 00:19:55 Speaker 2: What year was that that you were trying to buy? 00:19:58 Speaker 4: Oh? I think about five years ago? 00:20:02 Speaker 2: I was my next question? 00:20:03 Speaker 1: Why didn't you just buy Calshi at that point? 00:20:06 Speaker 5: Are So? Then I went to the CFTC and I asked for our own license and they took three years to work it through and give it to us, but we eventually got it last year. 00:20:20 Speaker 4: How actually we got it in twenty four, just before the elections. 00:20:24 Speaker 2: Well that's interesting. So I was just about to ask you, like, was it the election that enabled you to get into it? But it sounds like actually you would have been able to get into the space even without the change in administration. 00:20:38 Speaker 5: Well, look, I mean, we are in a very lucky circumstances. We have a flourishing, profitable business, so we can support this crazy addiction to develop the prediction market that is basically a lost leader, and we are very sure that eventually it will be very profitable. 00:21:00 Speaker 2: I'm just one other quick market structure ish question. Are you going to provide leverage? How does that work for these instruments? 00:21:10 Speaker 5: For reorking on that right now? Up TONI it's been a very easy situation because of it. You see, a broker always has to worry about providing leverage. So most brokerage firms when they go bust because of the leverage they provide. 00:21:33 Speaker 4: And if you look at. 00:21:34 Speaker 5: The Big Walls three crisis, they all have to do with leverage always so. But eventually we will have to provide leverage. The question is how do you track structure? And that is going to be I'm sure there'll be some firms that will go bust on leverage in prediction markets. 00:21:57 Speaker 4: Yes, do you. 00:21:59 Speaker 1: See a world where I guess prediction market prices kind of kind of become standard reference data, like the same way we look up credit spreads or something. 00:22:09 Speaker 4: Yeah. Absolutely, yeah, certainly, certainly. 00:22:12 Speaker 5: You know right now you're saying that is they say the fat going to cut reads or not? I mean, yeah, people are consulting economies and say that's that's what the consensus is, opinion is, But it's not as clear as just look at the clean probability. 00:22:31 Speaker 4: That the prediction market provides, just. 00:22:34 Speaker 5: One plane number to see what the probability is that. 00:22:39 Speaker 1: Wait, why is it not as clear? Because I can go I can go to the bond market and back out what the bond market thinks about future Fed moves, and that's a huge market. Why would you need the prediction market to do that? 00:22:53 Speaker 5: Well, no, you can go to the fat funds markets. Yeah, not the bond markets. Okay, you can go to the fat funds. That's that, that is true. But that's another interesting thing. So fat onund's markets existed for a long time, and it only recently that people really consult the fat fund markets when they are wondering about trades and no longer talk to the economists because just two years ago people kept talking about what which economists says about? 00:23:29 Speaker 2: Right, one day, We're never going to have to consult in economists again. That's like, that's the triggers dream. 00:23:36 Speaker 1: World prediction market. 00:23:38 Speaker 4: I think you see. 00:23:39 Speaker 5: I think that what will happen is that economists will begin to participate in the prediction markets, and instead of issuing their predictions, they will trade their own positions, and good ones will make

a lot of money and bad ones we lose. 00:24:02 Speaker 2: But can we be just among the three of us here? No one else is just among the three of us here for a second. Like traders, you guys really don't like economists, do you? 00:24:15 Speaker 5: Like? 00:24:15 Speaker 2: You hold you do not hold them in particularly high esteem? Right, Like, let's be honest, it's just the three of us chatting here. 00:24:22 Speaker 5: Well, for a trader and economist is very confusing because it depends on which one you talk to. 00:24:28 Speaker 4: Right. 00:24:30 Speaker 5: The prediction markets cure that deficiency. 00:24:34 Speaker 2: Right yeah, So right now, you could go to robin Hood and you could trade markets on you could trade Kelsy markets via Robinhood, and we have the CEO of Robinhood on Flatteneve, and they also might be building their own prediction markets venue. Is there ever a scenario in which ib kr both has a its own prediction markets but is also a broke that would allow a user I could like trade futures via my ibk our account. 00:25:06 Speaker 4: Absolutely. So. 00:25:07 Speaker 5: We are coming out at the end of May with a consolidated feed where contracts that exist on cellular platforms we will have consolidated so that when somebody comes to us interactive brokers to look at the market. We will give them the consolidated feed just like we do on stocks there. Yeah, trade on I don't know, Tony or so markets and we always have the best feed on offer and we always provide best executions based on all the possible venues that stop trades, and we will do the same thing on prediction markets. 00:25:51 Speaker 2: That makes a lot of sense. That analogy of like best execution the one issue that I could see arising and I'm curious your thoughts. Like a share of micro Soft is a share of Microsoft, regardless of whatever. However number of exchanges it trades on. A bet on a US recession could be different depend because then it gets down to contract specifications, and how Kelshi defines when a recession is triggered could be different than how a different platform defines the same thing. So how much of this is going in terms of the future of the industry is going to depend on a certain degree of alignment among platformsity Well, yeah, fungibility to line across contract specifications and is the work being done on that. 00:26:39 Speaker 5: So fund ability is a great issue, and it is in the interest of the market participants to create as much french ability as possible. So accordingly, we are going to structure our contracts to be identical. 00:26:56 Speaker 4: Okay, whenever it's possible. 00:26:59 Speaker 1: That's interru Can we go back to making fun of economists for one second, but you know, you made the point that when you're talking to economists, it depends on whether you're talking to a good one. And part of the whole idea of prediction markets is you incentivize people with good information to express their opinions in exchange for money. Recently, there's been the issue of I don't even want to say insider trading or insider information, because I don't know what constitutes insider trading or insider information in the prediction market. But there's been a sense that we've had a few political developments and there have been big trades on prediction markets ahead of some of those. Maybe someone knows something ahead of time and they're betting on it. I don't know if that's wrong per se or illegal per se. But when you talk to institutional clients, how concerned are they about the perception of insider trading on these platforms? 00:27:56 Speaker 4: So inside their trading has always in an issue. 00:28:04 Speaker 5: I mean, early on, when I started my career, I lost have my initial capital based on insider trade, So I'm extremely familiar with with the damage it can cause. But on the other hand, and in spite of that, I'm in favor of not having any rules against insider trading. I would like all the information out there as soon as it's available, because look, as a society, we're better off knowing as soon as possible anything that is noble, right, So why do we have to wait several First of all, when you face with a merger or acquisition situation where most of the insider trading is happening, right, the secretary is the lawyers. Everybody knows about it. They go home, they tell they buns day. So it eventually always filters out. So it's almost impossible to avoid. It's very very difficult and con versome. Why don't we just do away with it and let the information come out as soon as possible. 00:29:18 Speaker 2: So, just to be clear, when you say this, you're talking about all markets here, not just predictionable. Okay, So even in the cyber the counter one counter argument I can. 00:29:27 Speaker 1: Think of a couple how many, but one counter. 00:29:30 Speaker 2: Argument would be liquid capital markets are a very good thing for the economy, And why would I ever want to participate in a capital market if it's known that there are going to be sharks et cetera that are just like if such an information edge that I could never win. 00:29:49 Speaker 5: And so yes, you see there are sharks right now. But if they if they're if inside their information just came out as soon as possible, there would be very little opportunity for the sharks to be around, because you could be a shark for a second or two, but that's it. Nowadays sharks can be around for weeks and months. 00:30:15 Speaker 2: Another argument would be that from a corporate perspective, I don't want all my secrets to be monetizable so easily. So like I want to be able to share information with a group of people inside and not have to worry them. 00:30:31 Speaker 5: Protect them yourself, don't rely on national laws to protect you, I mean, protect them yourself. 00:30:39 Speaker 2: I'll just stop talking to them. 00:30:41 Speaker 1: Yeah, wait, I want to hear more about you mentioned that you lost a bunch of money,

Yeah, your capital from insider trading. Yeah, what's that about? 00:30:52 Speaker 5: So when I bought my seat on the American Stock Exchange is an optionist there in nineteen seven seven and I had two hundred thousand dollars of safe capital that I started my option trading business with on the floor of the American Stock Exchange. And maybe a year or so later, I was standing in Dupon, and in those days, options were trading in sixteens and eights, and it was a day before expiration, and there was a very cheap out of the money call that was to be expired the next day, and somebody came in and in according to my fair value sheets that I only I had in those states, because I had my own options formula and I generated these sheets for myself, that option was worth about twenty five twenty six dollars, and somebody came in and offered it at three eighths, which is eighteen dollars. Offered to me three hundred of those options at eighteen dollars, and I bought all three hundred, which was at that time the biggest trade I've ever done. And just as the broker walks on, another broker walks in and he says, where can I buy five hundred of these? 00:32:22 Speaker 4: And nobody said anything. Everybody was stunned. 00:32:25 Speaker 5: And I said three eighths, and he said, okay, many I said five hundred. I was so overwhelmed by the month of profit. I was suddenly making a five period of time that I gave up all quations and I sold him the five hundred, So I was, as a result two hundred short. And then in the next several minutes the stock halted trading, and half an hour later it reopened with the news that DuPont had a fantastic quota and they were split. Think the stock three to three four one, and it opened way way up. So the option I saw two hundred of net for three eighths opened at four and a half dollars. 00:33:12 Speaker 1: I can see why you would be traumatized by insider trading. 00:33:16 Speaker 5: And yet I was really traumatized. I lost ninety dollars and it was horrible. But I still say to you that I think the best thing we could do about inside information is just to get the news out there as fast as possible and forget about persecuting people. 00:33:37 Speaker 1: I love that idea. Also, that you had your own fair value sheets, which you know, I presume those were sheets that were actually written down at that time in. 00:33:46 Speaker 4: Your posts, they were computer generated. 00:33:49 Speaker 5: I had a computer at home, and I had developed my own option formula in well much earlier in nineteen seventy and you. 00:34:02 Speaker 1: Were carrying them around on pieces of paper on the floor. 00:34:05 Speaker 4: Yeah, I had hold it up in all my buckets. 00:34:08 Speaker 1: Well, okay, so on this note, I mean you were one of the earliest people to automate market making. That's what you're famous for. And you've been through the whole transition from humans actually trading on the floor to everything being automated nowadays. Obviously, AI is

this huge thing in the market in our lives right now. When you look at AI and compare it to the early days of electronic trading, what's similar and what feels different to you now? Is this just another technological improvement, another wave of you know, productivity enhancing tech or is this something fundamentally new in your mind? 00:34:47 Speaker 5: Well, it's a huge leap in technological developments, but it's basically As a computer programmer, I look at it basically as a new higher level language that is much much, much, much more powerful than anything that came before, but qualitatively is not different than the way we went from machine language to assembler language to fort Run and Cobol and eventually C and all the other languages. So this is a natural language. So AI is basically a higher level language, which is a natural language, and it also has to it available all the data that exists in the world, so that's why it is so immensely powerful. But as far as trading is concerned, basically automated trading has existed for a long time. We have started our first automated trading systems in nineteen eighty three and continued developing that ever since. And then eventually when other traders came in and both out the or their flow from brokerage firms, we didn't think that we should do that, so then we went out of the market making business. But up to that point, we were the largest market makers in the world. 00:36:31 Speaker 2: God, as I have so many questions, actually, can we just go back real quickly to the options pricing model that you have. It's funny, this is the second time in a few weeks someone was telling me about and I've been in a conversation about options trading in the early days. What were you programming that in what language? And was it the kind of thing where like you would leave the computers running overnight and then you like come back in the morning and after Nah, Because that tell us about like the technology that enabled you to determine fair market you have options. 00:37:00 Speaker 5: Back then, So I had an Olivetti computer at home, a desktop Olivetti desktop computer at home, and when I started to think about options, I started to run a lot of simulations and see at what prices. 00:37:17 Speaker 4: I would break even. 00:37:19 Speaker 5: And then eventually they rowed the idea of a probability distribution curve based on which I would determine the prices of options that after selling to myself many options, I would break even at which price And that's how I determined but the correct value for an option is and that eventually that turned into a formula and code. 00:37:45 Speaker 4: So I used that computer. 00:37:48 Speaker 5: And if you go to Interactive Brokers today, there is something we core probability lab where we can we can display where we do display the probability is the associated with the future price changes of any start. 00:38:05 Speaker 4: Oh yeah, we derive from the. 00:38:07 Speaker 5:

Existing option prices. So you can see that there and you can basically learn about options. 00:38:15 Speaker 2: I never saw this page before, but this makes a lot of sense to me, and I've always been a little bit surprised that you don't hear more about translating option math into sort of normal intuitive odds. Because it seems like a very normal thing. One other question, you know, you mentioned AI as being like a new the next iteration maybe the last iteration, because it's natural language of computer programming. But most computer programming is like it's deterministic. Right, So if you write a line of code, it will do the same thing every single time. There's some rule and it will always be the same. You put in the same query into chad GPT, you will not always get the same output. In fact, frequently you won't even with the exact same query anything. When you're thinking about applications of AI within finance, et cetera, does the non deterministic element of. 00:39:09 Speaker 5: AI proabilistic language, right, That's why it is not always the same. 00:39:14 Speaker 4: It's probabilistic, it's not deterministic. Right. 00:39:18 Speaker 2: Does that have implications for its use in finance? 00:39:22 Speaker 4: Well? 00:39:22 Speaker 5: Option prices are probabilistic. Prediction markets are probabilistic. That's what my initial impetus was for prediction markets to teach people probabilities, because people tend to not think probabilistically. They tend to think, well, either this will happen or will not happen, and that somebody knows and that's not how it is there is, there's a probability for something to happen, and nobody knows what really will happen. 00:39:50 Speaker 1: Right, do you know how to code in Cobyl? 00:39:54 Speaker 5: In Cobyl, I can well Gobel, I cannot. I can code in fourth run or four or basic or see number of language. 00:40:07 Speaker 1: You know, you could be making a lot of money fixing old mainframe systems and integrating them. Have you considered doing that? 00:40:15 Speaker 4: Yeah? 00:40:16 Speaker 2: Just going back sort of full circle to the prediction markets. I basically you know probably right one day they'll be big. What's the time frame? Do you have like a testable theory? Can you give us a number for how big you think they'll be? You know, we don't want to treat you like some economists who just makes a forecast that could ever be tested or whatever. We want something hard, So like, can you give us, like, you know, end of twenty twenty seven? Do you have like a end of twenty twenty six? How big will they be? So that we could come back and we could say, was Thomas correct about how big this space is. 00:40:49 Speaker 5: Going to be? Now? Well? 00:40:51 Speaker 4: That is. 00:40:54 Speaker 5: I don't think that is a good way too too. I mean, I'm all based on and event. Then I read these projections from consulting firms about how big some something will be. 00:41:08 Speaker 4: Yeah, in the years ahead of

time. 00:41:11 Speaker 5: I have no idea how to evaluate that, but all I think, all I know is that it's going to be very, very big because it's extremely useful and it's a it's a very simple way for all of us to direct our decision making a prediction market and to hedge our decision making. 00:41:35 Speaker 2: I I was just going to say, Tracy, I noticed one of the contracts that they have on ibkr is will use sla IS out of state tuition exceed fifty three thousand dollars in twenty twenty six. As someone who has children who like in the next decade are going to go to college, like this could be a very useful thing for me to hedge at some point. Like my daughter heard that there's a good theater school UCLA. She said, I heard there's a good theater school at University of Michigan, and so I have to start thinking about, like University of Michigan out of state tuition. 00:42:08 Speaker 1: Kids these days are very focused, but this could. 00:42:11 Speaker 2: Be a very useful instrument for me. 00:42:13 Speaker 5: Absolutely, college tuitions have been there thinking about listing them at. 00:42:21 Speaker 4: Can I ask you. 00:42:22 Speaker 1: A conceptual question, which is like, if prediction markets really take off, and we have more and more money that is being placed on whether or not the actual event itself happens, what does that mean for capital markets? Because I think about capital markets. You know, everyone in finance for years and years and years said this is about the efficient allocation of capital into productive industry. And one way of betting on the future of the US economy would be by buying US equities, and that money goes into companies and it creates jobs and a feedback and all of that. If I'm just betting on the actual outcome, what does it mean for actually funding economic activity? 00:43:09 Speaker 5: So the money you put at risk, but the money is not laying around, the broker will take that money and put it into treasury bills. Right, So, as you know, there is an awful lot of money that is in treasury bils and that's financing our deficit, and so that's where your money will be employed. 00:43:31 Speaker 2: From a regulatory standpoint, is there anything right now that you think the CFTC could or should be doing to further to further along this market. 00:43:42 Speaker 5: No, I think the big regulatory problem is that there are many questions concerning specific companies that we would love to ask, but we do not know if the question would be a security or a commodity, and do not know who should properly regulate it, and therefore we don't ask these questions. But it would be extremely useful for us to be able to ask about, you know, the future developments Nvideo or Microsoft or Google. 00:44:19 Speaker 2: Or this could be like contracts either related to will they beat or miss the earnings estimates? It could be contracts related to when. 00:44:28 Speaker 5: Will they the number of employees they you have, or they average

salary that I will have, or et cetera. But the problem is that the price of Google is a security. You know that the price of the shares our securities. So the legislation says that anything, any anything that has an impact on the stock price would be on the financial statement would be a security. So there's a lot of stuff that has an impact on the financial statement, but nobody is listing it in any way. So if this quagmire would have to be cleaned up and then we will have a much better market. 00:45:20 Speaker 2: It sounds like we need to merge the sec and the CFTC. 00:45:24 Speaker 4: That would be. 00:45:24 Speaker 1: Great, all right, Timos Putterfee, thank you so much for coming on odd Laws. Really appreciate it. 00:45:32 Speaker 4: Thank you very much. 00:45:45 Speaker 1: Joe, that was an interesting conversation. 00:45:47 Speaker 2: That was great. I was not expecting Thomas to be I don't you know, maybe guy should have. But it's interesting to hear him completely just say let's get rid of insider trading laws. 00:45:57 Speaker 1: Yeah, clearly that was a formative experience for him, and perhaps he wants to be on the side of the people that made money in that transaction rather than the people that lost out. The other thing I thought was really interesting was the history with Calshi. 00:46:13 Speaker 2: Yeah, which I hadn't appreciated. Yeah, I think this is going to be like such an interesting space. It's a weird industry, I think prediction markets because it's an industry that basically is two companies right now, which barely counts as an industry. But we know from having talked to Vlawed at Robinhood, they're going to like build their own and then now obviously IBKR is you know, has its own. There's a few interesting questions, but one is like where is the value going to accrue? Is it going to be like the venue where the trading is, is it going to be who has the distribution? Because obviously Robin Hood and ibukre of incredible distribution via the fact that lots of people do other trading on there, it still feels like very much a jump ball in terms of who makes the money in this totally. 00:46:58 Speaker 1: Well, the other thing that was interesting was the idea of creating standardized contract Yeah, yeah, you know, something more fungible. And then I wonder, well, if you do that, do you have to create like an ISDA type body that's gonna adjudicate on these things? 00:47:11 Speaker 4: Right? 00:47:11 Speaker 2: Yeah, No, that's that's gonna be like a huge question. My gut is that Tomas is right. Like if he is saying these are going to be a really big thing, and he's like, traders are gonna want to have these instruments, who am I to disagree? Like, I maybe like they won't be big for like random pop culture stuff, but are they going to be big for like recession things and stuff like that. If Thomas thinks so, then I think so that's what That's where I stand. 00:47:37 Speaker 1: It does feel like the steady march of progress is sort of in this direction, But progress progress, it feels inevitable. But also, I mean, it's hard not to he mentioned game stop, and it's hard not to think back to just, you know what, five years ago now when game stop happened. It was such a big story, precisely because it was such a departure from the way people had treated stock market previously. 00:48:00 Speaker 2: Yeah, but you know what, I agree completely, But I had a thought actually when he said that that which is you know for a long time, and there's the famous quote equities in Dallas, and it's like, yeah, there was a period not that long ago in American financial history where stocks themselves were not regarded as a particularly important market in and of themselves. Otherwise they wouldn't have talked about how the stock traders would have had to move out to Dallas. That's a phrase because the perception was that stocks weren't where the action is. And so it occurs to me, like, yes, when GameStop came out that it's like everyone was like clutching their pearls and scandalized that the market be included. It was like, oh, people are treating. 00:48:43 Speaker 1: You can call me a gramma. No, No, I know that's. 00:48:45 Speaker 2: Where No, seriously, like everyone was but like when you actually think about the big sweep of like stock market history in the United States, you know, maybe we shouldn't hold it up on such a pedestal. There's always been penny stocks, There's always been the pink chee. It's the buckets shops or whatever they called were there for a very long time. There was the curb market, where people were just trading. Like maybe the era in which the stock market is like this very serious thing, and like maybe that was Maybe that's kind of the exception, is. 00:49:15 Speaker 1: The theme of this conversation. Just give up basically, just. 00:49:19 Speaker 2: Like I'm just saying, like maybe maybe there's something to this idea. It's always all these markets have been a little bit of a there's been a there's been a I don't know what, what word are you gonna do? It's not CD but all entertaining I don't know, like embrace the CD. Yeah, something like that. 00:49:35 Speaker 1: Yeah, Okay, on that note, shall we leave it there? 00:49:39 Speaker 2: Let's leave it there? 00:49:39 Speaker 1: All right? This has been another episode at the Odd Loots podcast. I'm Tracy Alloway. You can follow me at Tracy All the Way. 00:49:45 Speaker 2: And I'm Jill wa Isn't All. You can follow me at the Stalwart, follow our producers Carmen Rodriguez at Carman armand Dash, Ob Bennett at Dashbot and Keil Brooks at kel Brooks. And from our odd Lats content. Go to Bloomberg dot com flash odd Lots were of a daily newsletter and all of our episodes, and you can shout about all of these topics twenty four to seven in our discord Discord dot gg slash odd Lots. 00:50:06 Speaker 1: And if you enjoy odd Lots, if you like it when we talk about prediction markets, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening