Thomas Peterffy on Interactive Brokers' Plan to Professionalize Prediction Markets

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Hello and welcome to another episode of the Oddbots podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, sometimes, sometimes, I go on prediction markets. Uh-huh. Yeah. And I see some of the contracts being traded. And, you know, we hear the argument all the time that there might be a real economic reason Yes. why prediction markets should exist. So maybe, you know, maybe you run a studio in Hollywood. Yeah. And so, like, it's actually really important who will be in the next cast of whatever Avengers movie Sure. is coming out.

But I have a hard time thinking that betting on whether or not Jesus Christ is going to return to the world is economically important, right? Yeah. No, I think, this is a great point. I mean, I think you're being generous, actually, with the Avengers thing. I mean, maybe. Maybe. You could stretch. But, you know, for example, there is a market and it's actually, you can track it on the Bloomberg that says on Kelsey, will there be a recession before 2027? And that is at 33% right now.

And that is something that, like, that's amazing in a sense that there is an instrument where you could bet on this very important question to investors and express it very purely in a way that if you were using other instruments like stocks or bonds, you'd only be using a proxy for it. So the potential there, in my mind, for some of these things is obviously quite high.

Well, you could say, certainly in our current economic environment, being able to bet on things like is the U.S. going to strike Carg 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 stocks 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?

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 on a fully think that like there could be legitimate use cases where there are natural hedgers, natural liquidity providers for some of these like swabs, 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 volume. You know, for example, some of the weather related ones. Absolutely. They're great. No one's betting. You know, there's like $20,000 on some of them. That's beneath any order of magnitude of usefulness to any economic or real speculative actor. That's right. No hedge fund gets out of bed for less than $20,000. 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 Tomas Pederfi. He is, of course, the founder and chairman of Interactive Brokers. 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 Tomas, thank you so much for coming on All Thoughts.

Thank you very much for having me. 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 Calci or Polymarket versus someone with a lot of money who might be interested in trading in size? So from that point of view, the prediction market is no different than the stock market, except it addresses much larger and more important on the one hand, on the other hand, much sillier and less important questions. So it all depends on what you ask.

So the stock market has Microsoft and NVIDIA and also has, you know, the GameStop 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, right? The idea here is to deal with questions, to gather the consensus opinion of people who are preferably experts experts or are deep thinkers on 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. 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 NVIDIA and it also includes GameStop and MicroStrager. Yeah, but this is also a recent development. Yeah, yeah. Like, when GameStop happened, we were all sort of in shock that people were treating a stock as a token. Yeah, that's true, 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... Sorry, penny stocks were the original prediction markets.

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 U.S., 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 2026? Do you expect these to become big volume contracts at some point? Definitely. I'm absolutely convinced.

So, the stock market 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 us 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 guess than what we individually could come up with. 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 illiquid.

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 the moment? Well, at this point, it's very similar to any other market. When 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 now for 54 years, I think, initially, there was very little liquidity and it was very difficult to trade more than, say, 20 or 30 contracts at a time. Nowadays, you can trade thousands or maybe even millions of contracts. So, it has developed over the past five decades really well and the stock market is basically similar. 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, et cetera, was it just time and existence or were there certain either regulatory or market structure decisions that had to be made that truly unlocked the opportunity to take it to the next level volume-wise? 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 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 an options contract. So I think that it will not take equally long time to develop sufficient liquidity.

So when I go on Forecast Trader right now, I see bets like, you know, will the United States economy enter a recession by the end of the second quarter of 2026 or will 2026 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 Calci 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? 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 relatively large portfolios on our platform. Calci doesn't have that. So for us, prediction markets are an addendum that enables us to basically run out our offering and our customers now have the ability to gauge such questions whether a recession, how likely a recession is going to be. Calci has no investors basically other than investors in the prediction markets. So for them, first of all, it is hard to maintain yourself only up until it really takes off. it is 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 profitable due to sports. So if they didn't do sports, maybe they couldn't even support the platform. 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 in 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 have an edge? This is by choice. 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. Say more about that. So how are you actually choosing the contracts that you're presenting as options to investors? 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, is a huge question.

Maybe not this year, but 10, 20 years from now, it 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 10 to 20 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 deserve to have serious answers so that they can decide what to do. data centers need electricity, AI needs copper, reshoring needs steel, and gold's run may tell you something about how the world is repricing money and debt. All of those point back to real assets. The RACS ETF is an actively managed one-stop real asset shop from gold to commodities to natural resource equities, adjusting as conditions change. Visit vanek.com slash raaxpod to learn more. An investor should consider the investment objective risks, charges, and expenses of the fund before investing.

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So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. 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, yes. We've never done anything as large as this that is so different than what already existed. But as we were 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. 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? You're probably correct in that although we have had in the past started several indexes and various futures contracts, but indexes and futures contracts, different ones, but they already existed. So the prediction market as such is, yes, you are correct. It's the first market where nothing has has existed like it. 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, you know, I was reading about prediction markets in college. We started developing the prediction markets roughly ten years ago, and the problem was that we had some consultants of the firm that were doing some other work, and they found out that we were working on prediction markets, 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 a matter of fact, 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 phantom money is not really interesting. Yeah.

But it took hold enough for the people who funded Polymarket and Kalshi to see it and to play with it, and then they had a better idea, and they went forward with it, and, you know, Kalshi went to Mazur, 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 a flourishing business, it's very hard to do new things, because the downside is so big for you.

So he went ahead, and then I wanted to buy Kalshi, but they wouldn't entertain a sale, and they didn't even give me a price. What year was that? Sorry? What year was that that you were trying to buy it? I think about five years ago. Oh, wow. That was going to be my next question. Why didn't you just buy Kalshi at that point? 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.

Actually, we got it in 24, just before the elections. Wait, 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 this space, even without the change in administration. Well, look, I mean, we are in a very lucky circumstance where we have a flourishing, profitable business, so we can support this crazy addiction to develop the prediction market that is basically a loss leader. And we are very sure that eventually it will be very profitable.

I'm just one other quick market structure ish question. Are you going to provide leverage? How does that work for these instruments for your institution? Well, we're working on that right now. Up to now, it's been a very easy situation because you see, a broker always has to worry about providing leverage. leverage. So, most brokerage firms, when they go bust because of the leverage they provide, and if you look at the big Wall Street crisis, they all have to do with leverage always. Yeah. So, but eventually we will have to provide leverage. The question is, how do you structure that?

And that is going to be, I'm sure there'll be some firms that will go bust on leverage in prediction markets. Yes. Do you see a world where, I guess, prediction market prices kind of become standard reference data, like the same way we look up credit spreads or something like that? Yes, absolutely. Yeah. Certainly. Certainly. You know, right now you're saying, is the say the Fed going to cut rates or not? I mean, yeah, people are consulting economies and say that's what the consensus opinion is, but it's not as clear as just look at a clean probability that the prediction market provides.

Just one plain number to see what the probability is that. 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? Well, no, you can go to the Fed funds markets, not the bond markets. Okay. You can go to the Fed funds markets. That is true, but that's another interesting thing.

So, Fed funds markets existed for a long time, and it's only recently that people really consult the Fed fund markets when they are wondering about rates and no longer talk to the economists. Because just two years ago, people kept talking about which economist says what. One day, we're never going to have to consult an economist again. That's like the trader's dream. That's the world prediction markets are going. No, I think, you see, 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 will lose. But can we be just among the three of us here? No one else is listening. Just among the three of us here for a second. Like, traders, you guys really don't like economists, do you? Like, you do not hold them in particularly high esteem, right? Like, let's be honest. It's just the three of us chatting here. Well, for a trader, an economist is very confusing because it depends on which one you talk to, right?

The prediction markets cure that deficiency, right? Yeah. So right now, you could go to Robin Hood, and you could trade markets on, you could trade Kelsey markets via Robin Hood. And we have the CEO of Robin Hood on Vlad Tenev, and they also might be building their own prediction markets venue. Is there ever a scenario in which IBKR both has its own prediction markets, but is also a broker that would allow a user, I could, like, trade futures via my IBKR account? Absolutely.

So we are coming out at the end of May with a consolidated feed where contracts that exist on several platforms we will have consolidated so that we, when somebody comes to us, interactive brokers, to look at the market, we will give them a consolidated feed, just like we do on stocks, where stocks trade on, I don't know, 20 or so markets, and we always have the best bid and offer, and we always provide best executions based on all the possible venues where that stock trades, and we will do the same thing on prediction markets.

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 Microsoft is a share of Microsoft, regardless of whatever, however number of exchanges it trades on. A bet on a U.S. recession could be different, because then it gets down to contract specifications, and how Kelsey 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 platforms.

Fungibility. Yeah, fungibility to align across contract specifications, and is there work being done on that? So fungibility is a great issue, and it is in the interest of the market participants to create as much fungibility as possible, so accordingly, we are going to structure our contracts to be identical. Okay. Whenever it's possible. That's interesting. 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? So, insider trading has always been an issue. I mean, early on when I started my career, I lost half my initial capital based on insider trade. So, I'm extremely familiar 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 knowable, right? So, why do we have to wait several? First of all, when you're faced with a merger or acquisition situation where most of the insider trading is happening, right? The secretaries, the lawyers, everybody knows about it. They go home, they tell their wives, their husbands. So, it eventually always filters out. So, it's almost impossible to avoid. It's very, very difficult and cumbersome.

Why don't we just do away with it and let the information come out as soon as possible? Sorry, just to be clear, when you say this, you're talking about all markets here, not just prediction. Okay, so even in the sidebar, the counter, one counter argument, I can think of a couple of counter arguments, but one counter 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, etc., that are just like, have such an information edge that I could never win.

But you see, there are sharks right now, but if insider 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. 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 that it's... Yeah, but then protect them yourself.

Don't rely on national laws to protect you. I mean, protect them yourself. Just stop talking to them. Yeah. Wait, I want to hear more about... You mentioned that you lost a bunch of money, half your capital... Tell us that story. ...from insider trading. What's that... Yeah, what's that about? So, when I...

I bought my seat on the American Stock Exchange as an options trader in 1977, and I had $200,000 of saved 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 DuPont and in those days, options were trading in 16s and 8s.

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 according to my fair value sheets that only I had in those days because I had my own options formula and I generated these sheets for myself, that option was worth about $25, $26. and somebody came in and offered it a 3H which is $18. Offered to me 300 of those options at $18 and I bought all 300 which was at that time the biggest trade I've ever done.

And just as the broker walks out, another broker walks in and he says, where can I buy 500 of these? And nobody said anything. Everybody was stunned and I said, 3H. And he said, okay, how many? I said, 500. I was so overwhelmed by the amount of profit I was suddenly making in a 5-minute period of time that I gave up all caution and I sold him the 500. So I was as a result 200 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 quarter and they were splitting the stock 3-4-1 and it opened way way up so the option I sold 200 of net for 3-8 opened at $4.5. I can see why you would be traumatized by insider trading. I was really traumatized.

I lost $90,000 and it was horrible. people 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. I love that idea also that you had your own fair value sheets which I presume those were sheets that were actually written down at that time in your pockets. They were computer generated. I had a computer at home and I had developed my own option formula much earlier in 1970. And you were carrying them around on pieces of paper on the floor?

Yeah, I had folded up in all my pockets. 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 and 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 productivity enhancing tech, or is this something fundamentally new in your mind? Well, it's a huge leap in technological development, 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 Fortran 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 1983 and continued developing that ever since. And then eventually when other traders came in and bought out the order 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. Running a small business takes everything you've got. But with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, they provide products and guidance built to help you thrive. Right now, earn $500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires June 18, 2026.

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Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC registered advisor, crypto services by Zero Hash. All investing involves risk of loss. See complete disclosures at public.com slash disclosures. God, 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 you would leave the computers running overnight and then you like come back in the morning and after? Nah. Because that's, tell us about like the technology that enabled you to determine fair market value of options 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 I would break even and then eventually deroged 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 what the correct value for an option is. And that eventually that turned into a formula and code.

So I, I used that computer and if you go to interactive brokers today, there is something we call probability lab where we can, we can display where we do display the probability distribution associated with the future price changes of any stock that we derive from the existing option prices. So you can see that there and you can basically learn about options very well.

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'll always be the same.

You put in the same query into chat GPT, you will not always get the same output. In fact, frequently you won't even with the exact same query of anything. When you're thinking about applications of AI within finance, et cetera, does the non-deterministic element of AI models change? So AI is a probabilistic language, right? That's why it is not always the same. It's probabilistic, it's not deterministic. Right. Does that have implications for its use in finance? Well, 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 a there's a probability for something to happen and nobody knows what really will happen. Right. Do you know how to code in COBOL? In COBOL, I can. Well, in COBOL, I cannot. I can code in Fortran or Fortran or Basic or C number of languages. You know, you could be making a lot of money fixing old mainframe systems and integrating them. Have you considered doing that? Yeah. Just going back sort of full circle to to the prediction markets.

I basically, you know, probably right. One day they'll be big. What's the time frame? What 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 economist who just makes a forecast that could never be tested or whatever. We want something hard. So like, can you give us like, you know, end of 2027, do you have like or end of 2026?

How big will they be so that we could come back and we can say, was Tomas correct about how big this space is going to be or not? Well, there is, I don't think there is a good way to, to, I mean, I'm always stunned when, when I read these projections from consulting firms about how big some, something will be seven years ahead of time. 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 prediction market and to hedge our decision making. I was just, I was just going to say, Tracy, I noticed one of the contracts that they have on IBKR is will UCLA's out-of-state tuition exceed $53,000 in 2026 as someone who has children who like in the next decade are going to go to college. I was 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. She's sat on UCLA already. Yeah, 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. Kids these days are very focused. But this could be a very useful instrument for me. Absolutely. College tuitions, we were thinking about listing them at one point. Can I ask 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 U.S. economy would be by buying U.S. equities and that money goes into companies and it creates jobs and a feedback loop and all of that. If I'm just betting on the actual outcome, what does it mean for actually funding economic activity? 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 bills and that's financing our deficit. And so that's where your money will be employed. 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? 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. security 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 the future developments of NVIDIA or Microsoft or Google or et cetera. So this could be like contracts either related to will they beat or miss their earnings estimates? It could be contracts related to when will they the number of employees they will have or the average salary they will have or et cetera. But the problem is that the price of Google is a security. We know that the price of the shares are securities.

So the legislation says that 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 it's this fog mire would have to be cleaned up and then we would have a much better market. It sounds like we need to merge the SEC and the CFTC. That would be great. All right, Tomas Petterfi, thank you so much for coming on OddLots. Really appreciate it. Thank you very much. Joe, that was an interesting conversation. That was great.

I was not expecting Tomas to be, I don't, you know, I, maybe I should have, but it's interesting to hear him completely to say, let's get rid of insider trading laws. 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 Kalshi. Yeah. I, 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 Vlad 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 Robinhood and IBKR have 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 space. Well, the other thing that was interesting was the idea of creating standardized contracts. 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 going to adjudicate on these things? Right. Yeah. No, that's that's going to 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 going to 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 Tomas thinks so, then I think so. That's where I stand. It does feel like the steady march of progress is sort of in this direction, but progress, progress. And air quotes. It feels inevitable.

But also, I mean, it's hard not to he mentioned GameStop and it's hard not to think back to just, you know, what, five years ago now when GameStop happened. It was such a big story precisely because it was such a departure from the way people had treated stock markets previously. 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 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, me included, it was like, oh, people are treating it like a joke. You can call me a grandma. No, I know that's where you're going. No, 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 sheets, the bucket 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 the theme of this conversation just give up basically? 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 going to use? I don't know.

Not seedy, but all entertaining. I don't know. Embrace the seediness. Yeah. Something like that. Yeah. Okay. On that note, shall we leave it there? Let's leave it there. All right. This has been another episode of the Odd Thoughts podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. And for more Odd Lots content, go to Bloomberg.com slash OddLots for a daily newsletter and all of our episodes.

And you can chat about all of these topics 24-7 in our discord, discord.gg slash OddLots. And if you enjoy OddLots, 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. Bye-bye. We buy insurance for peace of mind, but every year millions of claims are denied.

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