Traditional derivatives exchanges and prediction market platforms are beginning to converge as Kalshi attempts to expand beyond its retail base by adding institutional traders and established operators explore event contracts and new ways of reaching retail customers.
Jeff Sprecher, chair and chief executive of Intercontinental Exchange, said he expects the two models to “meet in the middle.” He compared the development of event contracts with US equities, where institutional markets such as the New York Stock Exchange coexist with a large retail market built around zero-commission brokers.
Kalshi, meanwhile, is explicitly targeting the territory occupied by the world’s largest derivatives exchanges. Luana Lopes Lara, the exchange's co-founder and chief operating officer, said institutional business was now a major focus, with margin trading among the building blocks the company is working on with regulators.
“Our dream is to hopefully be one day as big as ICE and CME are,” she said.
The push comes as Kalshi expands beyond the sports contracts that are driving its meteoric growth. The company said last week that it had surpassed $1 billion in non-sports annualised revenue, while annualised trading volume across its business had exceeded $1 trillion.
Lopes Lara told the panel that Kalshi was already “way bigger outside of sports” than it had been in sports seven or eight months ago.
The comments came during Exchange Leaders: The View from the Top at FIA’s Futures & Options Expo in Chicago, where executives from ICE, CME Group, Eurex, MIAX and Kalshi discussed how new products and business models are reshaping derivatives markets.
For Lopes Lara, moving further into institutional markets does not mean giving up Kalshi’s retail business. The underlying exchange, clearing and liquidity infrastructure is largely the same, she said, making the two customer groups complementary rather than competing.
CME Group is approaching the same shift from the other direction. Lynne Fitzpatrick, the exchange's president and chief financial officer, said about 94% of CME’s volume comes from institutions, but the exchange is seeing growing retail interest in traditional markets and has rolled out an array of smaller-sized contracts designed for those users.
The convergence is taking place against an unsettled regulatory backdrop. New Jersey and more than 30 other states have asked the US Supreme Court to decide whether sports contracts traded on federally regulated prediction markets are subject to state gambling laws, after federal appeals courts reached conflicting conclusions in cases involving Kalshi. The Supreme Court has yet to decide whether to hear the case.
The exchange leaders on the panel, however, were divided over how far that convergence should go.
Fitzpatrick said event contracts can provide a simple entry point to markets for retail investors and potentially serve as a training ground for future institutional traders. But she questioned the economic value of some products offered by prediction markets.
Her comments follow a September advisory from the CFTC warning that so-called mention markets, including contracts based on whether an individual says particular words, attends an event or interacts with another person, can present a heightened risk of manipulation.
“Things like mention markets, or will someone show up at the State of the Union, it becomes harder to kind of make some of our arguments about the economic benefit of those contracts,” Fitzpatrick said.
Lopes Lara defended such markets, arguing that what central bankers and political leaders say can carry significant economic consequences. She pointed to forthcoming Kalshi research examining the relationship between the frequency of President Donald Trump’s social media posts and volatility in the S&P 500.
She said greater regulation and oversight were inevitable as prediction markets grew.
“We want regulation, we welcome regulation, and at the end of the day, we’ll do whatever the regulators tell us to do,” Lopes Lara said.
Robbert Booij, chief executive of Eurex, drew a narrower boundary. He said the exchange was considering event contracts for institutional investors based on financial events such as inflation data or central bank decisions, although interest so far had been limited.
Later, when asked whether Eurex might offer contracts tied to the outcome of the French presidential election, Booij said it would not.
“We don’t think that serves a core financial market in Europe,” he said.
Those differences are not only about contract design. In the US, prediction markets are also colliding with state gaming interests and the revenues attached to them.
Thomas Gallagher, chief executive of MIAX and a former gaming lawyer, said two Native American tribes in Connecticut pay the state about $1 billion a year under their gaming compacts, while New Jersey received $1.25 billion in taxes and fees from casinos last year.
“You’ve got titanic forces at play that could impact dramatically how a lot of these states pay for a lot of their things,” Gallagher said.
He suggested tribes could eventually partner with exchanges rather than simply compete with prediction markets, creating what he described as potential “strange bedfellows.”
“It's not out of the realm that Native American tribes might come to some of us and say, maybe we could participate with exchanges so that it's not a zero-sum game,” Gallagher said.
Lopes Lara said that was already starting to happen, with Kalshi working with more than five tribes to help co-develop prediction markets for them.
“I think that that's going to grow more and more because it's more economic opportunity for them,” she said.
She also rejected the idea that federal regulation was intended to shield prediction markets from state taxation. States could impose taxes and customer protection requirements while the underlying contracts remained federally regulated, she said.
“We’re happy to pay taxes, we’re happy to have more customer protection laws and all of that,” Lopes Lara said. “It really was never about that.”
At the same time, established exchanges are finding other ways into the newer market ecosystem.
Sprecher said ICE’s $1.6 billion investment in Polymarket was driven less by its prediction-market products than by an interest in distributed blockchain technology, tokenisation and whether collateral and capital could eventually move in different ways. He linked that thinking to ICE’s investments in OKX, Hyperliquid and TradeXYZ.
Kalshi, meanwhile, plans to move beyond binary contracts as it seeks more institutional business. Lopes Lara said the company’s ambition was eventually to offer markets capable of more precisely expressing investors’ views about future events, including those that do not fit the traditional yes-or-no prediction-market structure.
Despite backing one of Kalshi’s biggest rivals, Sprecher offered a striking assessment of the company.
“If it was purely, honestly about product, Kalshi has always been the industry leader,” he said.
