Robinhood Explores Launching Prediction Markets Outside US

The Robinhood logo on a laptop cpmputer arranged in the Brooklyn borough of New York, US, on Monday, May 8, 2023. Robinhood Markets Inc. is scheduled to release earnings figures on May 10. Photographer: Gabby Jones/Bloomberg

(Bloomberg) -- Robinhood Markets Inc. is exploring an expansion of its prediction markets product to countries outside of the US, a move that would broaden the reach of the already fast-growing and often controversial industry.

The brokerage has been speaking to overseas regulators like the UK’s Financial Conduct Authority about how it might offer prediction markets locally, as demand for the space continues to grow. At issue is how such products might be structured and regulated — while prediction markets are considered futures products in the US, they’re often lumped in with gambling in other regions.

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“It’s a swap here in the United States. So the question would be where is swap oversight, let’s say in the UK? That’s a question that we’ve been asking the FCA, how do we work it?” JB Mackenzie, vice president and general manager of futures and international at Robinhood, said in an interview this month.

The Menlo Park, California-headquartered firm has seen global demand for its prediction markets products, Mackenzie said, citing the UK and Europe as two areas where the firm is seeing increased customer interest. Robinhood’s primary business focuses on equities and cryptocurrency trading, having launched operations in the UK and the European Union in late 2023.

Betting on prediction markets soared during the 2024 US presidential election, when platforms such as Kalshi and crypto-based platform Polymarket facilitated billions of dollars in wagers on the outcome. Robinhood has viewed it as a source of growth and the proliferation is blurring the lines between financial markets and the gambling industry.

The brokerage provides the ability to trade prediction-market contracts in the US through partnerships with Kalshi and ForecastEx, which are regulated by the US Commodity Futures Trading Commission.

“Right here in the United States, this is a federally regulated CFTC product. What we’d have to figure out is what does that mean? Whether it’s in the UK or if it was in the EU or so forth, why are they designated in such a way? And then what’s the regulatory rules for it?” Mackenzie said, referring to possible gambling oversight.

“We’re definitely looking to offer it globally, and my goal or focus is to make sure it’s a regulatory-compliant product everywhere we go,” he added.

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Prediction markets have also faced criticism as they’ve grown. Platforms have at times offered markets in ethically gray areas, such as the spread of the California wildfires or the timing of Pope Francis’s death. They’ve also opened themselves up to accusations of abetting manipulation, including most recently on markets that tracked when sex toys were thrown onto basketball courts during WNBA games.

Robinhood chooses which markets to list from those providers, Mackenzie said, enabling it to avoid those that could be controversial or prone to manipulation. “Just because something goes viral, meaning it hits the various social media platforms, it doesn’t mean that’s something that we’re going to look to offer as a product,” he said.

The platform has brokered more than 4 billion event contracts — each contract representing a position taken by a trader on a particular outcome — since it began offering prediction markets earlier this year, Robinhood Chief Executive Officer Vlad Tenev said in an X post on Monday. Its shares rose more than 12% following the post. The stock was up about 1.8% to $139.15 on Tuesday.

While Robinhood started its offering with markets centered on the election, it has since expanded into bets on sports, economics and price volatility for assets like crypto and commodities.

Overseas expansion may help Robinhood take greater market share at a time when the US prediction markets space is growing increasingly crowded. Polymarket recently acquired an exchange to allow it to serve US customers, while online gambling platform FanDuel and sports gaming firm Underdog began offering markets through their own partnerships. CME Group Inc. said in August it would break into sports predictions — one of the most popular areas among bettors — if its partner FanDuel decided to offer them.

Shares of DraftKings fell almost 10% to $38.09, and Flutter Entertainment slumped 8.7% to $258.69 on Tuesday.

--With assistance from Paige Smith.

(Adds share price declines for DraftKings and Flutter in the last paragraph.)

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