Florida and folly: Boca attendees forecast the future of market structure

Not only is the annual Futures Industry Association (FIA) conference in Boca Raton, Florida, a reprieve from the bitter cold of the Northeast, it’s also a pulse check on the capital markets. And this year, prediction markets are coursing through its veins.

Kalshi and Polymarket, the two largest prediction markets, were platinum sponsors of the event as well as two afterparties, and their respective CEOs each had their moment in the spotlight. Kalshi’s Tarek Mansour sat alongside execs from Nasdaq, CME Group, Singapore Exchange, and Deutsche Börse during an exchange leaders panel, while Polymarket’s Shayne Coplan was the guest speaker at Intercontinental Exchange’s (ICE’s) annual energy breakfast.

It wasn’t just the new kids on the block. CME, in partnership with FanDuel, set up a small basketball court next to the CME Group House, a new fixture this year, where Chicago Bulls legend Scottie Pippen shot hoops and observers could “express their views in a live prediction market.”

Mansour stood out on the panel as not only the youngest speaker but also the only one wearing running sneakers. He was also the most defensive

Besides prediction markets, 24-hour trading dominated as a talking point. While the possibility of trading overnight across more asset classes was mentioned in passing last year, the topic was the focus of a roundtable last week. Tokenization was up there on the list of hot topics, too, as more exchanges announced plans to tokenize stocks.

Last week was largely an exercise in prophecy. What will the markets look like in five years? Will we still be saying “TradFi” and “DeFi” as if they’re separate things? Or will there be no reason to draw a line between the two? Will all markets be up 24/7 or close to it? Will there be an institutional prediction market?

The fact that these questions are being asked at all signals that the traditional, highly regulated capital markets are becoming more comfortable interacting with, and even partnering with, markets in “the Wild West.” It’s also clear that they see this collaboration as a net positive for innovation.

Building a bridge

We didn’t get here overnight. You might say this all started the day Bitcoin was launched in 2009. More cryptocurrencies arrived, and for a long time, no one quite knew what to make of them. They were, decidedly, an “other.”

Now, crypto is just one of the guys at FIA Boca. Three crypto CEOs sat cozily next to Cboe’s Craig Donohue and ICE’s Jeff Sprecher during one of the event’s two panels populated by exchange leaders. Five years ago, that probably would have been a no-go.

Travis Schwab, CEO at trade surveillance platform Eventus, told me he’s prepared for overnight trading, having already navigated the tumultuous rise of crypto. Eventus rearchitected its technology platform almost eight years ago when it first started supporting crypto exchanges. When clients interested in overnight trading came calling, Schwab says there was no drama. But crypto can’t serve as the guide to everything. 

“I think the challenge is not on the trading side. The challenge is on all of the supporting systems, clearing, settlement, staffing, all of those non-sexy parts of the business,” Schwab says. 

Dedicated readers of WatersTechnology will know that some of this work is already happening. The National Securities Clearing Corporation expects to be operational for 23/5 trading by June, with testing currently underway. Additionally, the securities information processors have submitted a proposal to the Securities and Exchange Commission (SEC) to extend their current hours by the end of the year. 

The interest in overnight trading stems from careful observation of what has happened in crypto—that is, apart from the contained implosion of FTX, no major disasters. But market structure can’t simply be ported over from one asset class to another, and traditional exchanges don’t want to be left behind. They can’t beat the new kids either, so they’re joining them.

Last week, Nasdaq announced a partnership with Payward, the parent company of crypto exchange Kraken, to build an “equities transformation gateway” that will connect tokenized equity markets with decentralized blockchain networks. Last year, Nasdaq requested permission from the SEC to trade tokenized securities on the exchange—a proposal that was approved this week.

Nasdaq CEO Adena Friedman said last week that she saw an opportunity to build a bridge between “the permissioned world and the permissionless world.” The two have different market structures, she acknowledged, but that didn’t mean they can’t work together.

They can’t beat the new kids either, so they’re joining them

Deutsche Börse is also looking in this direction through a partnership with Kraken. “Our view is that tokenization will allow for a completely new use-case,” said Thomas Book, executive board member of Deutsche Börse Group, in Boca. “We are looking with Kraken to create a fully hybrid model so that you are both able to have a stock that you can trade in the conventional, traditional finance approach, but also in a digital form with the same execution.” 

Ten years ago, blockchain was a shiny, new toy. Practitioners threw the technology at every use-case under the sun, but after a few years, a cottage industry of blockchain startups faded into oblivion. Perhaps they were ahead of their time, or perhaps the new models being employed by Nasdaq and Deutsche Börse were the golden ticket all along. 

Will everything eventually be on-chain? Probably not, so put down your pitchforks. 

Predicting the future 

This year, FIA Boca’s traditional exchange leaders panel was split into two. There are rumors as to why, but what I found most interesting was who ended up where. The first panel, titled “Exchange Leaders: Innovation and Markets” featured Nasdaq’s Friedman, SGX’s Boon Chye Loh, Deutsche Börse’s Book, CME’s Terry Duffy and … Kalshi’s Mansour. 

Mansour stood out on the panel as not only the youngest speaker but also the only one wearing running sneakers. He was also the most defensive. When asked by the moderator why the prediction markets on Kalshi shouldn’t be considered gambling, Mansour pounced. 

“Can you ask a question about zero-day-to-expire options?” he countered. The room tensed.

I’ll spare you the back and forth, but a good chunk of that panel centered around prediction markets, more specifically, what Kalshi is doing and what the other exchanges on the stage might do.

Kalshi, and its competitor Polymarket, seem to hold all the cards. But those platforms are targeted at retail investors, and extending them to institutions will be a tall order. 

Currently, their main value prop for institutional investors is their data. Who is voting or hedging on what? Can this signal work with my existing analytics?

This past fall, ICE announced a strategic investment of up to $2 billion in Polymarket, which will allow ICE to distribute event-driven data to institutional investors. ICE’s Sprecher, who was part of the second exchange leaders panel, said institutional prediction markets were “only a matter of time” but stressed that they have no immediate plans to launch event contracts. 

CME and Cboe do currently offer event contracts, and the latter plans to add contracts on index securities products in Q2, while Nasdaq has proposed binary options on the Nasdaq 100 and Nasdaq 100 Micro indexes.

Rob Flaherty, CEO of TS Imagine, told me the idea of an institutional prediction market is premature, mainly because nobody yet knows how the pieces fit together. Data is one piece, but so are clearing and margin and portfolio construction, to name a few. “There’s a layer of things that have to happen for an institution to get comfortable with it,” he says.

The types of contracts that institutions will be interested in will largely revolve around geopolitical and economic events. But both Polymarket and Kalshi have cut their teeth on sports. A TS Imagine whitepaper published last month put Kalshi at 91.1% sports distribution and Polymarket at 39.9% (politics came in second for Polymarket at 22.4%). 

Sports contracts are essentially another vehicle for gambling, and that makes some people justifiably uncomfortable. Despite the direction of travel, I would be remiss not to mention that not everyone in Boca was on board with the prediction markets this year.

Some conference attendees remarked from the sidelines that it all felt a bit too familiar. Those who were also at FIA Boca in 2022 remember that FTX, the ill-fated crypto exchange, had a looming presence that year. Its executives, including disgraced CEO Sam Bankman-Fried, had sat on panels alongside derivatives markets’ bigwigs (and a controversial former professional baseball player), and the exchange had also sponsored one of the late-night parties. 

And in FIA Boca lore, CME’s Duffy told Bankman-Fried to his face that he was “an absolute fraud” during a meeting at the Palm Court bar. What a year.

This year, Duffy was seen chatting with Mansour at the same bar…a few feet away from the door that granted entry into Polymarket’s party. Oh, the drama. 

But things are also a little different than they were in 2022.

For one, the Trump administration has been very friendly to these platforms, so it’s unlikely we’ll see any perp walks soon. The Commodity Futures Trading Commission (CFTC) is also eager to regulate prediction markets under its jurisdiction. 

Kalshi is currently the only US-regulated prediction markets venue (and that came after a lengthy legal battle with the previous CFTC administration). Polymarket briefly found itself at odds with the CFTC and the Southern District of New York, but it is working on being a legal platform in the US. And perhaps most revealingly, traditional exchanges themselves don’t seem that threatened (yet) by what their new competitors-slash-partners are building.

So, is history repeating itself? Will it at least rhyme? In good conscience, it’s just too early to say.