Already Competing With Kashi: Robinhood VP

Bloomberg

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00:00We know that Robinhood has been expanding aggressively into prediction markets.

00:04So just set the scene for us. What does Robinhood get out of this JV?

00:10Well, first off, we've really seen an incredible interest from our clients when it comes to these

00:14prediction markets. Just in November alone, we had 3 billion contracts traded, which is more

00:21than 20% what we saw in October. Overall, since we launched, over 9.5 billion contracts have been

00:28traded. So clearly, this is a product that is important to our clients. This JV allows us to

00:33work directly with our clients, see the types of contracts that they're interested in, and then

00:38work to bring those to market. And for us, that is really top of mind. It's about meeting our

00:42clients' demands and interests. And us doing so now through this exchange, we feel as though it's a

00:47real great opportunity to bring great product, great liquidity to a market that's growing.

00:52So help me understand, you know, when it comes to this joint venture with Susquehanna,

00:58and buying this stake, my understanding is that now you're going to be a broker, also own an

01:03exchange and a clearinghouse. How are you going to manage potential conflicts of interest there?

01:09Well, first off, Katie, we're an investor, right? So we don't own it outright. So one of the things

01:14we do is we'll be a member of their board, which will allow us to give input. But at the end of the

01:19day, this is a separately run entity that is going to be developing its products. It just happens to be

01:24that Robinhood is one of the investors, just like we've seen with other incumbents and other

01:28exchanges, where we see that they also participate. It allows us a little bit different model in that

01:34we can actually listen to our clients, develop product, and then actually put it to marketplace.

01:39And then hopefully, what we'll see is the same type of interest we're seeing when we distribute to

01:43other exchanges.

01:45And how does this impact your relationship with Kalshi? Because, you know, taking a look at

01:49this partnership, you could make the case that you're going to be directly competing with them now.

01:54Well, they were directly competing with us already. So they already took clients on. So for us,

01:59it's actually just, it's a similar model that we run when it comes to options and equities and futures,

02:04where we connect to multiple exchanges, and we'll continue to do that. Again, our focus is finding

02:09the best possible product that we can give to our clients. And now, whether that's on this new

02:14exchange of the joint venture with Susquehanna, whether that's with Kalshi, or with one of our other

02:18exchanges we use right now, ForecastX, overall, that's just the way we work. We want to find

02:24great product, great liquidity. When we find those two things, we then bring it to market. We make

02:28sure our clients have access to it. And when it comes to the prediction market space, of course,

02:32no stranger to maybe some tussles with regulators. And I know that LedgerX in particular, as I mentioned

02:38in the intro, is licensed by the CFTC. But are you worried about potential legal risk as you see

02:45prediction markets expand? Well, we've been working with the CFTC and the NFA, our regulators,

02:51directly in answering questions and developing product with their input. So we believe that this

02:57product, which is a federally mandated product and supervised and regulated by the CFTC, fits within

03:03our existing ecosystem. So we think that we'll continue to build that relationship with them. But

03:08let's also, we've been meeting with the state regulators and speaking with them as well. So for us,

03:13it's about sort of a safety first focus, which is where we will work with regulators to identify

03:18their concerns and questions. We'll answer those questions and make sure that they feel comfortable

03:22with it. But at the end of the day, this is a CFTC regulated entity, as well as product. So for us,

03:28what we're going to do is work with them and make sure we're fulfilling all of the requirements we do,

03:32just like we do with our futures markets offering.

03:34Appreciate the context there. And I do want to look into the future here in terms of

03:37where prediction markets can go. Because some of the most, you know, ambitious predictions,

03:43not to be cute, out there that I've heard is that maybe you could see prediction markets

03:47steal volume away from stock trading, for example. And, you know, if you put on your thinking cap here,

03:54does that seem reasonable? Or is there some limit to how much this could really take off and what it

04:00could steal share from?

04:01So I think it's an interesting question, because I view prediction markets as being additive to the

04:07overall marketplace. And what I mean by that is, if you look back in the day, everybody thought when

04:12equities were first launched, that that was a great product, and then options developed. And

04:16suddenly the question was, will options steal away from equities volume? And we saw both of them start

04:20to grow. We began offering futures, and the question came, will futures go and be, will it steal away

04:26from equities and options? And no, it also continued to grow. I think the same thing happens for the

04:30predictive markets. It actually will bring new clients and customers into the marketplace that

04:35maybe hadn't joined the markets before. When you look at some of these economic products like Fed

04:40rate cuts, or whether or not the jobs reports or GDP, this is a great educational experience for

04:47people to understand from a probability standpoint, the odds of something occurring. So I actually think

04:51it can actually bring new clients and new customers into the markets, which then will expose them to

04:56the rest of the financial services markets, which again, at the very end of the day, should result

05:00in all boats floating higher. That's interesting, JB, just to make sure I'm understanding it, to

05:04phrase it a different way, is the hope that, you know, maybe folks will come in, use prediction

05:09markets, and sort of graduate into trading stocks on Robinhood? That's correct. Look, I was educating

05:17my daughter, who's 14, and she asked me a question about the Fed rate cut. And she said, oh, so this is

05:22back in September. And she said, oh, there's a 72% chance that they're going to do a rate cut. What does that

05:27mean? And we sat down and we spoke about it, right? And at the end of the day, the next morning, she

05:31came through and said, Dad, what happened? And I said, well, they did do the rate cut. And she said,

05:35well, so what's going to happen next? So I think that creates this engagement. And when you get

05:39engagement, now what happens is people come to the markets, and they want to learn more. Our focus is

05:44on educating investors and providing them access to products that maybe they don't have access to

05:49normally. Now, all of a sudden, this becomes a powerful investor, someone who can understand

05:53prediction markets, utilize them and even build them into other products over time when they feel

05:58comfortable.

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