Robinhood (HOOD.US) and Susquehanna acquire majority stake in LedgerX, will upgrade predictive market arms race.

Robinhood Markets Inc. (HOOD.US) and Susquehanna International Group are taking over a regulated exchange, LedgerX, which was previously associated with the bankrupt cryptocurrency business FTX. The two companies are reportedly acquiring the majority of shares in LedgerX, providing them with a strong new foothold in the rapidly growing prediction market field. LedgerX is a U.S. derivatives exchange formerly owned by FTX and currently operated by Miami International Holdings, Inc. The acquiring parties have long had close ties to the prediction market. Susquehanna has stated that it serves as a market maker for the leading U.S. prediction market exchange, Kalshi. Robinhood, on the other hand, offers event contracts from Kalshi to its retail investment clients. This new transaction will give Robinhood and Susquehanna direct control, enabling them to have the infrastructure needed to list and clear event contracts on their own terms. At this moment, Wall Street, sports leagues, and cryptocurrency firms are all vying to shape the future of regulated speculative markets. "Robinhood sees strong demand from customers for the prediction market," said JB Mackenzie, Vice President and General Manager of Robinhood Futures and International Business. "Our investment in infrastructure will allow us to provide customers with a better experience and more innovative products." Financial details of the deal were not disclosed, but MIAX announced the sale of 90% of its exchange shares to a consortium led by Robinhood. Robinhood stated that it would become the "controlling partner" of the new joint venture, with Susquehanna serving as the "initial liquidity provider" to ensure counterparties for customer trades. This move could pose a challenge to Kalshi, as the company has been pushing its contracts to a wide user base through its partnership with Robinhood. According to analysis, over half of Kalshi's business in recent months has come from Robinhood. In its recent financial report, Robinhood stated that its customers traded 2.3 billion event contracts in the third quarter, more than double the previous quarter. "I am confident that Kalshi is counting on the volume we are bringing them, which is quite substantial," said Jason Warnick, CFO of Robinhood, during a conference call with analysts earlier this month. Kalshi did not immediately respond to requests for comments on the MIAX transaction. Kalshi is one of the first companies to receive approval from the U.S. Commodity Futures Trading Commission to list and trade financial contracts linked to event outcomes. Since Kalshi began offering sports event trading on its exchange, the business has shown explosive growth this year. However, there remains significant legal uncertainty in the business. A federal judge in Nevada ruled this week that Kalshi must accept oversight from gaming regulators, who have instructed the company to cease offering sports contracts in the state. The same judge also denied a temporary restraining order to Robinhood to prevent the Nevada gaming regulators from taking enforcement action against the broker. Robinhood stated that it would appeal this ruling. Meanwhile, several companies interested in the prediction market have acquired regulated derivatives exchanges in the United States to offer contracts competing with Kalshi. Sports betting company DraftKings acquired an exchange and integrated it into its own platform, while FanDuel, owned by Flutter Entertainment Plc, partnered with CME Group Inc. Class A to create a new platform for sports and other event betting. Polymarket, a company that previously offered prediction markets overseas, announced on Tuesday that it had received new approval to enter the U.S. market through its recently acquired regulated exchange, QCX. LedgerX originally began as a cryptocurrency-related derivatives platform and was one of the few functional business units of FTX at the time of its bankruptcy. It played a significant role in Sam Bankman-Fried's efforts to gain power and influence in Washington. Following FTX's collapse in 2022, MIAX acquired the platform for $50 million, expanding its influence in the cryptocurrency industry. MIAX announced on Tuesday that it would retain a 10% stake in the new business to maintain exposure to the prediction market risk.