As the number of venues offering prediction markets looks set to grow globally in the coming months and years, exchanges of all shapes and sizes are thinking increasingly seriously about the practical factors behind launching into the space.
This is according to new research from Connamara Technologies and Acuiti, which found that among the traditional financial exchanges, nearly half (47%) were indeed ‘considering’ launching prediction markets. However, notably just 5% had made a definitive commitment.
When it came to the empirical side of the coin, those surveyed highlighted the primary technology challenges which are front of mind when considering the launch of prediction markets.
Top of the list, ‘market design complexity’ was cited by 62% of respondents as a main envisaged barrier, closely followed by ‘integration with existing systems’, and ‘post-trade settlement’.
For those as yet unconvinced, factors which were cited as most likely to ‘make [your] exchange seriously consider launching prediction markets’ included demand from institutional or retail clients, and clearer regulatory frameworks.
Read more: Institutional prop trading interest in prediction markets on the up, report reveals
Trading venues looking toward the prediction markets are focused on expanding retail bases, the report stated, but specifically doing so in the optimal manner, with minimal disruption.
“Prediction markets represent the next frontier for attracting retail traders. However, they also pose a potential threat to incumbent listed derivatives markets if flows are redirected away from futures and options and towards prediction markets,” explained Acuiti.
Elsewhere, the study assessed the practicalities of building the technology required to offer prediction markets. When questioned, 57% of venues confirmed plans for ‘a hybrid build strategy, combining in-house development with third-party technology’.
As interest grows, so too will competition in the space. With firms highly cognisant of that fact, ‘time to market’ was – arguably understandably – considered the most important factor when evaluating external technology providers.
Speaking to the future outlook of the space, and reflecting on the findings, Ross Lancaster, head of research at Acuiti, asserted: “Our research suggests that there will be a significant number of venues launching prediction markets globally over the coming years.
“The ones that succeed will be those that can come to market quickly with robust, institutional grade technology.”
Acuiti and Connamara Technologies’ ‘the race to build prediction markets’ study surveyed senior executives at both traditional and digital asset exchanges, as well as betting companies.