Overview of Why Susquehanna Is Building a Prediction Markets Business
This live Odd Lots conversation explores why Susquehanna International Group (SIG) is expanding into prediction markets and what role a major market maker can play in making them more useful. Jeremy Mallitz, SIG’s head of prediction markets, explains how the firm is trying to solve the market’s core “chicken-and-egg” problem: prediction markets need liquidity to attract institutional users, but institutions won’t participate until the markets are liquid enough to hedge meaningful risk. The discussion covers market making, institutional adoption, insider trading concerns, manipulation risk, and why prediction markets may eventually become a serious hedging and price-discovery tool beyond sports betting and elections.
What Susquehanna Does in Prediction Markets
Core role: liquidity provision
- SIG acts as a market maker on prediction market platforms.
- Its job is to provide bids and offers, helping buyers and sellers trade even if they show up at different times or in different sizes.
- Mallitz describes the firm as both:
- a liquidity provider for the ecosystem, and
- a “shepherd” helping other institutions enter the space.
Why SIG is well suited
- SIG is fundamentally an options and probability-driven trading firm.
- Its culture emphasizes:
- Bayesian thinking,
- probabilistic analysis,
- warehousing risk when necessary,
- and building markets in new asset classes.
- The firm has enough capital to support larger trades than smaller independent market makers.
The Big Thesis: Prediction Markets Need Institutional Liquidity
The current market is still dominated by sports
- More than half of prediction market volume is still in sports.
- That’s because sports betting already had huge consumer demand and prediction markets gave it a more efficient trading structure.
The next stage is hedging
- SIG believes the real long-term opportunity is institutional hedging:
- weather risk,
- regulatory outcomes,
- geopolitical events,
- commodity-like uncertainties,
- and other real-world contingencies.
- Examples discussed include:
- snowfall in New York,
- Strait of Hormuz access,
- political leadership changes,
- and economic policy outcomes.
Liquidity can come before volume
- Mallitz argues that even if a market only shows modest visible trading volume, it can still reflect a fairly accurate price because of the information content in the market.
- SIG is willing to take the other side of trades so that institutions can hedge even before organic institutional volume fully develops.
How Prediction Markets Differ From Traditional Markets
Not all markets are the same
- Some prediction market contracts resemble conventional financial instruments, such as:
- Fed rate decisions,
- S&P 500 outcomes,
- macroeconomic events.
- Others are more idiosyncratic and require bespoke research or modeling.
Speed to market is the major innovation
- Mallitz says the biggest shift is that prediction markets can launch much faster than traditional financial products.
- He gives an example of trying to hedge trade-war risk through traditional futures listing, which took about a year.
- In prediction markets, similar products can launch in a day or less.
Prediction markets as a price-discovery mechanism
- The firm sees them less as pure gambling instruments and more as a way to aggregate intelligence from “super forecasters.”
- That price discovery can support real hedging use cases if market makers are willing to stand behind the price.
Institutional Adoption: The Main Frictions
1. Lack of awareness
- Many institutions do not yet believe prediction markets have enough depth to hedge serious exposures.
- SIG’s answer: “We will be the liquidity.”
2. Compliance and legal uncertainty
- Institutions are cautious because prediction markets are still new and often poorly understood internally.
- They need help navigating:
- legal structure,
- compliance,
- and operational access.
3. Market structure is still evolving
SIG says institutions may access the market in multiple ways:
- direct exchange trading,
- block trades,
- swaps tied to exchange market data,
- or relationships via brokers, banks, and insurers.
Insider Trading and Manipulation Concerns
Insider trading is more visible in prediction markets
- Mallitz argues prediction markets may actually make insider behavior easier to spot than stocks, since there are fewer plausible reasons to buy a very specific event contract.
- The regulated space has KYC and stronger oversight.
- He also notes that the DOJ has started pursuing cases on crypto/DeFi platforms as well.
Manipulation risk is limited in practice
- SIG does not focus on “mentioned markets” or other obvious gimmicky contracts where someone could try to influence the outcome.
- For markets where outcomes are hard to manipulate, he believes attempts to distort price will usually be met by other traders taking the other side.
What SIG Will and Won’t Trade
Selectivity matters
- SIG does not make markets in everything.
- It focuses on contracts where its:
- technology,
- quantitative modeling,
- capital,
- and trading expertise can add the most value.
Some markets are better left to the crowd
- Pop-culture or novelty contracts may be better priced by a broad community of hobbyists and forecasters.
- SIG is more interested in markets with meaningful economic value.
The Origin Story: Elections and Macro
2016 was the turning point
- Mallitz says his interest in prediction markets grew out of trading election risk.
- Traditional proxy hedges failed in 2016 because the market reaction to Trump’s win was not what consensus expected.
- Prediction markets, by contrast, were better suited to that kind of event risk.
Macro and prediction markets are connected by mindset
- The role evolved from SIG’s macro trading culture rather than being a perfectly planned business line.
- Both areas rely on thinking in probabilities and understanding how markets price uncertainty.
Key Takeaways
- SIG sees prediction markets as a real market-structure business, not just a novelty or sports-betting extension.
- Liquidity is the missing ingredient that could make prediction markets useful for corporations and institutions.
- The most promising contracts are economically meaningful events that can be used for hedging or price discovery.
- Regulation, compliance, and institutional comfort remain major barriers to adoption.
- Insider trading and manipulation are real concerns, but manageable—especially in regulated markets.
- Prediction markets’ biggest advantage may be speed: the ability to create tradable hedges much faster than traditional finance allows.
Bottom Line
SIG is building in prediction markets because it believes these instruments can evolve from speculative side markets into a legitimate infrastructure layer for hedging real-world risks. The firm’s role is to provide the liquidity, credibility, and market-making support needed to turn that idea into something institutions can actually use.