Thomas Peterffy: Early on when I started my career, I left. I lost half my initial capital based on inside the three. So I'm, I'm extremely familiar with with the damage it can cause. But on the other hand, and in spite of that, I'm in favor of not having any, rules against insider trading. I would like all the information out there as soon as it's available.

Thomas Peterffy: Because, look, as a society, we're better off knowing as soon as possible anything that is knowable. Right. So why why do we have to wait forever? First of all, when you when you are faced with a merger or acquisition situation where there most of the insider trading is happening, right? They, they, you know, this the secretary's the lawyers, everybody knows about it. They go home day to day... So eventually always filters out. So it's almost impossible to avoid. It's very, very difficult and cumbersome. Why don't we just do away with it and let the information come out as soon as possible?

Tracy Alloway: Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway and I'm Joe Weisenthal. Joe, sometimes, sometimes I go on prediction markets, Yeah. And I see some of the contracts being traded. And, you know, we hear the argument all the time that there might be a real economic reason. Yes. Why prediction market should exist. So maybe, you know, maybe you run a studio in Hollywood. Yeah. So like it's actually really important who will be in the next cast of whatever Avengers movie is coming out. But I have a hard time thinking that betting on whether or not Jesus Christ is going to return to the world is economically important, right?

Joe Weisenthal: Yeah. No, I think there's a great point. I mean, I think you're being generous, actually, with the Avengers thing. I mean, maybe, maybe you could say it, but, you know, for example, there is a market and it's actually you can track it on the Bloomberg that says on Kelce. Will there be a recession before 2027? And that is at 33% right now. And that is something that like that's amazing in the sense that there is an instrument where you could bet on this very important question to investors and express it very purely in a way that if you were using other instruments like stocks or bonds, you would only be using a proxy for it.

Tracy Alloway: What you could say certainly in our current economic environment, being able to bet on things like, is the US going to strike Kharg Island or something like that, could be actually useful if you are a large institutional investor versus just betting on the price of oil or the drug or something like that. However, I have a hard time thinking that institutional investors are going to flock to a platform that contains questions that are both, you know, is there going to be a recession? And also some completely out there pop culture kind of contract?

Joe Weisenthal: Totally. Or, you know, obviously beyond the pop culture, they're dominated by sports betting and so forth. So that's another question. Also, you know, the marketing tactics used by the major prediction market companies are very different than anything pretty different than anything we see in traditional futures, etc.. So I think we both yeah, like I do on a fully think that like there could be legitimate use cases where there are natural hedgers natural liquidity providers... But there are some pretty big chicken and egg problems... no hedge fund gets out of bed for less than 20,000.

Tracy Alloway: Okay. So I do, in fact, have the perfect guest to discuss all of this. Someone who is trying to solve that chicken and egg problem and actually create a prediction market that is more geared towards institutional investors. And we are going to be speaking with Thomas Peterffy. He is, of course, the founder and chairman of Interactive Brokers...

Joe Weisenthal: Absolutely. So we're going to get into the overall, you know, market structure, ie all that good stuff. But we'll start with prediction markets. So Thomas, thank you so much for coming on Odd Lots.

Thomas Peterffy: Thank you very much for having me.

Thomas Peterffy: So from that point of view, the prediction market is no different than the stock market, except it addresses much larger and more important on the one hand. On the other hand, much sillier and less important questions. So it all depends on what you ask. So the stock market has Microsoft and Nvidia and also has, you know, the, the GameStop and other silly stocks. Right. So it it is the same. It is a, parallel situation. So you cannot you cannot blame, prediction market, the mechanism itself for the silly things that some, platforms list. Right. The, the, the idea here is to deal with questions together. The consensus opinion of people who are preferably experts or are the thinkers on the questions that we are going to ask and to gather the consensus so that we can all, include that in our decision making and planning for the future.

Joe Weisenthal: Do you think that eventually institutional investors will use prediction market like instruments to trade things like will there be a recession in the year 2026?

Thomas Peterffy: Definitely. I'm I'm absolutely convinced that, so the stock market gives us, a venue to, to invest in the future, basically in the future, of different companies. But, you know, some of the how those companies are actually going to end up trading in the future has a lot to do with the economic environment and social environment in the future... So the prediction markets gives them an opportunity to to gather experts around who are not afraid to put their money on the line and, and, express what they think and to collect a consensus opinion...

Tracy Alloway: A lot of the prediction markets, one of the problems that they currently have is that volumes are still pretty low, right? The markets are very illiquid... what are the big hurdles for them?

Thomas Peterffy: Well, at this point, just it's very similar to any other market when when it starts, liquidity is always a big question... If you look at, for example, the options markets that have been around for 54 years, I think initially there was very little liquidity... Nowadays you can trade thousands or maybe even millions of contracts. And since the stock market is basically similar... it is not going to be as complex for people to understand a prediction contract as it is to understand an options contract. So, I think that they do not take equally long time to, to, develop sufficient liquidity.

Tracy Alloway: When I go on forecast trader right now, I see that like, you know, will the United States economy enter a recession by the end of the second quarter of 2026, or will 2026 be the warmest year on record?... Is that how you're trying to differentiate yourself with more, you know, quote, serious, economically serious contracts?

Thomas Peterffy: So don't forget that we are very different companies. Interactive brokers has a large, following of of, serious successful institutional investors... because she doesn't have that. So for us, prediction markets are an addendum that enables us to to basically run that our offering... they have to add things like sports. And of course, that has become their mainstay... We prefer to, to focus and concentrate on, serious questions having to do with, with our clients. The investment, maybe some of them would like us to have sports, but we just don't want to distract them with that.

Joe Weisenthal: Whereas with Forecast Trader, you are the market, you're the broker and the venue at the same time... Is this new for you?

Thomas Peterffy: ...Yeah. It's it's you are correct. It's the first market that where nothing have has existed like it actually.

Joe Weisenthal: But how come we didn't get prediction markets sooner?

Thomas Peterffy: We started developing the prediction markets roughly ten years ago. And, the, the the problem was that we had some consultants at the firm... they said, well, you will never get your banking license if you come out with this prediction market... So what we did was we released it for phantom money... and that eventually petered out because phantom money's not really interesting. Yeah... and then I wanted to buy, gosh. But he wouldn't... then I went to the CFTC and I asked for my own license, and, they took, three years to to work it through and give it to us. But we eventually got it last year.

Tracy Alloway: When you look at AI and compare it to the early days of electronic trading, what similar and what what feels different to you now... or is this something fundamentally new in your mind?

Thomas Peterffy: Well, it's a it's a huge leap in technological development. But but it's basically as a computer programmer, I look at it basically as as a new, higher level of language that is much, much, much, much more powerful than anything that came before... this is a natural language and, and so it that that AI is basically a higher level language, which is a natural language. And it also has the it available, all the data that exists in the world.

Joe Weisenthal: In fact, frequently you won't, even with the exact same query... does the non deterministic element of AI... have implications for its use in finance?

Thomas Peterffy: Well option prices are probabilistic. Prediction markets are not probabilistic. That's what that's what my initial impetus was for for prediction markets to teach people probabilities. Because people don't don't tend to not think of probability probability probabilistically. They tend to think either this will happen or will not happen... There is a a there is a probability for something to happen. And nobody knows what really will happen. Right.

Joe Weisenthal: Joe, that was an interesting conversation. That was great. I was not expecting Thomas to be... it's interesting to hear him completely just say, let's get rid of insider trading laws.

Tracy Alloway: Yeah. Clearly that was a formative experience. Yeah. For him...

Joe Weisenthal: ...if Thomas thinks so, then I think so. That's that's where I stand. It does feel like the steady march of progress is sort of in this direction.

Tracy Alloway: This has been another episode of the Odd Lots podcast. I'm Tracy Alloway... Thanks for watching.