Options exchange Cboe enters the prediction market, focusing on financial and economic events

Options market trading pioneer Cboe has announced its entry into the prediction market, choosing not to follow the sports trend but instead taking a steady financial route, with plans to launch its own products linked to financial outcomes and economic events.

Source: Golden Ten Data

According to foreign media reports, Cboe Global Markets Inc., the Chicago Board Options Exchange, plans to launch its own prediction market business within a few months. Unlike some competitors, the company will not be involved in sports-related products for now, but will focus on financial and economic events.

This Chicago-based derivatives exchange operator has become one of the latest exchange companies to enter the emerging and rapidly developing prediction market industry. The industry offers federally regulated event contracts, which are similar in form to traditional betting products.

Cboe CEO Craig Donohue said in an interview that, unlike other financial institutions that cooperate with prediction market startups or sports betting companies, Cboe plans to launch its own products linked to financial outcomes and economic events.

Currently, the U.S. prediction market mainly operates through platforms such as Kalshi and Polymarket, turning various events (such as the duration of government shutdowns, the probability of Federal Reserve rate cuts, economic data releases, commodity prices, etc.) into tradable contracts, providing trading opportunities for users with judgment or research capabilities.

"This field is developing rapidly, but I think it is still in its early stages," Donohue said in the interview. "Our current focus is on our own organic growth, and we hope to see results in the coming months."

Just on Wednesday, Cboe's competitor CME Group Inc. announced a partnership with FanDuel, the online sports betting division of Flutter Entertainment Plc, to launch a consumer application centered on prediction markets.

Since winning a federal court ruling last year, prediction market exchange Kalshi has used event contracts to bypass state regulations on online gambling. Its competitor Polymarket, meanwhile, said on Wednesday that after previous legal disputes forced its business overseas, it is now restarting services for U.S. customers.

Although sports betting is the fastest-growing segment of the prediction market business, Donohue said that due to legal uncertainties, Cboe will avoid this area. "I know there may be considerable profit potential there," he said,

"But that also comes with a lot of litigation and regulatory risk, and that's someone else's battlefield. For Cboe, we will continue to focus on areas with financial and economic impact."

In recent years, Cboe has adjusted its expansion strategy, shifting its focus to internal growth rather than expansion through mergers and acquisitions.

"I believe our best growth opportunities still come from our core large businesses," Donohue said in another interview. "In recent years, we have continued to see strong growth in retail customers." As individual investors become more speculative, the U.S. capital market has also become more globalized.

Donohue believes that prediction markets will attract a new audience, who may in the future be exposed to Cboe's other products, such as short-term options contracts. But he also pointed out that the risks of sports-related trading are too high.

"The last thing you want to do is make a lot of money from people who can't make long-term profits in the market," he said.

Cboe's stock price has risen about 30% this year, outperforming competitors CME Group and Intercontinental Exchange, and hit a record high this Monday.

Cboe, known for pioneering the options market in the 1970s, has transformed from a traditional trading floor to an electronic trading platform. In 2017, the company acquired Bats Global Markets to expand into equities, exchange-traded funds, and foreign exchange trading. Donohue said that prediction markets provide the company with further expansion opportunities,

"We know there are a large number of investors in the market who want to express their views on index trends, stock market volatility, single-stock options, and securities price movements."