Schwab monitors prediction markets as Kalshi targets brokerages

Financial services giant Charles Schwab Corp. is closely following the regulatory landscape of prediction markets, as leading exchange Kalshi targets integrations with financial brokerages. 

“We’re monitoring the space and regulatory landscape closely, but we don’t have any plans at this time,” a Charles Schwab Corp. spokesperson said in an emailed statement to InvestmentNews.

Charles R. Schwab, the company’s founder and co-chairman, invested in Kalshi’s $30 million Series A in a 2021 funding round that also included KKR co-founder Henry Kravis. Charles Schwab’s granddaughter, Samantha Schwab, worked as a business development executive at Kalshi before President Donald Trump appointed her in January to be deputy chief of staff for the US Department of the Treasury.

“We see a world in which event contracts and prediction markets are the future,” Samantha Schwab said in a July 2024 interview with Schwab Network. “People like trading stocks, people like buying ETFs, that’s obviously an important part of the financial ecosystem. But people also are very plugged into what’s going on in the world, what’s going on in the news, and people want to trade on things that they care about.”

Donald Trump Jr. is a strategic adviser to Kalshi, which he credited for being much faster than media networks in showing his father’s likelihood to win re-election. Kalshi is regulated federally by the Commodity Futures Trading Commission, of which Brian Quintenz has been nominated by President Trump to lead. Quintenz sits on the Kalshi board and owns stock in the company, but has said he will resign from the Kalshi board and divest his stock if he gets confirmed by the Senate to lead the CFTC.

Brokerages including Webull and Robinhood have already struck partnerships with Kalshi, which lets users wager money on outcomes including sporting events, weather, crypto price movements, stock market performances, product launches, political decisions, and pop culture news. While speaking at the Solana Accelerate conference in May, Kalshi CEO Tarek Mansour said his firm has “a dozen” brokerages in its pipeline as it looks to offer prediction markets in the same financial platforms where investors can also hold 401(k) accounts.

“I think by the end of the year, we're projecting another maybe five to six brokers, and I think within the next year and a half I would say most mainstream financial brokerages like where you have your 401(k)s and others will have access to Kalshi’s products or prediction markets in app,” Mansour said. “This adoption of prediction markets and the places where people keep their money and go to sort of check their balances and their paychecks and so on and so forth, I think that's a critical step for us, and the results this year have been showing the growth has been really really astronomical.”

Mansour’s comments prompted Kalshi to clarify, “There are zero plans on our end to make prediction markets accessible via 401(k)s,” a company spokesperson told gambling consultant Dustin Gouker of the Event Horizon newsletter.

Prediction markets or gambling? 

The CFTC allows Kalshi’s app to operate in all 50 states to users age 18 and older. State gambling regulators and major US sports leagues have argued Kalshi’s sports event contracts should be regulated as sports betting, which is not legal in all US states, while requiring a minimum age limit of  21 in those states where gambling is legal.

"I just don't really know what this has to do with gambling," Mansour said in an interview with Axios. "If we are gambling, then I think you're basically calling the entire financial market gambling."

In April 2024, Susquehanna International Group became Kalshi's first dedicated institutional market maker, in yet another move bringing Wall Street to prediction markets. Tyrone Ross, who is the CEO of the RIA 401 Financial and the crypto data reporting software Turnqey Labs, mentioned Coinbase as a brokerage he expects to eventually integrate prediction markets trading. 

“I just think it's going to be partial to what investment portfolios look like in the future, and advisors better get ready for it,” Ross said of prediction markets. “I think prediction markets are very big with folks in crypto. It's just a natural evolution, which is why you see WeBull, Robinhood and all these folks that provide those services to retail investors are also getting into the prediction markets game.”