Prediction market platform Karsi filed with federal regulators on Tuesday for approval to provide leverage to event contracts that are already widely used on Wall Street in stocks and futures.
The filing with the Commodity Futures Trading Commission, the federal regulator for event contracts, was filed by the company’s in-house clearing house, Calci Clear. This is the latest move by the company as prediction markets increasingly seek to attract institutional liquidity to event contract exchanges.
Kalsi already offers leverage on perpetual futures contracts, but has not yet received similar approval for its prediction market.
The provision of margin trading, which allows traders to borrow funds to buy more assets than they have deposited with cash, is widely seen among financial institutions eyeing the prediction market space as a necessary step for larger firms accustomed to trading traditional stocks and derivatives to participate. Currently, all event contracts on regulated US exchanges are fully collateralized.
In July, Bloomberg News reported that prediction market rival Polymarket was moving toward obtaining a regulatory license to eventually offer margin trading of event contracts in the United States.
Volumes in prediction markets, including Karshi, have soared over the past year, thanks in large part to retail trading in sports-related products. However, a Calci spokesperson told CNBC that the company intends to avoid providing margin opportunities in sporting event contracts, culture and “mentioned” markets.
In a memo provided to CNBC, Kalsi said the ability to provide leverage makes long-term prediction markets with expirations far in the future more attractive to institutional investors.
The company also said it is considering implementing a system where the capital required to gain leverage increases as the expiration date of an event contract approaches. If approved, only self-clearing members with a direct relationship with Calci Clear will have access to marginable contracts that meet certain capital requirements, a Calci spokesperson said.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
