Interviewer: Financial markets confront high yield volatility as well as geopolitical shocks and debates over AI productivity. Wall Street is looking beyond delayed point estimates for real-time price discovery. Now recent research published by the Federal Reserve Board confirms that regulated prediction markets provide a high frequency forecasting benchmark that competitively matches or beats traditional macro data while with institutional. Block trading always on electronic execution as well as novel for curves for GPU compute and legislation. Prediction markets are entering a new phase of adoption while Kalshi is federally regulated here in the US by the CFTC as a designated contract market. Joining us live here at the New York Stock Exchange this morning is Andy Ross, head of institutional business at Kalshi. Andy, great to have you here. Thank you so much for joining me.
Andy Ross: Great to be here. Great to be on the floor.
Interviewer: Yes, absolutely. So here we are on the floor of the New York Stock Exchange talking prediction markets. So tell us why institutional desks are using prediction markets alongside traditional benchmarks.
Andy Ross: The data that you get is generated by everybody coming together in the market, and the market isn't just like what is a bond going to do or what is an equity going to do. It's an interesting fact. So we had market on whether the Clarity Act was going to pass. People were using that to hedge Bitcoin. We have a market on how many ships are going to go through the Strait of Hormuz. A head of a trading desk at an oil major says the first thing he does in the morning is look at that market. And so these are real world events that are driving financial markets. So rather than just being able to trade on the financial, which is really in some ways a derivative, you want to actually look at the world market. And secondly, the data that's coming out of this is super accurate. You mentioned that in your staff. The Federal Reserve, Morgan Stanley put a paper out recently talking about it. Kalshi's own research says the same thing, that these markets are calibrated phenomenally well. And in a world of uncertainty, having a really well calibrated market where all these millions of users on Kalshi have helped generate a price is a really good value signal, really good alpha generator.
Interviewer: Yes, and Andy, because you just mentioned the Clarity Act, I do want to expand on that. All of us here were watching the prediction markets to get a better sense of what we could possibly expect, and indeed that cloture vote failed at the Senate level. But at the same time we've been hearing from the SEC as well as other regulatory bodies. Also other institutions in terms of how they're going to navigate the landscape going forward. So give us your perspective on how you can actually hedge legislative risk.
Andy Ross: So take the Clarity Act for instance. We had a market on that. Was it going to pass or when was it going to pass and you could manage that and we had people trading millions of dollars. We had people trading block size in that and then you had Bitcoin when it didn't pass it went from about 80,000 to about 76,000 dropped like that. Well, actually you could hedge that in Bitcoin. You could hedge that with options in Bitcoin, but actually the thing that drove that at that moment was the Clarity Act. So you could actually really hedge. Is the Clarity Act going to pass because you don't know what other things might occur in Bitcoin. You could have got the call right on the Clarity Act, but Bitcoin could have gone the other way because something else happened at the same time. So the ability to sort of disaggregate things that are driving um the things that move markets so that you can be right about your um your your thinking, your process, but at the end of the day, you might not get that right in the underlying market movements because something else might override that decision. And the classic example of that is stocks, right? You could think, oh look, I really am, I'm interested. Stock might go up. I've done all my research. It's going to be great. We beat earnings, but something else happens like there is a yield curve moves and then all stocks fall. So you can actually just by isolating those individual things in prediction markets you've got a much stronger ability to actually decomponentize risk and therefore institutions love that.
Interviewer: And while I have you here, we have to talk about artificial intelligence. So we know that institutions as well as leaders, whether we're talking about the heads of publicly traded companies or even nation states. They have been talking about the role of AI and what we need to do to protect humanity. So I do want to get your perspective when it comes to compute curves for viewers out there who may not be as familiar. Tell us about the role it plays.
Andy Ross: Let's start by talking a little bit about AI. And what's interesting, I think about AI is that the debate is often very balkanized between, you know, you've got the sort of killer box at one end and humanity is all going to end and we're all going to have no jobs or the other and I think in most things extremes aren't the reality and has a few markets so we have a market on a report by Citrini for instance which says is there going to be mass unemployment and that currently is priced about 20% so the market is saying that the negative effects, the significant negative effects of AI are likely to be there at the same time you're seeing some of the positive effects. Could that be a dampener for inflation? Could that be a dampener for costs? And so that could be very supportive. In terms of compute markets, the SEC and the CFCC are looking at that and saying, well, what do we need to do to make those markets safe? What do we need to do to make them controlled because clearly there's a huge debate battle almost between the US and China about managing AI. If you get that right, the power of these markets to hedge risk is going to be huge. And so for an example, you're building a data center that could be a multi-billion dollar investment to build a data center, and then a moratorium comes around. How do you hedge that risk? Um, you're putting chips into data centers. How do you hedge the risk of those chips? You don't need those chips now, you need those chips in 2 years. Do you even want those chips? Has someone developed a new chip by that point? And so being able to manage that risk, um, is something that Kalshi and many others in financial markets are working on, and I think it's beneficial for USA Inc. and beneficial for the development of, uh, AI infrastructure generally.
Interviewer: And finally, before I let you go, I do want to get your perspective on geopolitical as well as political risk signals. So off the top of the show, you brought up the Strait of Hormuz, and we still don't know what the future brings in terms of geopolitics, not just with the Middle East, but also the Ukraine Russia situation. So I do want to get perspective as we head into the midterm election cycle. Tell us your sense of what institutional trades are going on right now when it comes to geopolitics and politics.
Andy Ross: Great question. Something like 16% of all Americans have interacted with Kalshi, and either that means they've got an app and they're trading on it, or it means that they're looking at it. And so polls are fine, they add value. Focus groups are fine, they add value as well. I'm not here to criticize either polls or focus groups, but what's super interesting about it is that when you get all of those people coming together and they're putting their own money in, this is not what they want to happen. This is what they think is going to happen into prediction markets. The value that comes out of them in terms of the forecast is really accurate, and currently we've got in Kalshi that the prediction markets are saying that the Democrats will take the Senate.
Interviewer: Well, I will have to leave the discussion here, but I appreciate your time and hopefully you'll be back with us very soon. Thank you so much for joining me.
