Why Prediction Markets Are Now a Strategic Issue for Brokers: KPMG

KPMG is urging financial institutions to take prediction markets more seriously. The firm argues that event-based contracts are moving from speculative novelty to a potential strategic component of trading and risk infrastructure.

In its latest white paper, “Prediction Markets in the Financial Sector,” KPMG suggests the industry may be approaching an inflection point. Banks, asset managers, and brokers can no longer treat event contracts as peripheral products; they must decide whether and how to include these instruments in their existing platforms.

Prediction markets are regularly tied to election betting. However, the report frames them more broadly—as tools for structuring exposure to macroeconomic developments, corporate events, and regulatory outcomes. In that sense, they are positioned less as a gambling mechanism and more as an alternative architecture for event risk.

What It Means for Brokers

For brokerage firms, the implications are structural, not cosmetic. KPMG argues that standardized event contracts could gradually shift emphasis. Firms may move from distributing complex, bespoke derivatives to operating transparent marketplaces where clients trade directly.

Such a shift would alter the composition of revenue. Instead of relying primarily on structured-product margins, brokers would generate income from platform access, liquidity provision, and analytics.

As Robinhood CEO Vlad Tenev is quoted in the report, “I believe prediction markets should be live for everything.”

The statement captures a wider view within parts of the industry that event contracts could evolve into a standard trading category. For brokerage leadership, the practical question is less about immediate disruption.

The focus is more on positioning. Integrating event markets into the core trading infrastructure rather than isolating them as experimental features would require a meaningful platform redesign.

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Liquidity and Regulation Remain Decisive

At the same time, major constraints remain. Liquidity in prediction markets is still much thinner than in established derivatives venues. That gap causes sharper price swings and limits effectiveness for large institutional hedging.

Flash volatility and cross-platform arbitrage in late 2025 and early 2026 illustrated the sensitivity of fragmented order books. Regulatory alignment is also critical. In the United States, the CFTC treats certain event contracts as derivatives under the Commodity Exchange Act, requiring futures-style oversight.

Some state authorities, however, view political and sports contracts through a betting-law lens. This creates overlapping jurisdictional uncertainty. KPMG’s broader point is that prediction markets will not scale within mainstream finance on narrative alone.

Their trajectory will depend on two fundamentals: sustained liquidity and clearer regulatory treatment. If those conditions strengthen, event contracts could become more embedded in brokerage platforms. If they do not, adoption is likely to remain uneven.