Robinhood recently launched a new slate of sports event trading markets. Within days, they have come under scrutiny from at least one state.
Massachusetts Secretary of State Bill Galvin has launched an investigation into Robinhood’s sports predictions markets, as reported by Reuters.
Robinhood announced last week that it was launching a prediction markets hub that would allow customers across the U.S. to trade on a range of events contracts supplied by Kalshi. The first wave of contracts included the men’s and women’s March Madness basketball tournaments and generated over $240 million of action.
Per Reuters, Galvin’s office subpoenaed Robinhood last week, seeking details on how many customer accounts in Massachusetts had been used for trading college sports events contracts.
Galvin’s office confirmed to SBC Americas in an email that the subpoena was sent to Robinhood last Thursday, March 20, and a response is due by April 3. SBC Americas also reached out to Robinhood but had not received a response at time of writing.
Secretary of State brands prediction markets ‘a gimmick’
Sports events contracts, which include markets that resemble single-game sports wagers by allowing customers to trade on the likelihood of one particular team advancing from a game to the next round, are regulated by the Commodity Futures Trading Commission (CFTC). A Robinhood spokesperson told Reuters that the CFTC approves its markets.
However, Galvin called Robinhood’s entry into sports contracts “just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” as quoted by Reuters.
At the time of Robinhood’s announcement of the prediction markets hub, its VP and GM of Futures and International JB Mackenzie said that prediction markets, “play an important role at the intersection of news, economics, politics, sports, and culture.”
“We’re excited to offer our customers a new way to participate in prediction markets and look forward to doing so in compliance with existing regulations,” he added last week.
Robinhood previously pulled sports markets
Robinhood and Kalshi are finally working together after a partnership to offer trading on February’s Super Bowl proved to be short-lived.
In that instance, the CFTC formally requested that Robinhood stop offering its sports event contracts, and the company’s Big Game markets were available to customers for less than 48 hours. Robinhood said at the time that it would continue to collaborate with the CFTC to “roll out a more comprehensive event contracts platform later this year.”
Last week, it said it had been in close contact with the securities commission over past weeks.
Galvin’s subpoena has requested to view internal communications about the decision to roll out college sports events contracts despite the CFTC’s prior decision to shut down Robinhood’s sports offerings, according to reporting from Reuters that was confirmed to SBC Americas by Galvin’s office.
A CFTC statement supplied to Reuters said that, “at this time, the CFTC has no legal justification to prevent Robinhood from offering access to these contracts, which are listed on a CFTC-registered exchange.”
March Madness prediction markets generate millions
Meanwhile, Robinhood’s markets supplier Kalshi’s platform shows well in excess of $200 million worth of March Madness contracts created on its platform through the first two rounds of the NCAA tournaments.
On Monday, Kalshi unveiled a new Customer Protection Hub which will include player protection guardrails such as deposit caps, trading breaks and voluntary opt-outs. The company has also partnered with Integrity Compliance 360 (IC360) on sports trading monitoring.
