Citadel Securities, IMC and Hudson River sit out prediction market boom as compliance risks mount

- Major market makers Citadel Securities, IMC Trading and Hudson River Trading have stayed away from prediction markets even as the sector surges to $20B/month in volume, up from $1.2B in 2025 - Susquehanna, DRW and Jump Trading have moved in, building dedicated desks and providing liquidity on platforms like Kalshi, which now controls 89% of the regulated U.S. prediction market - Event contracts pose unique compliance challenges for institutional firms: insider trading exposure on geopolitical bets, unclear regulatory treatment under CFTC rulemaking, and reputational risk from products critics call gambling masquerading as derivatives - Federal prosecutors in Manhattan are already scrutinizing suspicious prediction market wagers, including $170M in Polymarket bets placed ahead of the Iran ceasefire, while class action lawsuits target market maker advantages on Kalshi

TLDR by @Benthic

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