Can prediction markets pass the institutional sniff test?
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Regulated firms need credible event determination methodologies and cross-product margining to enable use, say experts
Prediction markets allow traders to take positions directly on events such as inflation releases, regulatory approvals and the passage of legislation in novel and increasingly popular ways. But for banks, asset managers and other institutions to use these contracts to hedge real exposures, an exchange and a binary $1-or-zero payoff are not enough.
Two practical questions are particularly important
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