It’-s a very important take.
– HedgeStreet’-s comment to the CFTC. —- (PDF file)
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Basically, they are saying:
- We saw that the CFTC is entertaining the “-exemption”- way for prediction markets on politics and on other news.
- You have lost your sanity, folks. The “-exemption”- solution will bring you plenty of problems.
- You should approve these prediction markets under the classic, regulated way (the DCM solution). The classic regulation is the right way to deal with the potential problems you mentioned in your “-concept release”-.
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That’-s a pretty strong argument.
(Just remember the conundrum that Jason Ruspini has exposed.) (PDF file)
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Now, the counter argument is to say that the DCM way slows innovation —-thus the need to “-exempt”-.
That’-s a pretty strong argument, too.
Indeed, one can point that it’-s IEM, InTrade and BetFair who have grown the field of prediction markets —-not HedgeStreet.
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DEVELOPING…- 
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UPDATE: Jason Ruspini seems to be in agreement with HedgeStreet. I like that. See his comment, just below.
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UPDATE: Jason Ruspini gives his understanding of the HedgeStreet’-s comment to the CFTC.
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UPDATE: A second look at HedgeStreet’-s comment to the CFTC about “-event markets”-
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Indeed, one can point that it’s IEM, InTrade and BetFair who have grown the field of prediction markets —not HedgeStreet.
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If it’s liquidity you want, you should offer the public a chance to rip each other off massively on sports and stupid games which doesn’t involve knowledge or anything of social value. After all, everyone prefers to believe he’s smarter than his neighbour. Humans are a bunch of idiots. Exploit it. If you understand about how wars are started, you are likely to succeed in running a sports exchange as well. That’s why it was all invented in the UK in the first place.
But that’s sports, and nobody gives a shit if the price is right as long as you can make some money.
There are some exceptions to the rule – some really decent folks hanging around at the exchanges. But most of them won’t survive and eventually submit to the betfair way. “I’m a cheat and proud of it” is what you’ll hear on a daily basis and have to get used to when you choose to hang out at the exchanges. Eventually organized crime will get a foothold on the exchanges. I have to laugh when I see some of these investigations looking into insider trading and the suspicious betting activity that is (supposed to be) visible to the eye. I could be their best friend if I wanted to. The future and success of betting exchanges in the UK will be dependent on the inventiveness of the crooks, and with betfair jumping like mad men to try and keep this iceberg below surface, I’m not very confident about the future.
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This is not America.
[…] – Analysis of the HedgeStreet’s comment sent to the CFTC. […]
This is a great recommendation. For the first time in public, in writing, we get a strong message that Hedgestreet wants to run election markets. Their proposal is very similar to mine although less comprehensive because they steer clear of gaming law pre-emption issues. (In that regard, it’s uncertain how much of a help their reference to the CFTC’s non-commodity option authority was.) Their focus on DCM election markets is admirable though, and they came to the same sorts of conclusions that I did regarding trading prohibitions. I recommend that Hedgestreet gets a trading prohibition infrastructure in place as soon as possible.
@Jason Ruspini: Good to hear that.
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I like their main idea, but would add something to what they say.
DEVELPING…
It’s not a major point, but on another reading, the following statement from Hedgestreet is pretty misleading: “Election contracts, which are in the nature of binary options, would be within the Commission’s jurisdiction even if the related event was not a ‘commodity’ for the purposes of the Act.” Taken in isolation, this is false. The CFTC has jurisdiction over all exchange-traded commodity options, but could not pursue enforcement against non-commodity options as Hedgestreet implies. Per 7 USC Section 6c(b), not the section that Hedgesteet quoted in edited form, the CFTC has the power of approval over DCM-hosted options, and in that sense has extra authority over options.