Tag Archives: event derivatives

Are US-based real-money prediction exchanges to become federally regulated (as DCMs)? Or semi-regulated (as ECMs, or as exchanges covered by no-action letters)?

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BusinessWeek:

In its request for comment, the CFTC reminded the public that the commission should &#8220-promote innovation for futures and derivatives.&#8221- It also added that —hint, hint— the Iowa markets have been valuable sources of public information and have predicted Presidential outcomes better than polls. The 2000 act gave the CFTC the authority &#8220-to promote responsible economic or financial innovation&#8221- by creating an exemption for certain types of contracts (such as one in a prediction market). […]

&#8220-Basically I think they&#8217-re going to expand the IEM no-action letter and take legal measures to make sure that legal contracts aren&#8217-t subject to antigambling laws,&#8221- says Chapman law professor Bell. […]

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BusinessWeek gets it right about where the CFTC is going. (Go reading the 2 pages.)

However, I still believe that HedgeStreet has a strong argument (about the political elections being &#8220-excluded commodities&#8221-) and I wonder what the CFTC will do about it.

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What I think of Robin Hansons comment to the CFTC… and what I think about his slam at TradeSports-InTrade, BetFair-TradeFair, and HedgeStreet.

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Overall, his input is very brainy.

It&#8217-s a major contribution to the general discussion about prediction markets.

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Please, allow me to disagree on one thing he said.

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Robin Hanson:

One proposed distinguishing criteria includes the size of an individual trader&#8217-s stake, and the number of traders. The Iowa Electronic Markets are limited on both of these parameters. Such limits do succeed in preventing large hedging markets from masquerading as info-motivated event markets. But they do little to prevent generic gambling markets from masquerading as info-motivated event markets.

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I have a fundamentally different view. What is important is not what Robin Hanson thinks of TradeSports-InTrade, BetFair-TradeFair, and HedgeStreet &#8212-and what their motivation(s) are.

What is important is whether those prediction exchanges do generate trustworthy and accurate probabilistic predictions. Period.

They do or they do not. Period.

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And guess which prediction exchange has been more than willing to host Robin Hanson&#8217-s conditional prediction markets: Hint: it&#8217-s not the Iowa Electronic Markets.

Did Robin Hanson tell that to the CFTC? :-D

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UPDATE: Robin Hanson&#8217-s comment, posted below this post.

Chris, I did not take the CFTC call for comments as asking for what I would choose if I were king. I instead took it as them asking for help negotiating treacherous political waters. Part of the reality of their difficult situation is that the public, and hence Congress is quite wary that new rules might in effect legalize general gambling. Convincing the public that betting markets provide accurate predictions is not enough to convince them to legalize such markets in general. If there is any doubt, if I were king I would in fact legalize general gambling.

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The CFTC is going to close the comments in 3 days. We have 3 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges (e.g., InTrade USA or BetFair USA), and counter the puritan and sterile petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowi

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ADDRESSES: Comments should be sent to the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, Attention: Office of the Secretariat. Comments may be sent by facsimile to 202.418.5521, or by e-mail to [email protected].

Reference should be made to the &#8220-Concept Release on the Appropriate Regulatory Treatment of Event Contracts.&#8221- Comments may also be submitted through the Federal eRuleMaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&amp-log=linklog&amp-to=http://web.archive.org/web/20080930170145/http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office of the Director (telephone 202.418.5578, e-mail [email protected]), Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

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THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

– Analysis of the HedgeStreet&#8217-s comment sent to the CFTC.

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BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

– The BusinessWeek news article about the CFTC&#8217-s concept release.

– The Arnold &amp- Porter lawyer&#8217-s take. &#8212- (PDF file)

– The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

– The American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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COMMENTS TO THE CFTC

– Very soon, two prediction market organizations and one VIP will submit their comment to the CFTC.

– What Vernon Smith told the CFTC. &#8212- (PDF file)

– Jed Christiansen&#8217-s pragmatic take. &#8212- Final draft – (PDF file) – His comment to the CFTC – (PDF file)

– The International Swaps and Derivatives Association&#8217-s comment to the CFTC – (ISDA) &#8212- (PDF file)

– Jason Ruspini&#8217-s comment to the CFTC &#8212- (PDF file)

– Tom W. Bell&#8217-s petition, which will be sent to the CFTC. &#8212- (Jonathan Gewirtz is in.)

– HedgeStreet&#8217-s comment to the CFTC. &#8212- (PDF file)

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror) &#8212- Comment to the CFTC – (PDF file)

– Tom W. Bell rebuts the American Enterprise Institute.

– Robin Hanson&#8217-s comment to the CFTC. &#8212- (MO mirror)

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APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

– How the neo-cons drove the United States of America into the unecessary Iraq war

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The freshest comments to the CFTC

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– The International Swaps and Derivatives Association&#8217-s comment to the CFTC &#8212- (ISDA) &#8212- (PDF file)

– Jason Ruspini&#8217-s comment to the CFTC &#8212- (PDF file)

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COMMENTS TO THE CFTC: What should be expected, next.

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Two prediction market organizations will submit, each, a comment. I suppose that what they will tell the CFTC will say more about their industrial strategy than about the right state of the US regulations on event derivative markets, but I could be damn wrong.

Tom W. Bell is working on a comment to the CFTC (that&#8217-s public information). Once it is published, the next thing to do is a comparative analysis of Bell versus Ruspini. With that question in mind: Which of these 2 luminaries will have the best impact on the CFTC?

I can&#8217-t wait.

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The Chicago Mercantile Exchange is not a friend of the prediction markets. Nor is the ISDA.

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Will the Chicago Mercantile Exchange write to the CFTC?

&#8230- asks Google&#8217-s Bo Cowgill.

That could be&#8230- However, I&#8217-m not holding my breath. Here&#8217-s why. The CME (along side the CBOE and ISDA) represents forces that does not push for the kind of financial innovations we are pushing here, on Midas Oracle. We are pulling for Web-based, de-intermediated, low-cost, event derivative exchanges. The financial dinosaurs (like the CME) do not.

Take a look at the CME&#8217-s 2003 letter to the CFTC about HedgeStreet&#8217-s application as a DCM. – (PDF file) – Here are the titles of the first 2 sections:

  1. HedgeStreet’s Proposal is Materially Deficient.
  2. The [HedgeStreet] Application Violates the CEA.

No need to go further. :-D &#8230- You have computed that the CME was (in 2003) no friend of HedgeStreet &#8212-and, thus, of our prediction markets. (For those who are just surfacing from an Afghan cave, yes, the CFTC did approve HedgeStreet&#8217-s application, finally, and told the CME to go fugging themselves.) So, I&#8217-m not holding my breath for a CME comment to the CFTC&#8217-s concept release on &#8220-event markets&#8221-. Saying that the CME is talking for the prediction market community is like saying the Ayatollah Khamenei was talking for priests, ministers, and rabbis.

As for the ISDA, they represent big institutional traders&#8230- who do not use exchanges ( !! ). What they say to the CFTC (PDF file), basically, is to be careful not to hurt the framework of the whole landscape. Well, thanks ISDA, but the CFTC knew that already.

As I said, 2 prediction market organizations will, each, submit their comment to the CFTC. I don&#8217-t expect that to be a deep read, with regards to derivative regulations. However, their industrial strategy might transpire, and that might be interesting for curious people like me. :-D

The 3 interesting takes about the &#8220-event markets&#8221- are from:

  1. the CFTC &#8212-if you are able to sense what their true opinion is.
  2. Jason Ruspini &#8212-(PDF file).
  3. Tom W. Bell &#8212-upcoming.

The future of US-based, non-sports, non-hedgeable prediction markets depends on those 3 poles of thought.

In the coming weeks, you&#8217-ll see many intellectual interactions between them.

The real question is: Will Jason Ruspini and/or Tom W. Bell have a proven impact on the CFTC process? I wish that, but both of them do stray away from the CFTC&#8217-s strict framework.

DEVELOPING&#8230-

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My question to Jason Ruspini

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Jason, thanks for your hard work on this issue. Your 7-page letter to the CFTC is a master document. &#8212- (PDF file)

What makes you think that your proposals will create more freedom for our prediction exchanges than the CFTC&#8217-s proposals?

Could you point to specific instances to us where you think that your input is more libertarian than the CFTC way? After all, your proposals contain many &#8220-don&#8217-t do that, and forbid that&#8221- things. :-D

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The CFTC is going to close the comments in 5 days. We have 5 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges (e.g., InTrade USA or BetFair USA), and counter the puritan and sterile petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowi

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THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

– COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

–

BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

– The Arnold &amp- Porter lawyer&#8217-s take. &#8212- (PDF file)

– The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

– The American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

–

COMMENTS TO THE CFTC

– This week, two prediction market organizations and one VIP will submit their comment to the CFTC.

– What Vernon Smith told the CFTC. &#8212- (PDF file)

– Jed Christiansen&#8217-s pragmatic take. &#8212- Final draft – (PDF file)

– The International Swaps and Derivatives Association&#8217-s comment to the CFTC &#8212- (ISDA) &#8212- (PDF file)

– Jason Ruspini&#8217-s comment to the CFTC &#8212- (PDF file)

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror) &#8212- Comment to the CFTC – (PDF file)

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APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

– How the neo-cons drove the United States of America into the unecessary Iraq war

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The CFTC is going to close the comments in 6 days. We have 6 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges (e.g., InTrade USA or BetFair USA), and counter the puritan and sterile petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowi

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THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

– COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

–

BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

– The Arnold &amp- Porter lawyer&#8217-s take. &#8212- (PDF file)

– The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– What Vernon Smith told the CFTC. &#8212- (PDF file)

– This week, 4 prediction market organizations and VIPs will submit their comment to the CFTC.

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

– Jed Christiansen&#8217-s pragmatic take. &#8212- Final draft – (PDF file)

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror)

– The American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

–

APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

– How the neo-cons drove the United States of America into the unecessary Iraq war

–

The CFTC is going to close the comments in 7 days. We have 7 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges (e.g., InTrade USA or BetFair USA), and counter the puritan and sterile petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowi

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–

THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

– COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

–

BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

– The Arnold &amp- Porter lawyer&#8217-s take. &#8212- (PDF file)

– The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– What Vernon Smith told the CFTC. &#8212- (PDF file)

– This week, 4 prediction market organizations and VIPs will submit their comment to the CFTC.

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

– Jed Christiansen&#8217-s pragmatic take.

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror)

– The American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

–

APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

– How the neo-cons drove the United States of America into the unecessary Iraq war

–