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So, just like flipping a coin, if Inkling told you something has a 15% probability of coming true, you can’-t just look at one outcome (i.e. one coin flip). You need to look at multiple scenarios where Inkling said something would happen 15% of the time. If those things actually come true, 15% of the time, Inkling is doing well at this.
CFTC – (PDF file):
CFTC’-s Concept Release on the Appropriate Regulatory Treatment of Event Contracts
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V. Issues for Comment
A. Request for Comment
The following questions consider the Commission’-s regulatory purview over event contracts, the interests that may appropriately underlie Commission-regulated transactions, and the appropriate regulatory treatment of event contracts. The Commission encourages comments on the specific questions posed, as well as the broad range of issues raised in this concept release. In providing comments, please describe your relevant experience and discuss in detail the facts and legal provisions that support your conclusions. Furthermore, please consider the Commission’-s mandate to protect commodity futures and options markets and customers, and ensure the integrity of the commodity derivatives marketplace, as well as the expected effects of any Commission action on competition, efficiency, innovation and the financial integrity of transactions. Any recommendation with respect to the regulatory treatment of event contracts and markets should be consistent with and supported by the Act, practical, and amenable to effective and efficient implementation.
B. Public Interest
1. What public interests are served by event contracts that are designed and will principally be traded for information aggregation purposes and not for commercial risk management or pricing purposes?
2. How are these interests consistent with the public interest goals embodied in the Act?
3. What calculations, analyses, variables, and factors could be used to objectively determine the social value of information to the general public that may be discovered through trading in event contracts? Should this be a factor in determining whether the Commission plays a role in regulating these markets?
C. Jurisdictional Determinations
4. What characteristics or traits are common to or should be used to identify event contracts and event markets?
5. How do these characteristics and traits differ from those of commodity futures and options contracts that customarily have been regulated by the Commission? How are they similar?
6. Are there criteria based on the provisions of the Act that could be used to make jurisdictional determinations with respect to event contracts and markets?
7. Given the purposes and history of the Act, would it be appropriate for the Commission to apply a test premised on commercial risk management or pricing functions to demarcate the Commission’-s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?
8. Given the purposes and history of the Act, would it be appropriate for the Commission to apply any test premised on the economic purpose of certain types of transactions to demarcate the Commission’-s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?
9. What calculations, analyses, variables and factors would be appropriate in determining whether the impact of an occurrence or contingency will result in a financial, commercial or economic consequence that is identified in Section 1a(13) of the Act?
10. What calculations, analyses, variables, and factors would be appropriate in determining whether an economic or commercial index that is based on prices, rates, values, or levels should or should not qualify as an excluded commodity under Section 1a(13) of the Act?
11. What identifiable factors, statutorily based or otherwise, limit the events and measures that may underlie event contracts when such contracts are treated as Commission-regulated transactions?
12. What objective and readily identifiable factors, statutorily based or otherwise, could be used to distinguish event contracts that could appropriately be traded under Commission oversight from transactions that may be viewed as the functional equivalent of gambling?
13. The Commission notes that Section 12(e) of the Act generally provides that the CEA supersedes and preempts other laws, including state and local gaming and bucket shop laws, with respect to transactions executed on or subject to the rules of a Commission-regulated market, or with respect to transactions exempted from the Act pursuant to the Commission’-s exemptive authority under Section 4(c) of the Act. What are the implications of possibly preempting state gaming laws with respect to event contracts and markets that are treated as Commission-regulated or exempted transactions?
14. Should certain underlying events or measures –-such as those based on assassinations or terrorist activities–- be prohibited altogether due to the social perception and impact of such events? What statutory or other legal basis would support this treatment?
15. Are there event contracts, such as political event contracts, that should be prohibited from trading under the Act, or that deserve separate treatment or consideration, due to the nature and importance of their outcomes? What statutory or other legal basis would support this treatment?
D. Legal Implementation
16. Is it appropriate for the Commission to direct certain or all event contracts onto markets that are regulated differently from and perhaps less stringently than DCMs? For example, it may be warranted or necessary to treat event markets that aggregate information solely for academic or research purposes, event markets set-up for internal corporate purposes, or event markets that offer exceedingly low notional value contracts to traders differently than markets that possess the attributes of traditional DCMs.
17. Is it appropriate for the Commission to use the Section 4(c) exemptive authority of the Act for implementing a regulatory scheme for event contracts and markets? In this regard, the Commission notes that it has the discretion to grant an exemption under Section 4(c) to certain classes of transactions without having to make a determination as to whether such transactions are subject to the Act in the first instance.
18. Is the issuance of staff no-action relief, such as the relief issued to the IEM, an appropriate or preferable means for establishing regulatory certainty for event contracts and markets? Is a policy statement appropriate or preferable?
19. What are the benefits and drawbacks of permitting certain event markets to operate pursuant to Commission established conditions that are similar to the conditions under which the IEM operates?
E. Market Participants
20. Would it be appropriate to allow market participants, and in particular, retail customers, to trade on Commission-regulated event markets with the knowledge that the Commission may not be able to effectively monitor the measures or events that underlie certain event contracts?
21. What unique protections and prophylactic measures are appropriate or necessary for the protection of retail users of event contracts and markets?
22. What are the implications of permitting the intermediation of event contracts, including intermediation on behalf of retail market participants, both with respect to trade execution and clearing?
23. Are there any types of trader or intermediary conduct, peculiar to event contracts and markets, that should be prohibited or monitored closely by regulators?
24. What other factors could impact the Commission’-s ability, given its limited resources, to properly oversee or monitor trading in event contracts?
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THE MIDAS ORACLE TAKES:
– CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.
– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.
– COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini
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BACKGROUND INFO:
– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments to the CFTC.
– The Arnold &- Porter lawyers explain the meaning of the CFTC’-s concept release on “-event markets”-. —- (PDF file)
– What Vernon Smith told the CFTC.
– American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America
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Last year, I said that the BetFair prediction markets on global warming would fail.
I said:
My prediction is that the first two BetFair Global Warming prediction markets (HSBC Investable Climate Change Index and ECX CFI Futures Contract) will fail miserably.
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They failed, indeed. Remain only those two prediction markets, with ultra light volumes: Highest and Lowest UK Temperature.
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As for the InTrade prediction markets on climate change (USA agrees before end of 2009 to reduce CO2 emissions by 10% or more by year 2025), liquidity is more than thin.
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Now, ask yourself:
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THE MIDAS ORACLE TAKES:
– CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.
– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.
– COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini
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BACKGROUND INFO:
– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- 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 &- Porter lawyers explain the meaning of the CFTC’-s concept release on “-event markets”-. —- (PDF file)
– What Vernon Smith told the CFTC.
– American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America
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APPENDIX:
Paul Wolfowitz’-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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Using Prediction Markets to Track Information Flows: Evidence from Google – (PDF file – PDF file) – by Bo Cowgill, Justin Wolfers, and Eric Zitwewitz – 2008-01-06
Blip.TV
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I already published this video. The reason I do it again is that I found out a hidden function in WordPress to increase the dimensions of the embedded video player. I think it is useful in this particular case because Bo shows us some slides, in this video. So, my hope is that those slides will be more readable that way. Let’-s try that. I am pressing “-publish”-…- let’-s see.
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Our previous blog post on the Google paper
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Previous blog posts by Chris F. Masse:
I have been chatting with a prediction market practitioner (I won’-t tell you who, and no, it’-s not whom you think of) —-shooting the breeze, and talking about the current state of the prediction market industry…- taking about things and people…- talking up some people…- and badmouthing others ( 
).
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At the end, the conversation barged on the issue of “-advisory boards“-. And he told me that Robin Hanson and Justin Wolfers have helped him TREMENDOUSLY —-in terms of solving problems with new software features, case studies, applied research, etc.
Wow.
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PREVIOUSLY:
– CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.
– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.
–
BACKGROUND INFO:
– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public.
– Arnold &- Porter lawyers explain the meaning of the CFTC’-s concept release on “-event markets”-. —- (PDF file)
– American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America
–
APPENDIX:
Paul Wolfowitz’-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 Commodity Futures Trading Commission (CFTC)’-s recent request for comments about the regulation of prediction markets includes a number of specific questions. I am not sure whether I will manage to write up answers to all of them before the July 7 deadline, but question in particular—question 14—has attracted my attention. The CFTC there asks, “-Should certain underlying events or measures–-such as those based on assassinations or terrorist activities—be prohibited altogether due to the social perception and impact of such events? What statutory or other legal basis would support this treatment?”-
I answer the first part of question 14, “-No,”- (and thus need not answer the second part). I doubt that the CFTC wants to hear that sort of reply, frankly- I instead suspect that it wants a legal excuse to avoid the sort of political firestorm that followed the Pentagon’-s proposal to create a Policy Analysis Market that included claims about assassinations and terrorist events. My draft answer to question 14 explains why I’-m willing to risk disappointing the CFTC:
The CFTC should not forbid trading in claims based on assassinations, terrorist activities, or other criminal acts. Because event markets would offer only relatively thin and traceable trading, they would not offer an attractive investment option to anybody planning to profit from wrongdoing. A would-be terrorist would risk revealing both his plans and his identity if, for instance, he invested in a contract predicting another 9/11. He would instead find it more safe and profitable to simply short certain publicly traded stocks.
Furthermore, event markets in terrorist or criminal acts might benefit the public by revealing life-saving information. Suppose, for instance, that an anthropologist’-s study of corrido culture convinced her that narcoterrorists had begun planning military raids on border checkpoints in Arizona and California. If she had the opportunity to buy terrorist event claims, she might both profit from her research and tip us all off about looming trouble. Sound public policy suggests that we should encourage that sort of trading—not forbid it.
To judge from their reactions to the Policy Analysis Market proposed by the Pentagon in 2003, politicians might need to learn more about the benefits of using trading to help predict assassinations or other terrorist events. That poses a public relations problem, however—not a legal one. The CFTC thus has no sound reason to presumptively forbid trading in contracts related to such events.
Notably, my answer to question 14 differs sharply from the answer offered by Jed Christiansen. He said, “-There should never be any incentive to break a law, so there should never be any contracts that would pay someone if a law was broken.”- I disagree, of course, but I thank him for stimulating me to offer an alternative take.
[Crossposted at Agoraphilia and Midas Oracle.]
CONFIDENTIAL:
“-The Law Professor”-, “-The Brain”-, and “-The Blogger”- are among those who will each send a comment to the CFTC in the coming 2 weeks.
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UPDATE: This econ guy will write to the CFTC, too.
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UPDATE: Indeed, he did…- brightly.
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