Gambling, Investing, or “Prediction Marketeering?”

This week, the CFTC finally decided to crack down on the scourge of the futures world, the terrible villain that has besmirched the reputation of the industry for far too long…

Just kidding, they went after the online prediction market Intrade.

Maybe the CME is getting ready to launch their own prediction markets, and pushed for the CFTC to do this? After all, volume is down. Maybe a new set of Intrade-type products is just the thing they need. Sheldon Adelson sure could have used some election futures to hedge his $50 million election bet…

Or perhaps it’s just that, you know, Intrade was breaking the law. This isn’t the first time Intrade has run into trouble with the CFTC – last time, in 2005, they paid a fine and agreed to stop offering contracts on things that were already covered by futures trading regulations: commodities, interest rates, currencies, etc. This time around, the CFTC doesn’t seem to be joking, and Intrade would rather shut down than limit its offering to US customers.

We don’t have a dog in this fight, but the prediction market concept is certainly interesting: hedging against the outcome of an election or a box office flop, or even serving as a public good by identifying bad policies before they’re put into place. The predictions tend to be fairly accurate, too, but Intrade unfortunately blurs the line between gambling and investable markets… both of which are prohibited in US unless properly registered (especially online gambling, which is itself still caught in a shifting legal gray area). It’s not surprising that they’ve run into regulatory trouble – but it remains to be seen if they can figure out a legal way to operate in the US.

If only there was somewhere we could go to bet on whether or not they will…

2 comments

  1. This is not a very impressive take on this.

    Sure, Intrade was “breaking the law” in the same way that some women in Old Salem were breaking the law by “practicing witchcraft”, or in the same way that gay couples in 1970 were “breaking the law” by engaging in sodomy. Any body of authority can abuse their power to declare anything arbitrarily “illegal”. Note that the CFTC has publicly hemmed and hawed about Intrade for seven years now. Now all of a sudden they have made up their mind, and with a jihadist vengeance.

    If you call the trading of prediction futures “gambling” then you are essentially codifying some religious scriptures from the Bronze Age of human civilization, in a Republic that was founded with a purposeful separation of Church and State. And by the way, you are condemning EVERY SALE AND PURCHASE that individuals make on exchanges on Wall Street every day of the year. It is the same thing: consenting adults, aware of risks, are placing money at risk because they believe something is MISPRICED in the marketplace. (If you don’t understand why this is exactly what is happening at Intrade, you need to familiarize yourself with what Intrade is. It is not a binary “betting” site.)

    If you instead accept what the corrupt crony-protecting CFTC is claiming, that these are “binary options”, then it should be pretty clear whom the CFTC is working on behalf. I’ll give you a hint: it’s not the public – which they happily threw under the bus as they looked the other way when these very same friends of theirs brought down the world economy in the CDS/CDO debacle of 2007-2008.

    There is also an element of blatant, pathetic “power display” here, as the CFTC tries to put a fig leaf over their 2008 failures by destroying an institution that countless members of the media, public and investment have come to use to guide their decision-making, and simply their picture of reality.

    The CFTC has abundantly shown itself to be worthless when it comes to carrying out their real charter, and now has descended a few notches to “actively destructive” in stomping on the neck of something quite fascinating and useful to society. I’m sorry to say this, as someone who is generally pretty pro-regulatory, but the CFTC has told us with this action that they need to be dismantled and reformed with credible actors who will actually be of some public good.

  2. Again, we don’t have a dog in the fight. We don’t really have a problem with Intrade, and we’re not looking to condemn other forms of investments here. But it’s hard to deny that the nature of transactions, particularly with the amount of money that was being traded at the time of the close, seems to require registration in one context or another. Maybe that means they need to register as an exchange. Maybe that means they need to get a dog in the online gambling fight. We’ll have to wait and see how it pans out.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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