Feds shut down prediction markets (InTrade)

Commodore · Nov 26, 2012

http://www.foxbusiness.com/on-air/s...t-crushes-innovative-online-prediction-market

Today, Americans were told that they must close their Intrade.com accounts. That happened because the federal government agency known as the "Commodity Futures Trading Commission" (CFTC) today sued the prediction market, where people from all over the world bet about things like who will win elections.

Intrade decided all its U.S. customers must now close their accounts and withdraw their money from the site.

That's terrible news for all of us who want more input into what's going to happen in the future. Bettors on Intrade.com have made incredibly accurate predictions about elections - because they, unlike TV pundits, have real money on the line. This year, I watched on election night as TV pundits said "too close to call... too close to call..." while the bettors on Intrade knew that it was not a close call.

Intrade has also successfully predicted events like Saddam Hussein's capture and the winner of the Oscars. People with the best information trade about those events, and drive up the odds on Intrade.

Why did the American government sue Intrade? It was not for operating an online gambling operation, but for allegedly violating America's incomprehensible financial regulations -- specifically, these ones:

"Section 4c(b) and 9(a)(3) of the [Commodity Exchange] Act, §§6c(b) and 13(a)(3) (2006); Section 2(e) of the Act, as amended by the Dodd-Frank Act, to be codified at 7 U.S.C. § 2(e); and Regulation 32, as amended, to be codified at 17 C.F.R. § 32 (2011);"

In English: the government says that many of the things Intrade allows people to predict - everything from what the price of gold will be in the future to whether the U.S. will go to war soon - are legally considered "commodity options," and that Intrade broke the law because it isn't licensed to trade those. The penalty is $140,000 per violation.

In a press release, the CFTC's chief enforcer went out of his way to target "prediction markets":
"It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction' contracts, unless they are... traded on a CFTC-registered exchange... Today's action should make it clear that we will intervene in the ‘prediction' markets, wherever they may be based."

Why doesn't Intrade just obey the complicated law and become a licensed exchange? They tried, but the CFTC won't give them a license. When an established, licensed U.S. commodity exchange applied for permission to do what Intrade does, the CFTC turned them down, too.

The pompous CFTC enforcer claims that the regulation "is important for a number of reasons, including that it enables the CFTC to police market activity."

Please. These regulations don't help police market activity. When people make money on Intrade, Intrade sends them the money. There are no allegations of fraud. Customers are happy with Intrade, judging by increased activity on the site (over $50 million was bet about whether Obama or Romney would win.)
The market polices itself.

In a sane world, government would focus on preventing fraud, not on crushing innovative ideas.
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It's for our own good you see, can't let us engage in risky activity (especially without a license!). Otherwise THE ECONOMY COULD COLLAPSE!

Northside Storm · Nov 26, 2012

LOL

intrade backed off from a very legitimate civil complaint. Looks like they don't want to take the Wall Street settle and admit no guilt route.

The CFTC complaint specifically targets Intrade's options on gold, crude oil and currencies, and it doesn't mention the website's political and entertainment contracts. It isn't clear how much of the company's business involves the options the CFTC targeted. The CFTC isn't charging any Intrade customers.
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http://online.wsj.com/article/SB10001424127887324469304578143310068058252.html?mod=googlenews_wsj

Yeah, it's kinda the CFTC's job to regulate things like off-exchange swaps and derivatives on currencies and commodities, and if they'd done a more stringent job as they seem to be doing now, maybe 2008 wouldn't have happened. Just a thought.

No one forced a gun to Intrade's head, just a civil complaint. More business for Betfair, I suppose.

Justin Wolfers, a professor of economics and public policy at the University of Michigan, said Intrade's move makes room for another prediction or sports betting site. "There's a very large and active market on U.S. political outcomes, and that's not going away," he said. Businesses and election watchers still have other places like U.K prediction site Betfair BET.LN +1.00% to look to, he noted.

"What will happen in 2016 is that journalists and political pundits will watch other prediction markets, just not Intrade," Mr. Wolfers said.
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Feds shut down prediction markets (InTrade)

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