The CFTC takes a necessary step toward sorting out its role with respect to prediction markets.

Michael Giberson May 10th, 2008

As noted here in multiple posts over the past few days, the U.S. Commodity Futures Trading Commission is thinking about prediction markets. Last week it released a “Concept Release on the Appropriate Regulatory Treatment of Event Contracts” and invited public comments on several questions as it attempts to sort out its proper role, if any, in overseeing such markets.

Formal comments are due July 7 at the CFTC. Informal comments are already springing forth: see, for example, reactions by David Pennock, Chris Masse, and Chris Hibbert. Likely more to come.

My preliminary reaction is to be encouraged. Growth of the industry in the United States is frustrated by a lack of clarity over the CFTC’s role. If real money event contract markets are to become serious business in the United States, the government will have to figure out where these markets fit in the legal and regulatory world. The CFTC is taking a step toward figuring these things out. If CFTC’s conclusions turn out to be too burdensome, then appeals can by made – to the Commission itself, to courts, or to Congress. But the process has to start somewhere.

Whether their next steps are in the right direction, who knows. I think that their steps are more likely to be in the right direction if they get high quality comments filed by prediction market proponents.

(On Knowledge Problem I’ve put up a much longer post which explains the CFTC concept paper in more detail and does a little bit of sorting through the questions asked. Readers here who have already looked at the concept paper will not learn much new, but you are still welcome to take a look.)

Tags: CFTC, Chris F. Masse, Chris Hibbert, Chris Masse, David Pennock, event derivative markets, event derivatives, laws, prediction markets, regulation, Regulations