One (anonymous) InTrade trader:
I am utterly convinced Intrade participates in its own markets. Every few hours some kind of API hits the bids on the GOP 2012 nomination contract when the bids sum to more 100. It will even short bids at 0.1, which is a money losing proposition when you figure the transaction cost alone of 0.3 (since the price is below 5). Also, the amount of margin required to short all of these bids is in the millions of dollars.
So the actor has to a) not care about the transaction fee and b) have limitless margin. Intrade fits the bill for both of these. a) they don’t care about transaction fees because they are ultimately collecting them and b) if you only short when the bids are summed to over 100, it’s essentially an arb.
The trader also tells me that, on the InTrade forums where those questions were asked many times, InTrade never denied that they trade on their own prediction markets.
Previously: What was Max Keiser doing at InTrade HQ two years ago? –> “due diligence”…!??…
Next: Does InTrade participate on its 2012 Republication Nomination prediction markets?
The bigger and more immediate question: can the CFTC be trusted to adequately regulate similar abuses from showing up on CantorX?
The argument that Hollywood needs hedging mechanisms because of the extreme uncertainty of making movies can be viewed conversely; that is, probably in no market/exchange yet launched – falling under a regulatory oversight body – has the potential for insider trading and market manipulation presented itself to so many players with such a long track record of just such abusive behaviour.
Given the recent track record of the CFTC – finding itself compromised in a thicket of conflict of interest cases – I think it’s almost a dead certainty that mixing the fraud of Wall St. with the hype of Hollywood will result in a market going very bad, very quick.
It’s too bad my Virtural Specialist Tech. is being used to destroy yet another American industry, but the rogue hedge funds and corrupt regulators have voracious appetites and they’ll stop at nothing.
I am told that some market makers do not pay transaction costs. The anonymous trader may likewise be over-generalizing his own experience of margin requirements. But even if Intrade takes arbs on its markets, that’s quite a different animal from what happened this week.
It almost sounds like you’re confusing the CFTC and SEC, Max, but I’m giving you the benefit of the doubt! The Cantor contracts do present novel scenarios for the relevant commission though.