Jason Ruspini:

Unfortunately, election contracts and ALL event contracts appear to be prohibited by CFTC regulation 40.11, released in July 2011 as part of Dodd-Frank:

“(a) Prohibition. A registered entity shall not list for trading or accept for clearing on or through the registered entity any of the following:

(1) An agreement, contract, transaction, or swap based upon an excluded commodity, as defined in Section 1a(19)(iv) of the Act, that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law”

“… involves, relates to … an activity that is unlawful under any State or Federal law” is very broad. Not only does it include election outcomes, which several States have explicit laws against, but Massachusetts, Mississippi, Nebraska, North Dakota and South Carolina have laws against bets on “events”.

This is not the only reading of 40.11 and is certainly not the one Nadex holds. In the short term, it seems that any argument for this sort of contract has to address the broad interpretation above all.

We are academic researchers who study prediction markets. We are writing in favor of allowing NADEX, or a similar entity, to offer a broad range of political and policy event futures, including the three they are currently proposing.

There are four broad reasons for our support:

1. Existing political event futures have proven useful. Political event futures have been offered in small quantities by the onshore Iowa Electronic Markets (IEM), and by offshore exchanges such as Intrade. Prices from these markets have made possible a broad range of academic research.

2. Political event futures facilitate price discovery in other asset markets. One of the findings of this research is that firms and industries are exposed to political and policy risk. Political event futures provide investors with a market-based assessment of outcome probabilities, which reduces investors’ uncertainty when trading other assets. In addition, if allowed to operate onshore, political event futures markets might eventually grow to the point where they might provide useful hedging opportunities for firms. The currently proposed position limits are likely sufficient for most individuals to hedge their personal exposure to election outcomes.

3. The full potential of political event futures cannot be realized in academic-scale markets or offshore. Despite the utility of the IEM and Intrade, both markets are hampered by the current regulatory environment. An onshore exchange that allowed positions of the size NADEX is suggesting could ultimately reach a scale where it could attract liquidity to contracts that currently do not succeed on Intrade. There are many exciting potential applications of such markets, in research and policy making. Offering contracts on questions of great popular interest (such as Presidential elections) is crucial to attracting investors to an exchange. Once there, they face lower costs of participating in other markets, such as those currently offered by NADEX.

4. Concerns about gambling and manipulation are misplaced. Trading securities whose payoffs depend on political outcomes is no more “gaming” than trading securities whose payoffs depend on commodity or equity prices. Clearly, one can trade any security out of gambling motives, so the key question is whether the subject of these contracts is a “game,” or an economically important event. It is hard to argue that elections are not economically important events.

One might be concerned with two forms of manipulation: outcome and price manipulation. Many individuals have already large stakes in election outcomes; for example, a top executive in a public company will have will have a significant exposure via their equity holdings, as well as through any impact of the election on policies such as tax rates. Many individuals also have substantial exposure to election outcomes via their careers. Given the position limits proposed by NADEX, the market is likely to make at most a small contribution towards the number of individuals with meaningful stakes in election outcomes. One might be concerned with trading by those involved in supervising elections, and it might be reasonable for policy to prohibit trading by those individuals.

Turning to price manipulation, there have been a couple episodes that appeared to be attempt by traders to influence perceptions of an election by manipulating prediction market prices. The evidence suggests that effects on prices are relative short-lived, and effects on perceptions are often counter-productive for the manipulator (e.g., through media stories mentioning the manipulation). Onshore election markets will likely be significantly more liquid, making price manipulation even less attractive. A further protection comes from the fact that the outcomes of interest (election winners) will be linked to prediction market prices only through perceptions. Concern about price manipulation might be better devoted to cash-settled futures, where contracts settle based on other financial market prices.

To summarize, we view markets in securities contingent on economically-relevant events as an innovation that generate positive externalities (by aggregating information) as well as benefits to participants. Innovations with positive externalities should be encouraged by policy makers, not limited. If the Commission has questions about any of the statements made or research mentioned in this letter, it should feel free to contact any of the undersigned.

Totally absurd.

Book reviews are typically the kind of information that should be free and easily accessible —HTML style.

Previously: Is weather betting legal if you bundle it with auto leasing?

Spot Eric Zitzewitz:

Previously: Is weather betting legal if you bundle it with auto leasing?

Lease a car before August 26, and if it’s above 96 degrees at Boston Logan Airport on Labor Day, they will make your first 12 lease payments for you (minimum 36 month lease term).

This reminds me a lot of Jordan Furniture’s “free furniture if the Red Sox win the series” promotion, which prompted me to ask if sports betting was now legal if you bundle it with furniture?

A difference with the Jordan’s promotion is that the implied amount of betting here is actually pretty trivial.  First, note that a year’s lease payments are only about 15 percent of the value of the car.  Second, the odds of temperatures that high at Logan are tiny (Logan is surrounded by Boston Harbor, which may help moderate the temperatures).

Weatherbill.com is willing to sell me for $69,000 a contract that pays $1,000,000 per day with a high above 96 at Logan in the 15-day window surrounding Labor Day.  Divide by 15 and you have a market-implied probability of 0.46%.  Weatherbill also tells me that in the last 30 years this contract would’ve paid $33,333 on average, for a historical probability of around 0.22%.  So the actual expected discount implied by this promotion is around 0.033% to 0.069%, compared with 10% for Jordan’s.

One interesting thing about this promotion is how the commercial starts (I’m paraphrasing):  “92 degrees, 90 degrees … it’s been cool lately, but remember those scortching Labor Days …”  They are clearly playing on both the Gambler’s fallacy and its reverse, just at different frequencies.

But my main takeaway is:  could gambling policy in the country be any more screwed up?

P.S.  Some interesting follow up on Jordan’s:  they were sued over the promotion by a man previously convicted of running an illegal lottery, who bought furniture during their 2008 promotion and then sued after the Red Sox did not win that year.  The letter from the Mass AG posted in comment #2 indicated that the AG reviewed the promotion and decided not to take action.  So I guess the answer to my question is that betting is legal if bundled with a product, at least in Massachusettes.

The suits against Jordan’s have (predictably) been struggling.

It seemed like Delong interpreted the mere suggestion of 10% interest rates as a veiled attack on the Obama administration. That would explain the unfairly harsh and pedantic manner of his post.

I think that Delong is right to be sensitive on this subject. Trading in Treasuries has recently seemed a bit aggressive and not altogether related to inflation expectations, at least not in an innocent, passive sense.

Anyway, the apparent probabilities could also be explained by the same structural forces that sometimes cause the longshot bias. (not formal risk aversion)

Brad,

The post you refer to is a follow up post to a post in March that does a similar analysis about the S&P 500.

http://freakonomics.blogs.nytimes.com/2009/03/02/quantifying-the-nightmare-scenarios/

In that post (linked to in the post about Treasuries) I make the point about the marginal utility of wealth. The marginal utility of wealth is clearly likely to be different at different levels of the S&P 500, so that is very important to keep in mind when interpreting that analysis.

It is less obvious how aggregate wealth will covary with Treasury yields. Perhaps you are right that the “>10% yield” scenario is a higher marginal utility of wealth scenario. High inflation and yields can be consistent with growth too though, so I do not think the sign of the difference is obvious.

And I do think you are overstating when you suggest that the marginal utility of wealth is 3.5-7 times higher in that scenario. But it is difficult to know what adjustment to make without knowing how investors expect bonds to covary with other assets (history is arguably not that helpful here) and without knowing what level of risk aversion is reflected in these prices.

It’s a blog post, not a paper, so I left this level of detail out. The issue though is incorporated by reference to the earlier post — I am not ignorant of it, as you seem to imply.

Eric Zitzewitz

Posted by: Eric Zitzewitz | June 16, 2009 at 04:30 AM

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Brad,

One further thought. Perhaps we can follow the advice at the end of my post and settle this dispute civilly “like gentlemen” (as opposed to talking about who wrapped what around what tree).

Apart from perhaps differences about the optimal level of technical detail in a blog post and the exact definition of “option implied”, our main difference seems to be over E(u’(w)|yield>10%)/E(u’(w)). You think this ratio is 3.5-7, I think it is likely much closer to one than that.

Let me propose the following. Let’s use the level of the S&P 500 as a proxy for u’(w). You sell me a conditional forward contract. Specifically, you sell me forward a single share of the S&P 500 fund SPY, with settlement at the close on witching day in January 2011 if and only if the 30-year Treasury yield is above 10%. If the Treasury yield is below 10%, the trade is off. This is essentially a bet on E(S&P500|yield>10%).

There’s just the matter of the appropriate conditional forward price. You have strong views about this relationship and I don’t want to get in the way of your expressing them (credibly). So perhaps a forward price of 50 (corresponding to an S&P level of roughly 500) would be acceptable.

Let me know.

Eric

[The price of 50 is roughly what would be implied by your lower bound of 3.5, a representative investor with a CRRA of 4, and aggregate wealth comoving with Treasuries about half as much in percentage terms as the S&P).]

Posted by: Eric Zitzewitz | June 16, 2009 at 06:09 AM

I think the CFTC is likely to define a set of limits which, if followed, will subject a prediction [exchange] to CFTC regulation which will hopefully be lighter than their regulation of HedgeStreet (which essentially was so heavy-handed it killed the firm). And this help protect prediction markets from the state gambling regulators.

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Yes, but TradeSports and BetFair would be excluded from this CFTC regulation, alas. And there is no way a prediction exchange can be profitable without sports.

P.S. I was interviewed for The Analyst, too. Those Indian journalists are very nice people. After that publication, I received many friend requests on LinkedIn from Indian business people.

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#1. Is InTrade being manipulated?

- Nate Silver shows that there are abrupt downward pressures on the Barack Obama event derivative, while we also see some abrupt upward pressures on the Hillary Clinton event derivative.

However, you can see by yourself that InTrade is resilient enough and does a great job of going back to normal [*], after just a few hours of trading:

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- At Portfolio, blogger Zubin Jelveh blows the incidents out of proportion.

- Professor Lance Fortnow has a more careful analysis and notes that the price of the Barack Obama bounces back quickly enough.

- Quick thought: Maybe the media should use an average of event derivate prices for the last 5 work days… so that the abrupt perturbations would be eliminated.

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[*] UPDATE:

Professor Eric Zitzewitz:

I’m not sure you can conclude from Silver’s graphs that the market goes “back to normal.” You can conclude that it moves back in the opposite direction of the impact those large trades. Back when the Hillary for President market looked like it was being manipulated, it appeared that the manipulator was both placing a large purchase and then placing limit orders to provide price support and slow down the reversion of the price.

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UPDATE: Are we witnessing manipulation attempts on the “Florida to vote Republican” prediction market at InTrade?

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#2. Why does InTrade give a discounted probability for Barack Obama as US president?

- As you remember, Emile Servan-Schreiber of NewsFutures believes that it’s a Republican conspiracy all over.

- Professor Justin Wolfers puts up an hypothesis: it’s legally impossible for US traders to arbitrage on BetFair.

- InTrade put up a crappy excuse: the industry is still too “young”. How lame. How stupid. The industry was younger in the previous elections, where arbitrage opportunities didn’t exist according to professors Justin Wolfers and Eric Zitzewitz (see their 2004 paper and their other publications).

- Blogger Zubin Jelveh swallows the InTrade P.R. line, and adds another crappy InTrade P.R. line: More arbitrage opportunities are being exposed in open air because much more observers are hunting down arbitrage opportunities in 2008 than in previous elections. That’s a second blatant cretinery, uncorrected by the Portfolio blogger. Re-read Justin Wolfers’ blog post. Professor Justin Wolfers states that:

The current variation in price is larger than I have ever seen in my years of studying prediction markets. The forces of arbitrage that would typically eliminate these differences have been handicapped by the legal restrictions preventing U.S.-based traders from using overseas markets.

- Finally, professor Lance Fortnow says nothing about the arbitrage opportunities between InTrade and BetFair, but does offer some technical points about the issue of polls versus the prediction markets, centered around the question of state correlations. Read on.

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UPDATE: Eric Crampton (a Canadian exiled in New Zealand) says he has managed to turn a buck by arbitraging between InTrade and iPredict New Zealand. He also makes 2 theoretical points. Go read it.

UPDATE: Greg Mankiw just linked to Nate Silver.

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July 4th 2008
The Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581
U.S.A.

Attention: Office of the Secretariat

RE: “Concept Release on the Appropriate Regulatory Treatment of Event Contracts”

To Whom it May Concern:

It is an honour for me as Chief Executive Officer of Intrade the Prediction Market Limited (“Intrade”) to provide price discovery information on thousands of event markets free of charge to notable institutions such as yourselves at the U.S. Commodity Futures Trading Commission, the U.S. Navy, the Federal Reserve Banks of New York, Richmond, and Chicago, the European Central Bank, the Bank of Japan, the American Enterprise Institute – Brookings Joint Centre, CATO Institute, and the Bank of England. We have similarly supplied our price discovery event market information to political organisations, students and staff at every Ivy League College, and students and staff at over 50 universities worldwide.

We estimate that over 300 global media businesses such as The New York Times, The Wall Street Journal, The Washington Post, The Financial Times, The Los Angles Times, Chicago Tribune, Economist, Bloomberg, Reuters, Forbes, Time, Fortune, CNN, CNBC, Fox, ABC and others have used Intrade event market information.

Investment firms on Wall Street, and the other major financial centres of the world, have solicited and been provided with Intrade price discovery event market information. The above lists are not exhaustive.

Further, Intrade provides free real-time transparent price discovery event market information to millions of people from the general public. While Intrade serves a global community and has registered members from 162 countries, our 82,000 plus membership are predominantly resident in the United States. The predictive probability information on event markets that we supply to the general public is both intuitive and readily and rapidly assimilated without the necessity for paid subscriptions or a financial education.

Intrade has been transparent and industrious, as have others, in nurturing the development of the event market industry. Intrade as a profit-maximizing business does of course expect to significantly benefit from its dedicated employment. However the benefits to society at large will be equivalently great from Intrade’s focus on event markets.

While U.S. institutions and society benefit from Intrade’s services it is perversely unclear as to whether Intrade, and indeed myself, are considered persona gratis by the United States. However, we are more optimistic than ever that Intrade as the de facto leader in the event market industry sector will soon have the ability to stand on a firm, transparent and appropriate regulatory footing thanks to the process that the CFTC has accelerated through their request for comments on how to regulate event markets.

Not since the Industrial Revolution have the risks and their commensurate opportunities of dealing with great uncertainty and rapid change that we all face been so high. Much of this change and uncertainty is technology driven, with most countries, organizations and households accepting, in theory at least, that they must change.

The recent implosion of credit markets is just one example of the great uncertainty and potential for events impacting citizens of the United States and farther afield.

To adapt to a changing world in an orderly and optimal manner requires access to information, robust decision-making processes and the courage and determination to grasp the opportunities that a dynamic world offers. The CFTC and indeed the United States itself has access to the information, the decisionmaking expertise, and a historical track record of determination and accomplishment.

But the relentless change that we all face will be best dealt with if we have the best information, in real time, to reduce uncertainty, risk and stress. Event market information can and has increased the quality and timeliness of decision-making. Event markets can act as a democratic mechanism that gives voice to the broadest range of event stakeholders and, in so doing, aggregates a peerless information set. By encouraging the aggregation, distribution, validation and appropriate use of the best event market information, society will benefit even more than it does today from event markets. To do otherwise than to encourage event market development would be a societal travesty.

The dynamic nature of the world that we live in, where the pace and systematic impact of change seem to be increasing, will be greatly aided if event markets are given a certain regulatory footing in the United States and other jurisdictions. This, coupled with the fact that markets excel in aggregating information and estimating the value of a product or the likelihood of an event occurring, testifies to the logic that the price discovery that event markets produce should now be encouraged by the CFTC.

The CFTC by clarifying the status of event markets now will be of great service to Americans. In this regard the CFTC has an important opportunity and one that the CFTC seem very positively biased to grasp in light of its statements, such as…
- The CFTC state on their website that they have “An Important Mission in the Ever-Changing World of Finance.”
- “The CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency.”
- “The CFTC is also mandated to enable futures markets to serve the important function of providing a means for price discovery and offsetting price risk.”

CFTC Acting Chairman Walt Lukken, when announcing the execution of a memorandum of understanding with the SEC on March 11, 2008, stated: “The regulatory structure that oversees the U.S. financial markets embrace innovation, growth and competition in the global marketplace, without compromising market integrity, customer protection and the public good.”

The above statements, in addition to the Concept Release by the CFTC, are very encouraging. It is specifically this price discovery and risk management mandate that justify the CFTC’s embrace of event markets, should justification be needed.

Intrade has listed 211,607 individual event markets and aggregated and distributed predictive event market information on subjects such as Arctic Oil Drilling, Climate Change, Commodities, Company Earnings, Constitutional Referenda, Currencies, Disease Outbreaks, Earthquakes, Economic Numbers, Entertainment Awards and Earnings, Indices, Euro Adoption, Federal Reserve Announcements, Gas Prices, Gasoline Tax, Geo Political Events, Homeland Security in the U.S., Mergers & Acquisitions, Social Security Reform and U.S. Taxes. This list is far from exhaustive.

No other platform has listed more event markets than Intrade. To the best of our knowledge and belief the event market leadership position that is often ascribed to Intrade is wholly justified from a review of the breadth of the event markets listed and information we have aggregated and distributed. Information, as noted above, that is used by governmental agencies, businesses, academics, and the general public to reduce uncertainty and in so doing increase the speed and quality of decisions being made.

While the obvious benefits to the general public in terms of price discovery and decision-making of some Intrade event markets will be more obvious than others, we can make robust arguments that all have the potential to serve the dual purpose of price discovery and a mechanism for offsetting price risk.

The CFTC by clarifying its position on event markets will give all event market stakeholders valuable direction on market and participant eligibility. Whether used at the federal government level or by the individual citizen, event markets provide a magnificent opportunity to use price discovery information in managing economic risk. Here are just a few examples from the 211,607 event markets we have listed.

Intrade has listed markets on the probability of the Homeland Security alert level being above or below a certain level at a certain date. “The United States spends roughly $100 billion per year on homeland security” according to the White House. The costs of migrating from a threat level of “Guarded” to a threat level of “Elevated” have very significant costs for the government, business, and society. By utilizing event market price discovery information on the probability that the alert level will be at a certain threshold on a given date, the economic consequences of the threat level can be managed in a more insightful way.

Jason Ruspini has suggested markets to Intrade on whether the marginal personal income tax rate for single U.S. filers will be equal to or greater than a range of specified percentages for tax years 2009, 2010 and 2011. Having spoken directly to a number of tax paying citizens from the United States, the transparency of this information undoubtedly serves a public good. Is there a Unites States resident taxpayer who will read this comment who is not interested in the taxes she or he will pay next year?

On a more macro level, Intrade has listed a market on whether the cold fusion experiment of Dr. Yoshiaki Arata will be replicated in a peer-reviewed scientific journal before 31 December 2009. The possible impact of such a development to our energy needs little hyperbolae. The fact that President Bush requested $25 billion for the U.S. Department of Energy’s 2009 Budget speaks to the importance of maximum transparency in such matters. It may also be interesting to note that $493 million of the $25 billion was allocated to Fusion Energy Services. Does transparency to such price discovery information serve positively the United States and others? Absolutely!

Professor Koleman Strumpf suggested that Intrade list a market on whether Blu-Ray Disc sales will outnumber HD-DVD disc sales in the United States in 2008. If an organisation’s employees or profits are potentially influenced by the outcome of this event, as were Toshiba’s, the main supporter of HDDVD, then access to such information is both valuable and gives opportunity for welfare maximisation.

Intrade has also listed, at the request of University of Westminster Business School, markets on whether the number of violent crimes committed in 2010 will be lower than those committed in 2007. Intrade has additionally listed at the request of a United States resident member of our platform a market on the impact of U.S. Government debt if a non-Democrat is elected president of the United States in 2008.

Professor Eric Zitzewitz, Professor Robin Hanson, Professor Justin Wolfers and others at the forefront of event market academia have all suggested event markets to Intrade in the past that have been listed and which provided event market information both for academic study and business and general public use.

Imagine if you were a resident of a state such as Florida that is frequently exposed to severe storms and how crucial information on the likelihood of a storm hitting your state can be if your business, family and friends are likely to be impacted by such an occurrence. Intrade lists event markets on such
eventualities.

The event markets listed on Intrade provide price discovery information on whether an earthquake measuring 9.0 or more on the Richter Scale will happen anywhere in the world in 2008; whether Avian Flu H5N1 is confirmed in the United States in 2008; whether the U.S. carries out an overt attack on North Korea; or even whether Robert Mugabe departs his presidency in 2008. These significant events are highly relevant to millions of people in the United States and elsewhere.

President Bush stated in an address on global climate change that: “This is a challenge that requires a 100 percent effort; ours, and the rest of the world’s.” It seems to us impossible to make a “100 percent effort” to address the challenge of climate change without using event markets to aggregate information, such as that provided by Intrade’s market on whether 2008 will be one of the warmest years ever recorded.

All of the markets cited above give information on the probability of the event occurring. Some of the information aggregated and distributed by Intrade has been more predictive than other. The predictive accuracy of Intrade’s event markets and event markets generally have been cited and studied extensively by academics and others including, but not limited to Professor Robin Hanson, Professor Charles Noussair, Professor David Paton, Professor Leighton Vaughan Williams, Dr. David Pennock, Professor Eric Zitzewitz, Professor Mark Perry, Professor Erik Snowberg, Professor Marco Ottaviani, Professor Justin Wolfers, Professor Koleman Strumpf, and Professor Paul Tetlock.

Nearly all leading academics, not known for their attraction to unanimity, have publicly supported event markets. A great majority of these academics have been supplied with Intrade market data in the past, a service that Intrade intends to continue, for all study leads to an increase in transparency and understanding of event markets. It seems that the leading event market academics make no distinction between the benefits derived from academic owned markets like Iowa Electronic Markets and commercial market platforms like Intrade.

Yet many academics, with some notable exceptions, do temper their policy prescription to suggest a “safe harbor” for academic sites where research might be more generally available. As noted above Intrade has gladly supplied its event market data, typically free of charge to most of the leading prediction market academics and their students, and we are committed to encouraging the future study of event markets by continuing to supply our event market data free of charge or at very deep discounts. The academics that study event markets do a great service in developing our understanding of the strengths and weaknesses of event markets. Some commentators suggest that market liquidity and breadth typically benefit all event market stakeholders. Thus far commercial platforms like Intrade seem to be providing the greatest depth and breadth in event markets.

As Intrade has been a staunch supporter of event market academic study, and supplies greater depth and liquidity in its event markets than any other platform, it seems strange not to be a preferred purveyor. Perhaps the predominant reason many academics have held back from advocating and treating all event markets alike is a sense that initiatives to clarify or unwind the legislation restraining the optimal development of event markets is unlikely to be achievable. It seems many academics and commentators suggest a slow bureaucratic and pragmatic caution rather than focus on the optimal result. While the optimal result may be more challenging to achieve, for consistency, for better price discovery for the benefit of all, as well as for the development of Intrade, we encourage CFTC to apply common goals, objectives and standards for all participants.

While some evidence and event markets have highlighted that event markets do not always provide robust predictive information, the preponderance of the research suggests that event markets have both the ability and track record of providing the best available information upon which decisions may be based or optimised. Of course the uncertain regulatory status of event markets constrains the development of liquidity, price discovery and by logical extension societal benefits.

Intrade has received testimonials from numerous U.S. regulated businesses and private citizens which state they would like to trade on certain event markets but are unable due to the regulatory uncertainty. Therefore, unless and until event markets are given a certain status they will not develop to their full potential.

Based on the above and comments by many others, some of whom have been mentioned by name in this comment, the price discovery mandate that the CFTC has can only be served if event markets are embraced.

In terms of offsetting price risk and the opportunity for hedging, the overwhelming majority of markets listed by Intrade can easily be seen to have underlying economic implications and risks. For example, U.S. tax rate changes, a negative geopolitical event, an increase in the threat level to homeland security and the associated costs of a higher threat level, or indeed Social Security reform all have massive economic justifications across society.

As with the CFTC’s price discovery mandate, it is impossible for us to imagine how risks can be optimally assessed and managed without the status of event markets being clarified.

The CFTC are also sensitive to retaining the competitiveness of futures markets and retaining “competition in the global marketplace”. There has been much written about the United States losing its edge in global financial markets. Often cited is that burdensome and inflexible regulations, most notably the Sarbanes-Oxley legislation passed by Congress in 2002, are driving business to London, Hong Kong, Frankfurt and elsewhere. In this regard, the CFTC has an opportunity to be a world first and embrace event markets. In so doing the CFTC will ensure the United States’ leadership position is encouraged for the important and growing event market industry.

The greatest challenge in bringing about an appropriate and successful embrace of event markets by the CFTC is unlikely to be identifying and agreeing that the public good will be served, or that risks may be better managed. The challenge for the CFTC may well be the uncertainties relating to legal and jurisdiction issues. In these matters there are experts far better versed than Intrade to opine.

The financial events of the last six months in which virtually the entire world financial system stopped functioning to a greater or lesser extent has highlighted what can happen when many of the world’s largest financial institutions make concurrent similar mistakes. Such systemic contagion has led commentators to suggest a more fundamental approach to how and what we regulate. Where event markets are concerned we are hopeful that this is the case and that the level of regulation is such that the evolving stage of the event market industry is not stifled.

We are proud to be at the forefront of the development of the event market industry. We are determined to continue providing the best information on relevant event markets to the widest audience. We wish to solidify our regulatory position in the U.S. and elsewhere. We strongly encourage the CFTC to clarify the situation with regard to event markets for the benefit of all, even if there are costs to Intrade. We are highly optimistic that the CFTC will grasp this opportunity to benefit all society and we wish to serve our own most important role in an industry niche that we have been privileged to help shape.

Respectfully Submitted on behalf of the entire Intrade Team by
John Delaney
Chief Executive Officer

CC to Fax 202.418.5521 and e-mail: secretary@cftc.gov.

1. “Intrade … isn’t just an entertaining Web site. It is the latest iteration of one of the most important economic developments of modern times.” David Leonhardt, Economics Reporter, The New York Times, February 14, 2007

2. Costs of regulation are high in the U.S., “that’s a key reason the leading commercial prediction market, Intrade, is based in Ireland” Prof Paul Tetlock, Wall Street Journal, May 11th 2007

3. “On Dec. 11, 2003, Intrade’s contract on Saddam Hussein’s capture suddenly began to move. … Two days later, Saddam was in custody.” Bill Saporito, Time Magazine, October 24, 2005

4. “At FORTUNE we often write about the latest hot company, but it’s rare that we get a chance to introduce you to an entirely new market… Intrade is the only efficient market system around for investing in, well, almost anything” Andy Serwer, Managing Editor, Fortune, August 8, 2005

5. 78% of traffic to Intrade.com in the period 1 January to 30 June was from the U.S.

6. “Intrade futures market ~ the greatest time-saving invention of this century.” John Tierney The New York Times

7. The Uncertainty Stress Scale: its development and psychometric properties. Can J Nurs Res. 1994 Fall;26(3):15-30, PMID: 7889446

8. As of June 30 2008

9. For many people, Intrade is the king of the prediction markets.” Stephen Dubner, Freakonomics, The New York Times July 5 2007

10. http://www.whitehouse.gov/homeland/book/sect5.pdf.

11. http://feedroom.businessweek.com/?fr_story=5a3aa8086dbd52b35ae21c7f5abe94f85fa0a8ab&rf=sitemap.

12. http://www.energy.gov/news/5920.htm

13. “Want straight answers on what will happen in politics and current events? Answers without partisan bias or wishful thinking? You can’t do much better than the prices at Intrade.” Professor Robin Hanson, Professor of Economics, George Mason University

14. “My forecast? Prediction markets will become ever more important to business and public policy. And Intrade are running the most interesting markets around.” Professor Justin Wolfers

15. http://www.whitehouse.gov/news/releases/2001/06/20010611-2.html

16. “Analysts can debate about a recession as much as they want, but talk is cheap. It’s great to have [Intrade] futures trade where people put money behind their beliefs!” Professor Mark J. Perry, University of Michigan-Flint

17. http://www.international-economy.com/TIE_Sp07_Baker.pdf and http://knowledge.emory.edu/article.cfm?articleid=1015

18. “Regulatory Underkill,” Arthur Levitt Jr., Wall Street Journal, March 21, 2008

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NEXT: More from John Delaney about regulations

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