The CFTC Readings Of The Day -Thursday Morning Edition

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I highly recommend that you read the 2 documents I put in bold.

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- The Arnold &amp- Porter lawyer’-s take. —- (PDF file)

- The Schulte, Roth &amp- Zabel lawyers’- take. —- (PDF file)

- The Sullivan &amp- Cromwell lawyers’- take. —- (PDF file)

- A young economist rebuts the American Enterprise Institute.

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Previous blog posts by Chris F. Masse:

  • The CFTC is going to close the comments in 9 days. We have 9 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges (e.g., InTrade USA or BetFair USA), and counter the puritan and sterile petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).
  • Forrest Nelson valids Emile Servan-Schreiber.
  • Averaging One’s Guesses
  • Americans love rankings, but Americans hate to be assessed subjectively.
  • A libertarian view on the Internet betting and gambling industry in the United States of America
  • The CFTC is going to close the comments in 10 days. We have 10 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges (e.g., InTrade USA or BetFair USA), and counter the puritan and sterile petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).
  • The Numbers Guy

The CFTC is going to close the comments in 12 days. We have 12 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).

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THE MIDAS ORACLE TAKES:

- CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.

- In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

- COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

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BACKGROUND INFO:

- CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

- The Arnold &amp- Porter lawyers explain the meaning of the CFTC’-s concept release on “-event markets”-. —- (PDF file)

- What Vernon Smith told the CFTC.

- American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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APPENDIX:

Paul Wolfowitz’-s profile at the American Enterprise Institute

- How the neo-cons drove the United States of America into the unecessary Iraq war

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COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

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For those who are just surfacing from an Afghan cave: Tom W. Bell is a law professor at Chapman University (in California) and Jason Ruspini is a Wall Street professional (in New York).

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It seems that both will, independently of each other, write to the CFTC about the legalization of the “-event markets”- (here are the comments to the CFTC) —-a bad term for the “-non-hedgeable event derivative markets”- (which is also, probably, a term that is quite awful to your ears :-D ). What to expect from them? (WARNING: This is highly speculative.)

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TOM W. BELL

  • He will state the libertarian point of view —-laissez faire, laissez aller. - [DISCLOSURE: I am a mid-core libertarian myself, so I like that.]
  • Overall, he will try to put up a basket of legal hacks —-to establish that the real-money prediction markets should be as free as possible.
  • In particular, he will try to make the point that “-event markets”- should be covered by the laws governing “-notes”- —-not by the laws governing “-contracts”-.
  • By doing so, he will tell the CFTC to go fugging themselves —-since the CFTC is allegedly about “-contracts”-, not about “-notes”-.

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JASON RUSPINI

  • He will state that all the real-money prediction markets should be covered by the CFTC.
  • He will navigate within the legal framework that the CFTC has established in their “-concept release”-. – [See this document from the Arnold &amp- Porter lawyers, if you wanna know what's a "concept release", in the mind of the CFTC regulators. - PDF file.]
  • He will be very careful not to offense those bureaucrats.

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TOM W. BELL vs JASON RUSPINI

  • It’-s great that the libertarian point of view is elaborated and disseminated to these bureaucrats. However, the CFTC is an agency, not the US Supreme Court Of Justice —-and the fact that Tom W. Bell is right does not mean that he will prevail.
  • Jason Ruspini’-s approach is extremely reasonable: he adopts the enemy’-s point of view, and, from within, tries to maneuver the regulatory barriers to create as much room as possible. Also, Jason Ruspini will address only the CFTC questions which he grasps well. (Contrast that with some who spread themselves too thin, and answer all the CFTC questions, even those where they have no expertise or experience. Their answers are, and, will be totally ignored. It’-s not what you say that is important- it’-s what you say in relation with who you are to say that.) I’-m pulling for Jason Ruspini’-s approach.

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TAKEAWAY

  • If Jason Ruspini does not fuck it up, he has the potentiality to influence positively the CFTC, and to become one of the great leaders of the field of prediction markets. Let’-s wish for that. Our field needs courageous men (and women) with the right political compass and the sense of pragmatism.

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THE MIDAS ORACLE TAKES:

- CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.

- In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

- A young economist rebuts the American Enterprise Institute.

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BACKGROUND INFO:

- CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

- The Arnold &amp- Porter lawyers explain the meaning of the CFTC’-s concept release on “-event markets”-. —- (PDF file)

- The Schulte &amp- Roth &amp- Zabel lawyers’- takes. —- (PDF file)

- The Sullivan &amp- Cromwell lawyers’- takes. —- (PDF file)

- What Vernon Smith told the CFTC.

- The American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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APPENDIX:

Paul Wolfowitz’-s profile at the American Enterprise Institute

- How the neo-cons drove the United States of America into the unecessary Iraq war

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Jason Ruspini will answer SOME of these CFTC questions. – 12 days left, Jason.

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CFTC – (PDF file):

CFTC’-s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

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V. Issues for Comment

A. Request for Comment

The following questions consider the Commission’-s regulatory purview over event contracts, the interests that may appropriately underlie Commission-regulated transactions, and the appropriate regulatory treatment of event contracts. The Commission encourages comments on the specific questions posed, as well as the broad range of issues raised in this concept release. In providing comments, please describe your relevant experience and discuss in detail the facts and legal provisions that support your conclusions. Furthermore, please consider the Commission’-s mandate to protect commodity futures and options markets and customers, and ensure the integrity of the commodity derivatives marketplace, as well as the expected effects of any Commission action on competition, efficiency, innovation and the financial integrity of transactions. Any recommendation with respect to the regulatory treatment of event contracts and markets should be consistent with and supported by the Act, practical, and amenable to effective and efficient implementation.

B. Public Interest

1. What public interests are served by event contracts that are designed and will principally be traded for information aggregation purposes and not for commercial risk management or pricing purposes?

2. How are these interests consistent with the public interest goals embodied in the Act?

3. What calculations, analyses, variables, and factors could be used to objectively determine the social value of information to the general public that may be discovered through trading in event contracts? Should this be a factor in determining whether the Commission plays a role in regulating these markets?

C. Jurisdictional Determinations

4. What characteristics or traits are common to or should be used to identify event contracts and event markets?

5. How do these characteristics and traits differ from those of commodity futures and options contracts that customarily have been regulated by the Commission? How are they similar?

6. Are there criteria based on the provisions of the Act that could be used to make jurisdictional determinations with respect to event contracts and markets?

7. Given the purposes and history of the Act, would it be appropriate for the Commission to apply a test premised on commercial risk management or pricing functions to demarcate the Commission’-s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?

8. Given the purposes and history of the Act, would it be appropriate for the Commission to apply any test premised on the economic purpose of certain types of transactions to demarcate the Commission’-s jurisdiction over particular contracts? If so, what factors could be used to make such a determination?

9. What calculations, analyses, variables and factors would be appropriate in determining whether the impact of an occurrence or contingency will result in a financial, commercial or economic consequence that is identified in Section 1a(13) of the Act?

10. What calculations, analyses, variables, and factors would be appropriate in determining whether an economic or commercial index that is based on prices, rates, values, or levels should or should not qualify as an excluded commodity under Section 1a(13) of the Act?

11. What identifiable factors, statutorily based or otherwise, limit the events and measures that may underlie event contracts when such contracts are treated as Commission-regulated transactions?

12. What objective and readily identifiable factors, statutorily based or otherwise, could be used to distinguish event contracts that could appropriately be traded under Commission oversight from transactions that may be viewed as the functional equivalent of gambling?

13. The Commission notes that Section 12(e) of the Act generally provides that the CEA supersedes and preempts other laws, including state and local gaming and bucket shop laws, with respect to transactions executed on or subject to the rules of a Commission-regulated market, or with respect to transactions exempted from the Act pursuant to the Commission’-s exemptive authority under Section 4(c) of the Act. What are the implications of possibly preempting state gaming laws with respect to event contracts and markets that are treated as Commission-regulated or exempted transactions?

14. Should certain underlying events or measures –-such as those based on assassinations or terrorist activities–- be prohibited altogether due to the social perception and impact of such events? What statutory or other legal basis would support this treatment?

15. Are there event contracts, such as political event contracts, that should be prohibited from trading under the Act, or that deserve separate treatment or consideration, due to the nature and importance of their outcomes? What statutory or other legal basis would support this treatment?

D. Legal Implementation

16. Is it appropriate for the Commission to direct certain or all event contracts onto markets that are regulated differently from and perhaps less stringently than DCMs? For example, it may be warranted or necessary to treat event markets that aggregate information solely for academic or research purposes, event markets set-up for internal corporate purposes, or event markets that offer exceedingly low notional value contracts to traders differently than markets that possess the attributes of traditional DCMs.

17. Is it appropriate for the Commission to use the Section 4(c) exemptive authority of the Act for implementing a regulatory scheme for event contracts and markets? In this regard, the Commission notes that it has the discretion to grant an exemption under Section 4(c) to certain classes of transactions without having to make a determination as to whether such transactions are subject to the Act in the first instance.

18. Is the issuance of staff no-action relief, such as the relief issued to the IEM, an appropriate or preferable means for establishing regulatory certainty for event contracts and markets? Is a policy statement appropriate or preferable?

19. What are the benefits and drawbacks of permitting certain event markets to operate pursuant to Commission established conditions that are similar to the conditions under which the IEM operates?

E. Market Participants

20. Would it be appropriate to allow market participants, and in particular, retail customers, to trade on Commission-regulated event markets with the knowledge that the Commission may not be able to effectively monitor the measures or events that underlie certain event contracts?

21. What unique protections and prophylactic measures are appropriate or necessary for the protection of retail users of event contracts and markets?

22. What are the implications of permitting the intermediation of event contracts, including intermediation on behalf of retail market participants, both with respect to trade execution and clearing?

23. Are there any types of trader or intermediary conduct, peculiar to event contracts and markets, that should be prohibited or monitored closely by regulators?

24. What other factors could impact the Commission’-s ability, given its limited resources, to properly oversee or monitor trading in event contracts?

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THE MIDAS ORACLE TAKES:

- CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.

- In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

- COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

-

BACKGROUND INFO:

- CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments to the CFTC.

- The Arnold &amp- Porter lawyers explain the meaning of the CFTC’-s concept release on “-event markets”-. —- (PDF file)

- What Vernon Smith told the CFTC.

- American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

-

The CFTC is going to close the comments in 13 days. We have 13 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).

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PREVIOUSLY:

- CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.

- In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

-

BACKGROUND INFO:

- CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public.

- Arnold &amp- Porter lawyers explain the meaning of the CFTC’-s concept release on “-event markets”-. —- (PDF file)

- American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

-

APPENDIX:

Paul Wolfowitz’-s profile at the American Enterprise Institute

- How the neo-cons drove the United States of America into the unecessary Iraq war

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Who will write to the CFTC?

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CONFIDENTIAL:

“-The Law Professor”-, “-The Brain”-, and “-The Blogger”- are among those who will each send a comment to the CFTC in the coming 2 weeks.

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UPDATE: This econ guy will write to the CFTC, too.

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UPDATE: Indeed, he did…- brightly.

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The CFTC is going to close the comments in 16 days. We have 16 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).

No Gravatar

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Paul Wolfowitz’-s profile at the American Enterprise Institute

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PREVIOUSLY:

- CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.

- In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

-

BACKGROUND INFO:

- CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public.

- American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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NOT-FOR-PROFIT… or… FOR-PROFIT… That is the question.

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The dilemma goes like this:

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  1. If the CFTC allows for-profit prediction exchanges –-&gt- that’-s a good step forward (even though sports are excluded from the legal offerings)-
  2. If the CFTC allows only not-for-profit prediction exchanges –-&gt- that’-s a micro step forward (but still positive in the eyes of many).

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BACKGROUND INFO:

CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public.

-

UPDATE: In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

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CALL TO ACTION: Lets fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with event markets.

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The second feedback I have received about my speculative post goes like this: …-If some believe that the CFTC might rule that “-event markets”- should be treated only by not-for-profit, IEM-like, prediction exchanges…- …-while some others think that’-s not the case…- …-even though a powerful American think tank is advocating that only not-for-profit prediction exchanges be allowed to organize “-event markets”-…- …-then all that means that this issue is probably still up in the air…- …-and worth fighting for.

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I’-m told people who favor for-profit prediction exchanges (and in their wicked mind, that includes the author of this post) should write to the CFTC.

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UPDATE: NOT-FOR-PROFIT…- or…- FOR-PROFIT…- That is the question.

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UPDATE: In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

-

BACKGROUND INFO:

CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts…- notably how they define “-event markets”-, how they are going to extend their “-exemption”- to other IEM-like prediction exchanges, and how they framed their questions to the public.

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Will the CFTC allow FOR-PROFIT prediction exchanges to deal with event markets?

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The feedback I have received about my speculative post is that I put too much weight into the CFTC requesting that the prediction exchanges organizing “-event markets”- (event derivative markets that can’-t be used for hedging risks) be not for profit —-as the Iowa Electronic Markets is.

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Just below, in bold, are the phrase and the word I’-m told I have mis-read.

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CFTC – (PDF file):

CFTC’-s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

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D. Legal Implementation

16. Is it appropriate for the Commission to direct certain or all event contracts onto markets that are regulated differently from and perhaps less stringently than DCMs? For example, it may be warranted or necessary to treat event markets that aggregate information solely for academic or research purposes, event markets set-up for internal corporate purposes, or event markets that offer exceedingly low notional value contracts to traders differently than markets that possess the attributes of traditional DCMs.

19. What are the benefits and drawbacks of permitting certain event markets to operate pursuant to Commission established conditions that are similar to the conditions under which the IEM operates?

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UPDATE: CALL TO ACTION: Let’-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with “-event markets”-.

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UPDATE: NOT-FOR-PROFIT…- or…- FOR-PROFIT…- That is the question.

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UPDATE: In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

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