Tom W. Bell rebuts 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).

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Tom W. Bell:

The CFTC should not limit &#8220-no action&#8221- status to markets run by tax-exempt organizations. The no-action letters that the CFTC issued to the IEM emphasized not the nature of the hosting institution, the University of Iowa, but rather the business model adopted by the IEM itself. Profitability could not have mattered, as tax-exempt organizations can and do earn profits (indeed, as their burgeoning endowments demonstrate, many universities earn immense profits). The CFTC apparently cared only that the IEM did not plan to profit from charging traders commissions. A tax-paying organization could satisfy that condition just as easily as a tax-exempt organization could. In either event, price discovery would flourish and consumers would win a safeguard against getting fleeced.

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

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

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

Analysis of the HedgeStreet&#8217-s comment sent to the CFTC.

APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

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

The CFTC is going to close the comments in 3 days. We have 3 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 Wolfowi

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ADDRESSES: Comments should be sent to the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, Attention: Office of the Secretariat. Comments may be sent by facsimile to 202.418.5521, or by e-mail to secretary@cftc.gov.

Reference should be made to the &#8220-Concept Release on the Appropriate Regulatory Treatment of Event Contracts.&#8221- Comments may also be submitted through the Federal eRuleMaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&amp-log=linklog&amp-to=http://web.archive.org/web/20080930170145/http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office of the Director (telephone 202.418.5578, e-mail bfekrat@cftc.gov), Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

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

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

Analysis of the HedgeStreet&#8217-s comment sent to the CFTC.

BACKGROUND INFO:

CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

– The BusinessWeek news article about the CFTC&#8217-s concept release.

– The Arnold &amp- Porter lawyer&#8217-s take. &#8212- (PDF file)

The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

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

COMMENTS TO THE CFTC

Very soon, two prediction market organizations and one VIP will submit their comment to the CFTC.

– What Vernon Smith told the CFTC. &#8212- (PDF file)

– Jed Christiansen&#8217-s pragmatic take. &#8212- Final draft – (PDF file) – His comment to the CFTC – (PDF file)

– The International Swaps and Derivatives Association&#8217-s comment to the CFTC – (ISDA) &#8212- (PDF file)

Jason Ruspini&#8217-s comment to the CFTC &#8212- (PDF file)

Tom W. Bell&#8217-s petition, which will be sent to the CFTC. &#8212- (Jonathan Gewirtz is in.)

– HedgeStreet&#8217-s comment to the CFTC. &#8212- (PDF file)

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror) &#8212- Comment to the CFTC – (PDF file)

– Tom W. Bell rebuts the American Enterprise Institute.

Robin Hanson&#8217-s comment to the CFTC. &#8212- (MO mirror)

APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

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

Lets Tell the CFTC Where to Go.

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Update: I&#8217-ve extended the deadline for signing up until 7 p.m. Pacific, Sunday, July 6. Also, I fixed a typo in paragraph 3, changing &#8220-denying&#8221- to &#8220-giving.&#8221- (Thanks, Gil!)&gt-

The deadline looms for interested parties to respond to the Commodity Futures Trading Commission&#8217-s request for comments about regulating prediction markets (&#8221-event markets&#8221- in the CFTC&#8217-s usage). I may or may not get around to a detailed, point-by-point response to the CFTC&#8217-s many questions. In the meantime, though, I&#8217-ve drafted a general statement that many of you might agree with. I invite you to sign it with me, so that together we might tell the CFTC where to go. Please see below for details on how to sign on. Here is the draft statement:

What regulatory treatment should the Commodities Futures Trading Commission (&#8221-CFTC&#8221-) apply to event markets? We the undersigned, who represent a wide range of viewpoints, agree on three general observations. First and foremost, the CFTC should do no harm. Second, at a minimum, the CFTC should make more general the sort of &#8220-no action&#8221- status enjoyed by the Iowa Electronic Markets (&#8221-IEM&#8221-). Third, if the CFTC decides to regulate event markets more substantively, it should adopt clear and limited jurisdictional boundaries and allow affected parties to step outside of them.

First, do no harm: Many sorts of event markets—including public ones, private ones, ones that offer only play-money trading, and ones that offer real-money trading—already thrive in the U.S. They have provided a rich array of benefits without evidently harming anyone. The CFTC could help event markets achieve still greater success by clarifying their legality. Instituting the wrong sort of regulations could suffocate event markets in their cradle, however. The CFTC should exercise a light hand, taking care to do no more than offer qualifying event markets the shelter of federal preemption and freeing them to continue operating under the extant legal regime.

Second, open up the &#8220-no action&#8221- option: Thanks in part to the &#8220-no action&#8221- letters that the CFTC has issued to it, the IEM has for many years benefited the public by offering real-money event markets. No sound reason precludes the CFTC from giving similar treatment to other institutions that, like the IEM, offer event markets solely for academic and experimental purposes and without imposing trading commissions.

Although the CFTC&#8217-s &#8220-no action&#8221- letters do not specify the exact criteria the IEM had to satisfy, they took favorable note of the IEM&#8217-s account limits. Those account limits effectively prevent the IEM from supporting significant hedging functions. If the CFTC builds a similar requirement into any general &#8220-no action&#8221- guidelines, it should adopt limits considerably more generous than the meager $500/trader limit adopted decades ago by the IEM. Even a limit ten times that amount would still effectively preclude hedging.

The CFTC should not limit &#8220-no action&#8221- status to markets run by tax-exempt organizations. The no-action letters that the CFTC issued to the IEM emphasized not the nature of the hosting institution, the University of Iowa, but rather the business model adopted by the IEM itself. Profitability could not have mattered, as tax-exempt organizations can and do earn profits (indeed, as their burgeoning endowments demonstrate, many universities earn immense profits). The CFTC apparently cared only that the IEM did not plan to profit from charging traders commissions. A tax-paying organization could satisfy that condition just as easily as a tax-exempt organization could. In either event, price discovery would flourish and consumers would win a safeguard against getting fleeced.

Third, preserve regulatory exit options: If the CFTC decides to write substantive regulations for event markets, it should recognize and guard against the risk of overregulation. Even well-intentioned and well-informed regulators remain human and, thus, all too apt to make mistakes. They run an especially large risk of making mistakes when they first attempt to regulate new institutions, such as event markets. To make matters worse, regulators typically lack reliable signals to determine when they have gone too far. Industries wither away for many reasons, after all.

The CFTC&#8217-s approach to regulating event markets should accommodate these policy considerations by establishing clear jurisdictional boundaries and opening exit options. Thus, for instance, the CFTC might specify that it has no jurisdiction over event markets that offer trading only to members of a particular firm, over markets that offer only spot trading in negotiable conditional notes, or over markets that do not support significant hedging functions. Then, if the CFTC enacts unduly burdensome regulations, an event market could opt out of them by changing its business model. So long as markets publicly announce that they operate outside the CFTC&#8217-s purview, allowing them that freedom of exit would harm nobody. To the contrary, it would help the CFTC gauge the suitability of its regulations and serve the public by protecting the continued viability of event markets.

Interested in signing on? Please drop me a private email (tbell at chapman dot edu) with your name, institutional affiliation, and snailmail address. I welcome your comments—I&#8217-m sure a typo or two persists in my draft—but I of course cannot revamp the entire statement without mucking up the entire process. To leave me time to get everything together and out the door before the July 7 deadline, you&#8217-ll have to contact me before noon Pacific time on Sunday, July 6.

[Crossposted at Agoraphilia and Midas Oracle.]

What to think of HedgeStreets comment to the CFTC

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It&#8217-s a very important take.

– HedgeStreet&#8217-s comment to the CFTC. &#8212- (PDF file)

Basically, they are saying:

  1. We saw that the CFTC is entertaining the &#8220-exemption&#8221- way for prediction markets on politics and on other news.
  2. You have lost your sanity, folks. The &#8220-exemption&#8221- solution will bring you plenty of problems.
  3. You should approve these prediction markets under the classic, regulated way (the DCM solution). The classic regulation is the right way to deal with the potential problems you mentioned in your &#8220-concept release&#8221-.

That&#8217-s a pretty strong argument.

(Just remember the conundrum that Jason Ruspini has exposed.) (PDF file)

Now, the counter argument is to say that the DCM way slows innovation &#8212-thus the need to &#8220-exempt&#8221-.

That&#8217-s a pretty strong argument, too.

Indeed, one can point that it&#8217-s IEM, InTrade and BetFair who have grown the field of prediction markets &#8212-not HedgeStreet.

DEVELOPING&#8230- :-D

UPDATE: Jason Ruspini seems to be in agreement with HedgeStreet. I like that. See his comment, just below.

UPDATE: Jason Ruspini gives his understanding of the HedgeStreet&#8217-s comment to the CFTC.

UPDATE: A second look at HedgeStreet&#8217-s comment to the CFTC about &#8220-event markets&#8221-

The freshest comments sent to the CFTC

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– Jed Christiansen&#8217-s comment to the CFTC – (PDF file)

– HedgeStreet&#8217-s comment to the CFTC. &#8212- (PDF file)

Previous blog posts by Chris F. Masse:

  • The last comments are up on the CFTC website, finally.
  • InTrade CEO John Delaney sends a good comment to the CFTC.
  • Robin Hanson’s purity test is based on an absurd principle.
  • NewsFutures is the most usable prediction exchange I know of.
  • HubDub question
  • Implied Prices for Presidential Decision-Aid Markets
  • What I said to BusinessWeek

The freshest comments to the CFTC

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– The International Swaps and Derivatives Association&#8217-s comment to the CFTC &#8212- (ISDA) &#8212- (PDF file)

Jason Ruspini&#8217-s comment to the CFTC &#8212- (PDF file)

The Chicago Mercantile Exchange is not a friend of the prediction markets. Nor is the ISDA.

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Will the Chicago Mercantile Exchange write to the CFTC?

&#8230- asks Google&#8217-s Bo Cowgill.

That could be&#8230- However, I&#8217-m not holding my breath. Here&#8217-s why. The CME (along side the CBOE and ISDA) represents forces that does not push for the kind of financial innovations we are pushing here, on Midas Oracle. We are pulling for Web-based, de-intermediated, low-cost, event derivative exchanges. The financial dinosaurs (like the CME) do not.

Take a look at the CME&#8217-s 2003 letter to the CFTC about HedgeStreet&#8217-s application as a DCM. – (PDF file) – Here are the titles of the first 2 sections:

  1. HedgeStreet’s Proposal is Materially Deficient.
  2. The [HedgeStreet] Application Violates the CEA.

No need to go further. :-D &#8230- You have computed that the CME was (in 2003) no friend of HedgeStreet &#8212-and, thus, of our prediction markets. (For those who are just surfacing from an Afghan cave, yes, the CFTC did approve HedgeStreet&#8217-s application, finally, and told the CME to go fugging themselves.) So, I&#8217-m not holding my breath for a CME comment to the CFTC&#8217-s concept release on &#8220-event markets&#8221-. Saying that the CME is talking for the prediction market community is like saying the Ayatollah Khamenei was talking for priests, ministers, and rabbis.

As for the ISDA, they represent big institutional traders&#8230- who do not use exchanges ( !! ). What they say to the CFTC (PDF file), basically, is to be careful not to hurt the framework of the whole landscape. Well, thanks ISDA, but the CFTC knew that already.

As I said, 2 prediction market organizations will, each, submit their comment to the CFTC. I don&#8217-t expect that to be a deep read, with regards to derivative regulations. However, their industrial strategy might transpire, and that might be interesting for curious people like me. :-D

The 3 interesting takes about the &#8220-event markets&#8221- are from:

  1. the CFTC &#8212-if you are able to sense what their true opinion is.
  2. Jason Ruspini &#8212-(PDF file).
  3. Tom W. Bell &#8212-upcoming.

The future of US-based, non-sports, non-hedgeable prediction markets depends on those 3 poles of thought.

In the coming weeks, you&#8217-ll see many intellectual interactions between them.

The real question is: Will Jason Ruspini and/or Tom W. Bell have a proven impact on the CFTC process? I wish that, but both of them do stray away from the CFTC&#8217-s strict framework.

DEVELOPING&#8230-

My question to Jason Ruspini

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Jason, thanks for your hard work on this issue. Your 7-page letter to the CFTC is a master document. &#8212- (PDF file)

What makes you think that your proposals will create more freedom for our prediction exchanges than the CFTC&#8217-s proposals?

Could you point to specific instances to us where you think that your input is more libertarian than the CFTC way? After all, your proposals contain many &#8220-don&#8217-t do that, and forbid that&#8221- things. :-D

The CFTC is going to close the comments in 5 days. We have 5 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 Wolfowi

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THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

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

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

– 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&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- 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 lawyer&#8217-s take. &#8212- (PDF file)

The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

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

COMMENTS TO THE CFTC

This week, two prediction market organizations and one VIP will submit their comment to the CFTC.

– What Vernon Smith told the CFTC. &#8212- (PDF file)

– Jed Christiansen&#8217-s pragmatic take. &#8212- Final draft – (PDF file)

– The International Swaps and Derivatives Association&#8217-s comment to the CFTC &#8212- (ISDA) &#8212- (PDF file)

Jason Ruspini&#8217-s comment to the CFTC &#8212- (PDF file)

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror) &#8212- Comment to the CFTC – (PDF file)

APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

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

The CFTC is going to close the comments in 6 days. We have 6 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 Wolfowi

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THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

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

– The definitive proof that FOR-PROFIT prediction exchanges (like BetFair and InTrade) are the best organizers of socially valuable prediction markets (like those on global warming and climate change).

– 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&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- 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 lawyer&#8217-s take. &#8212- (PDF file)

The Schulte, Roth &amp- Zabel lawyers&#8217- take. &#8212- (PDF file)

– The Sullivan &amp- Cromwell lawyers&#8217- take. &#8212- (PDF file)

– What Vernon Smith told the CFTC. &#8212- (PDF file)

This week, 4 prediction market organizations and VIPs will submit their comment to the CFTC.

– Michael Giberson&#8217-s economic take.

– Chris Hibbert&#8217-s libertarian take.

– Tom W. Bell&#8217-s libertarian take.

– Jed Christiansen&#8217-s pragmatic take. &#8212- Final draft – (PDF file)

– A young economist rebuts the American Enterprise Institute. &#8212- (MO mirror)

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

APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

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