U.S. Supreme Court Prediction Market – [PAPER]

Recently posted to SSRN: FantasySCOTUS: Crowdsourcing a Prediction Market for the Supreme Court, a draft paper by Josh Blackman, Adam Aft, &amp- Corey Carpenter assessing the accuracy of the Harlan Institute’-s U.S. Supreme Court prediction market, FantasySCOTUS.org. The paper compares and contrasts the accuracy of FantasySCOTUS, which relied on a “-wisdom of the crowd”- approach, with the Supreme Court Forecasting Project, which relied on a computer model of Supreme Court decision making. From the paper’-s abstract:

During the October 2009 Supreme Court term, the 5,000 members made over 11,000 predictions for all 81 cases decided. Based on this data, FantasySCOTUS accurately predicted a majority of the cases, and the top-ranked experts predicted over 75% of the cases correctly. With this combined knowledge, we can now have a method to determine with a degree of certainty how the Justices will decide cases before they do. . . . During the October 2002 Term, the [FantasySCOTUS] Project’s model predicted 75% of the cases correctly, which was more accurate than the [Supreme Court] Forecasting Project’s experts, who only predicted 59.1% of the cases correctly. The FantasySCOTUS experts predicted 64.7% of the cases correctly, surpassing the Forecasting Project’s Experts, though the difference was not statistically significant. The Gold, Silver, and Bronze medalists in FantasySCOTUS scored staggering accuracy rates of 80%, 75% and 72% respectively (an average of 75.7%). The FantasySCOTUS top three experts not only outperformed the Forecasting Project’s experts, but they also slightly outperformed the Project’s model –- 75.7% compared with 75%.

You can download a copy of the draft paper here.

[Crossposted at Agoraphilia, Midas Oracle, and MoneyLaw.]

What Robin Hanson told the CFTC about event markets (prediction markets)

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Robin Hanson:

Date: Mon, 07 Jul 2008 10:12:46 -0400
To: secretary@cftc.gov
From: Robin Hanson &lt-rhanson@gmu.edu&gt-
Subject: Comment on “-Concept Release on the Appropriate Regulatory Treatment of Event Contracts”-
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I am an event market innovator, having published the first detailed discussions envisioning their widespread application, having designed a widely used trading mechanism (the market scoring rule), and having co-developed the first internal corporate markets (at Xanadu), the first public web markets (the Foresight Exchange), and the aborted-but-influential Policy Analysis Market.

As I am less well trained in law than social science, I will not comment on what the C.F.T.C. is legally authorized to do, but only on how various policies correspond to public interest and public opinion. I speak here only for myself and not for any organization with which I may be affiliated.

The degree and type of regulation appropriate for a financial market depends on traders’- motives. Long ago most everything beyond direct physical exchange was widely discouraged or prohibited as “-gambling”- or “-speculation.”- The motives imputed to traders seemed to be some combination of mistakes, overconfidence, thrill of action, love of risk, and showing off one’-s confidence and risk tolerance.

While public opinion on gambling has changed little, eventually legal exceptions were carved out for markets where, though speculation was still possible, enough participants had more sympathetic motives to garner public support. Securities markets allowed business managers to hedge ownership, insurance markets allowed hedging of various idiosyncratic risks, and commodities futures markets allowed hedging of various common risks.

It has long been noted approvingly that such speculative markets often had the desirable side effect of inducing people to collect info and aggregate it into prices. But until recently such info was not considered or accepted as a primary explanation or justification for a market’-s existence. Given the myriad ways our society now suffers, often dramatically, from failures to aggregate info, I am very optimistic about the long term potential for such markets to offer substantial social value. However, the question remains of how such info-motivated markets should be regulated today.

Ideally an entire new regulatory regime would be carved out, on par with regimes for securities, insurance, and commodities futures regulation. But who would bother with such an effort before such markets had proven themselves able to realize substantial social value? And how could such markets prove themselves without at least tentative legal spaces in which to experiment? I know of no good reason why the C.F.T.C. should not provide one of the first such spaces.

Two key issues face a new regulatory regime for info-motivated event markets, especially one carved out of a common-risk-hedging commodities-future regulatory regime:

  • How does optimal regulation of info-motivated event markets differ from that of common-risk-hedging markets?
  • How can regulators ensure that this new regime is not used as a back door to escape prohibitions on other commodity futures trading, or to escape general prohibitions against gambling?

How Does Optimal Regulation Differ Here?

On the first question, the largest difference I see, by far, is the appropriate scale. When hedging risks it makes sense to focus first on risks, and hence trades, which are a large fraction of the wealth of the individuals or organizations involved. If risks are common there should be many who trade if any trade, and so market volume should be many times individual wealth levels. It also makes sense to devote a small fraction of this volume to efforts to avoid foul play. I have heard that it costs on the order of a million dollars to jump the regulatory hoops to gain approval for such markets, and I cannot say that this is not roughly the right cost magnitude.

For markets whose main function is to collect info, however, the appropriate scale seems far smaller. To collect info on a topic, those who know or could find out need only be offered a sufficient incentive to bother. In the lab, experimental economists see substantial effort and price info aggregation when only a few tens of dollars are at stake, and field data seems consistent with this estimate. If most of the social value from info-motivated event markets were concentrated in a few very important topics, it would not matter much if regulatory barriers prevented markets on topics with small info values. But if, as seems more plausible, much of the value is found in a long thick tail of smaller topics, then to realize this social value it is essential that regulatory barriers to creating such markets be reduced to the lowest feasible level.

For example, consider a topic where a social value of one thousand dollars could be realized, if only people were allowed to trade in a market on that topic. It is hard to see how this value could actually be realized if the regulatory cost to create this market were more than a few hundred dollars. If there were a million such topics, the total social value such markets could create would be one billion dollars.

A related difference is when it makes sense to limit participation. If most of a certain kind of risk is held by wealthy individuals or large organizations, then it can make sense to limit participation to such traders. But for info collection it is crucial to allow participation by the sorts of people who could plausibly obtain that info. For a great many topics these people will be spread out in the population, and not easily distinguished from most other people. A broad permission to participate will thus be desired in such cases.

How Can We Distinguish When This Regime Should Apply?

On the second question, we seek a reliable way to distinguish markets where the info collected is a strong rationale for its existence, a rationale strong enough to justify overturning the usual public presumption against generic speculation, and strong enough relative to hedging rationales to justify using this new regulatory regime, rather than other hedging regulatory regimes.

One proposed distinguishing criteria includes the size of an individual trader’-s stake, and the number of traders. The Iowa Electronic Markets are limited on both of these parameters. Such limits do succeed in preventing large hedging markets from masquerading as info-motivated event markets. But they do little to prevent generic gambling markets from masquerading as info-motivated event markets.

Another proposed distinguishing criteria is the form of the organization that hosts the market. Some have proposed that tax-exempt, research, and government organizations be given wider latitude than for-profit businesses. I understand that this matches a common public perception, but honestly it seems mostly wishful thinking to believe that such organizations are substantially more likely to create markets with a strong info rationale, or to avoid whatever problems one fears with
for-profit businesses.

Some have suggested that topics could be used to distinguish the strength of info rationale. Markets on sporting events might be presumed to have low info rationale, while markets on public policy might be presumed to have high info rationale. This approach seems to open a proverbial “-can of worms,”- however, requiring a great and continuing effort to categorize topics.

To ease this effort, one could inherit some other topic categorization. For example, regulation of speech distinguishes topics where free speech is presumed to perform very valuable social functions, and so has strong legal protection, from topics where such functions are less clear, allowing speech to be more easily regulated. Event markets might be permitted on topics where free speech has a strong legal protection.

In contrast to such weak indicators let me propose a stronger indicator of when a speculative market has a strong info rationale. I am not proposing that only markets which sport this indicator be allowed, but rather that at least such markets be allowed. My proposal is to permit markets where a sponsor pays to ensure that traders on average do not lose financially from participation, as this payment creates a strong presumption that this sponsor expected to gain substantial value from that info.

It is hard to see many of the benefits that traders may gain from trading, but we can more easily see the average financial costs that traders suffer. Traders may have to pay for permission to trade, to deposit into a system, to check prices and trading history, for each trade, and to withdraw their winnings. In addition, trader deposits may not earn competitive risk-adjusted rates of return. Payment is sometimes in the form of seeing ads. Such fees are essential to the profitability of “-gambling”- businesses today that rely primarily on traders’- speculative motives.

If for a particular topic, a sponsor were willing to ensure that traders paid none of these common trading fees, that sponsor would have credibly suggested that his or her market would not exist if that sponsor did not expect related info to have substantial value. If this sponsor furthermore subsidized this market, allowing traders to gain on average by trading against ignorant automated market makers, this would show even more clearly that this sponsor valued the resulting info. Such measures would ensure that traders suffered no average financial loss from their participation, though traders could still lose on average, such as by wasting too much time dealing with these markets.

Of course we do not expect sponsors to arise to support all topics where info collected by trading would have substantial social value. We expect businesses to sponsor markets on topics where they can profit from info, and charities to collect donations to support markets on topics they consider more broadly valuable. But we also expect many coordination failures, where each party prefers that others pay for commonly valuable info. So the case for prohibiting markets that fail my proposed criteria is much weaker than the case for permitting markets that meet this criteria.

It also remains possible that even when a sponsor finds info to be valuable enough to pay for, the social value of that info could be much less than the private value to this sponsor. If we could identify classes of such cases, these classes might form the basis of exceptions to this general permission I propose.

I have many other opinions about how such markets might be defined and regulated, but I’-ve already gone one for quite a bit here – if you like what you see here and want more, you know where to find me.

In Summary

In addition to existing regulatory regimes for ownership-hedging securities, idiosyncratic-risk-hedging insurance, and common-risk-hedging futures, it could make sense to have a distinct regulatory regime for markets whose main reason to exist is the info that they collect. Compared with existing commodities futures regulation, such a regime should set a much lower barrier to creating such markets, as much of the social value may be distributed in millions of small markets. And while it is hard to determine in general which markets would create high social info value, relative to cost, we should presume such high value when a sponsor is willing to pay to ensure that traders suffer no average financial cost from their participation.
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Robin Hanson rhanson@gmu.edu http://hanson.gmu.edu
Research Associate, Future of Humanity Institute at Oxford University
Associate Professor of Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323

Robin Hanson

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Are US-based real-money prediction exchanges to become federally regulated (as DCMs)? Or semi-regulated (as ECMs, or as exchanges covered by no-action letters)?

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BusinessWeek:

In its request for comment, the CFTC reminded the public that the commission should “-promote innovation for futures and derivatives.”- It also added that —hint, hint— the Iowa markets have been valuable sources of public information and have predicted Presidential outcomes better than polls. The 2000 act gave the CFTC the authority “-to promote responsible economic or financial innovation”- by creating an exemption for certain types of contracts (such as one in a prediction market). [...]

“-Basically I think they’-re going to expand the IEM no-action letter and take legal measures to make sure that legal contracts aren’-t subject to antigambling laws,”- says Chapman law professor Bell. [...]

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BusinessWeek gets it right about where the CFTC is going. (Go reading the 2 pages.)

However, I still believe that HedgeStreet has a strong argument (about the political elections being “-excluded commodities”-) and I wonder what the CFTC will do about it.

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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 “-no action”- 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.

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- 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’-s comment sent to the CFTC.

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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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PROF TOM W. BELL, PLEASE, DO SKIP THE PAGAN CELEBRATIONS, AND, PLEASE, DO RETURN TO YOUR DESK TO FINISH THE DRAFT OF YOUR COMMENT TO THE CFTC. THANKS FOR YOUR PRAGMATIC (NOT ETHEREAL) CONTRIBUTION TO THE FUTURE OF HUMANITY. (There is a hidden slam to Robin Hanson in this title. I wonder whether peop

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TOM W. BELL: Thanks, Chris. Thanks, too, for being such an effective gadfly. I might well have blown off the whole exercise if you had not kept blogging about how you were awaiting my comment!

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“-Gadfly”- is a term for people who upset the status quo by posing upsetting or novel questions, or attempt to stimulate innovation by proving an irritant.

The term “-gadfly”- (Gk. muopa) was used by Plato in the Apology to describe Socrates‘- relationship of uncomfortable goad to the Athenian political scene, which he compared to a slow and dimwitted horse. The Bible also references the gadfly in terms of political influence- The Book of Jeremiah (46:20, Darby Bible) states “-Egypt is a very fair heifer- the gad-fly cometh, it cometh from the north.”- The term has been used to describe many politicians and social commentators- in modern Hebrew, which knows many more idioms than those used by Jeremiah, gadfly is “-mekhapes pagam”- literally “-fault finder”-.

During his defense when on trial for his life, Socrates, according to Plato’-s writings, pointed out that dissent, like the tiny (relative to the size of a horse) gadfly, was easy to swat, but the cost to society of silencing individuals who were irritating could be very high. “-If you kill a man like me, you will injure yourselves more than you will injure me,”- because his role was that of a gadfly, “-to sting people and whip them into a fury, all in the service of truth.”-

In modern and local politics, gadfly is a term used to describe someone who persistently challenges people in positions of power, the status quo or a popular position. The word may be uttered in a pejorative sense, while at the same time be accepted as a description of honorable work or civic duty.

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I‘-m a modern-day Socrates…- !!!…- :-D

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Previously: Let’s Tell the CFTC Where to Go. – by Tom W. Bell

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COMMENTS TO THE CFTC: What should be expected, next.

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Two prediction market organizations will submit, each, a comment. I suppose that what they will tell the CFTC will say more about their industrial strategy than about the right state of the US regulations on event derivative markets, but I could be damn wrong.

Tom W. Bell is working on a comment to the CFTC (that’-s public information). Once it is published, the next thing to do is a comparative analysis of Bell versus Ruspini. With that question in mind: Which of these 2 luminaries will have the best impact on the CFTC?

I can’-t wait.

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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?

…- asks Google’-s Bo Cowgill.

That could be…- However, I’-m not holding my breath. Here’-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’-s 2003 letter to the CFTC about HedgeStreet’-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 …- You have computed that the CME was (in 2003) no friend of HedgeStreet —-and, thus, of our prediction markets. (For those who are just surfacing from an Afghan cave, yes, the CFTC did approve HedgeStreet’-s application, finally, and told the CME to go fugging themselves.) So, I’-m not holding my breath for a CME comment to the CFTC’-s concept release on “-event markets”-. 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…- 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’-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 “-event markets”- are from:

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

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

In the coming weeks, you’-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’-s strict framework.

DEVELOPING…-

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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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The lawyerly questions that the CFTC are asking to Tom W. Bell

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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?