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

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CFTC – (PDF file):

CFTC&#8217-s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

V. Issues for Comment

A. Request for Comment

The following questions consider the Commission&#8217-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&#8217-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&#8217-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&#8217-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&#8217-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 &#8211-such as those based on assassinations or terrorist activities&#8211- 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&#8217-s ability, given its limited resources, to properly oversee or monitor trading in event contracts?

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.

– 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 to the CFTC.

– The Arnold &amp- Porter lawyers explain the meaning of the CFTC&#8217-s concept release on &#8220-event markets&#8221-. &#8212- (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

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 &#8220-event markets&#8221- (event derivative markets that can&#8217-t be used for hedging risks) be not for profit &#8212-as the Iowa Electronic Markets is.

Just below, in bold, are the phrase and the word I&#8217-m told I have mis-read.

CFTC – (PDF file):

CFTC&#8217-s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

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?

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

UPDATE: NOT-FOR-PROFIT&#8230- or&#8230- FOR-PROFIT&#8230- That is the question.

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.

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

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CFTC – (PDF file):

CFTC&#8217-s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

V. Issues for Comment

A. Request for Comment

The following questions consider the Commission&#8217-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&#8217-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&#8217-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&#8217-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&#8217-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 &#8211-such as those based on assassinations or terrorist activities&#8211- 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&#8217-s ability, given its limited resources, to properly oversee or monitor trading in event contracts?

Lawsuit aiming at compelling the office of the United States trade representative to produce a copy of its compensation settlement with the European Union over the United States withdrawal of gambling services from the General Agreement on Trade in Services.

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&#8220-National Security&#8221- is the reason given for the cover up.

The Center for Independent Media and Public Citizen are suing their pants off.

ROBIN HANSONS PUBLIC ADMISSION: He signed Bobs petitions, not because he heartfully endorsed them fully, but because he wanted to please Bob, didnt want to be left out of the party, and was persuaded that his own blue-sky proposals wouldnt make it -and other irrational excuses for not saying the tru

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Robin Hanson:

Hal and Silas, endorsing this proposal does not mean that I would not prefer other proposals- it just means I prefer this to the status quo. Chris Masse is an example of someone who has difficulty accepting this endorsement concept.

Doc,

Why wouldn&#8217-t you:

  1. Gather with yourself and determine under what precise circumstances you want the real-money prediction markets (which you co-invented with the IEM people) to flourish in your country-
  2. Then, consult with your peers (Wolfers et al.) on whether they&#8217-d agree with you-
  3. Publish a petition that lays out how the real-money prediction markets would blossom in America-
  4. Add, at the bottom of that petition, an appendix laying out what would be, for you, an acceptable Plan B-
  5. Hummmm&#8230-.??&#8230- Sounds more logical to me.

Previous blog posts by Chris F. Masse:

  • Prediction Markets
  • Meet professor Justin Wolfers.
  • Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
  • Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
  • How does InTrade deal with insider trading?
  • Modern Life
  • “The Beacon” is an excellent blog published by The Independent Institute.

Folks, yesterday, I forgot to link to the PDF file posted by the CFTC (their concept release, how snobbish). Download it, and read it -well discuss it later, here. No need to rush an opinion, we have about 2 months to make up our collective mind. Lets have it open.

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Via professor Eric Zitzewitz of Dartmouth, the CFTC announcement.

CFTC&#8217-s Concept Release – (PDF file)

InTrade&#8217-s John Delaney&#8217-s message to the prediction market crowd.

Midas Oracle authors (and that includes PMIA&#8217-s Emile Servan-Schreiber) can post their views, here, if they wish &#8212-or link externally to their own blog, if they wish.

David Pennock has published a comment that rebuts mine.

One comment, over there.

Finally, I&#8217-m searching for a co-author, or a bunch of co-authors, who share my views, and would like to submit a short e-mail to the CFTC, before the end of June, 2008.

Details on how the Federal Reserve will TRY to crash real-money prediction exchanges InTrade-TradeSports and MatchBook

No GravatarVia Betting Market, the Federal Reserve:

Louise L. Roseman, Director, Division of Reserve Bank Operations and Payment Systems

Internet gambling

Before the Subcommittee on Domestic and International Monetary Policy, Trade, and Technology, Committee on Financial Services, U.S. House of Representatives

April 2, 2008

Chairman Gutierrez, Ranking Member Paul, and members of the Subcommittee, I am pleased to appear before you to discuss the implementation of the Unlawful Internet Gambling Enforcement Act of 2006. I will provide an overview of the Act and of the proposed rule to implement the Act that the Federal Reserve Board and the Secretary of the Treasury (the Agencies) published for comment. I will also highlight the major issues raised in the comments we received.

Unlawful Internet Gambling Enforcement Act of 2006

The Act prohibits gambling businesses from accepting payments in connection with unlawful Internet gambling. Such payments are termed &#8220-restricted transactions.&#8221- The Act also requires the Board and the Secretary of Treasury, in consultation with the Attorney General, to prescribe regulations requiring designated payment systems and their participants to establish policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the acceptance of restricted transactions.

The Act does not spell out which gambling activities are lawful and which are unlawful, but rather relies on the underlying substantive Federal and State laws. The Act does, however, exclude certain intrastate and intratribal wagers from the definition of &#8220-unlawful Internet gambling,&#8221- and also excludes any activity that is allowed under the Interstate Horseracing Act of 1978. The activities that are permissible under the various Federal and State gambling laws are not well-settled and can be subject to varying interpretations. Congress recognized this fact when it included in the Act a &#8220-sense of Congress&#8221- provision that states that the Interstate Horseracing Act exclusion &#8220-is not intended to resolve any existing disagreements over how to interpret the relationship between the Interstate Horseracing Act and other Federal statutes.&#8221-

The Act directs the Agencies to designate payment systems that could be used to facilitate restricted transactions. A designated payment system and its participants must comply with the rule. Congress recognized, however, that it may be difficult to block restricted transactions made in certain payment systems, and directed the Agencies to exempt transactions or designated payment systems from the rule&#8217-s requirements in those cases where it is not reasonably practical to block restricted transactions. By including this requirement, Congress recognized the importance of an efficient payment system to a well-functioning economy and of ensuring that the Agencies&#8217- rule does not have a material adverse effect on payment system efficiency. In addition, the Act requires that the regulations identify the types of policies and procedures, including non-exclusive examples, that the Agencies would deem reasonably designed to prevent or prohibit restricted transactions. The Act also requires the Agencies to ensure that their regulations do not block or otherwise prevent or prohibit transactions related to activity that is explicitly excluded from the definition of unlawful Internet gambling.

The Proposed Rule and Comments Received

Overview of the proposed rule. Over the course of this rulemaking, the Agencies have done a considerable amount of outreach to payment system representatives, gaming interests, Federal and State regulators, and others. These consultations enabled the Agencies to gain a better understanding of gaming and its regulatory structure, and the role the various payment systems play in facilitating gaming. Although Board staff is quite familiar with the operations of many types of payment systems, this consultation provided a deeper understanding of certain payment systems, such as money transmitting businesses (for example, Western Union, MoneyGram, and PayPal), and allowed the Agencies to better focus on formulating options for policies and procedures that would be practical for those systems to comply with the Act.

In October 2007, the Agencies published for comment a proposed rule to implement the Act. The proposed rule (1) designates payment systems that could be used by participants in connection with a restricted transaction, (2) exempts certain participants in certain designated payment systems from the requirements of the regulation, and (3) requires non-exempt participants to establish and implement policies and procedures reasonably designed to prevent or prohibit restricted transactions.

For each designated payment system, the proposed rule sets out non-exclusive examples of policies and procedures for non-exempt participants in the system that the Agencies believe are reasonably designed to prevent or prohibit restricted transactions. These examples are tailored to the particular roles participants play in each payment system. The examples include policies and procedures that address methods for conducting due diligence in establishing and maintaining a customer relationship designed to ensure that the customer does not originate or receive restricted transactions through the customer relationship. The examples also include policies and procedures that address remedial actions with respect to a customer if the participant becomes aware that the customer has originated or received restricted transactions through the customer relationship. Examples applicable to card systems and money transmitting businesses include procedures to address ongoing monitoring or testing to detect possible restricted transactions and, in the case of card systems, establishing transaction codes and merchant category codes that enable the card system or card issuer to identify and deny authorization for a restricted transaction.

More than 200 organizations and consumers submitted comments on the proposal. Many of the comments were directed toward the Act itself. Most consumers who commented indicated that the Act represents an inappropriate governmental intrusion into citizens&#8217- private affairs. Other commenters expressed concern that the Act will exacerbate the U.S.&#8217-s difficulties with the World Trade Organization related to Internet gambling. Some banks warned that the cumulative effect of the increased compliance burden of this and other laws will adversely affect the competitiveness of the U.S. payment system. In contrast, some commenters supported the Act&#8217-s goals, noting the problems that Internet gambling causes for individuals who gamble beyond their means.

I will now highlight certain aspects of the proposed rule and the associated comments that the Agencies received.

Determination of what constitutes unlawful Internet gambling. Like the Act, the proposed rule did not specify what constitutes unlawful Internet gambling. Lack of clarity on this topic in both the Act and the proposed regulation was the most prominent concern raised by the commenters. Commenters that represent payment systems and their participants stressed that uncertainty about what constitutes unlawful Internet gambling would make compliance with the rule very difficult and burdensome. Commenters generally supported bright-line mechanisms for determining which transactions they should block. Clarity on this point would permit them to design policies and procedures that they could be assured would meet the rule&#8217-s requirements. A number of commenters recommended that the Agencies develop a list of gambling businesses whose transactions should be blocked. While some of these commenters acknowledged the limited effectiveness of such a list, they desired the certainty and efficiency that it would provide. Other commenters suggested that the rule should place the onus on the Internet gambling business to demonstrate to its bank the legality of its transactions. Still others, including some gambling businesses and many consumers, asked that the rule clarify that certain types of gambling, such as pari-mutuel betting or poker, are lawful.

Designated payment systems. The Agencies proposed designating a broad range of payment systems that could be used in connection with Internet gambling. Designated payment systems include automated clearinghouse (ACH) systems, card systems (including credit card, debit card, and prepaid or stored-value systems), check collection systems, money transmitting businesses, and wire transfer systems (such as Fedwire and CHIPS). Commenters generally concurred with the scope of the payment system designations.

Exemptions. The Agencies considered instances when it would not be reasonably practical to identify and block, or otherwise prevent or prohibit, restricted transactions. The proposed rule did not exempt from compliance any designated payment system in its entirety, but rather exempted certain participants in the ACH, check collection, and wire transfer systems. With respect to domestic transactions, the proposed rule exempts all participants in these systems except for a participant that would have a customer relationship with an Internet gambling business. The institution that has the customer relationship with that business is in the best position to determine the nature of the customer’s business and whether the customer is likely to receive restricted transactions for credit to its account. The Agencies believe it is not reasonably practical for other parties to transactions in these systems to identify restricted transactions because these systems do not have the functional capabilities in place for identifying and blocking payments made for specific purposes or initiated in specific ways, such as on the Internet. For that reason, some banks recommended that these systems be exempt from the rule altogether. The proposed rule did not include exemptions for any participant in a card system or money transmitting business– rather, the Agencies tailored the examples of policies and procedures to the functional capabilities of those systems and their participants.

Due diligence. As I noted earlier, the proposed rule contained examples of policies and procedures that would comply with the rule. Those examples included procedures to conduct due diligence in establishing and maintaining commercial customer relationships to ensure that commercial customers do not originate or receive restricted transactions. Bank commenters generally believed that such due diligence could be performed at the time of account opening for accounts established following the effective date of the regulation if they had a mechanism to readily determine which Internet gambling activity was unlawful. They indicated it would be very difficult and burdensome, however, to ascertain which existing business customers conduct Internet gambling activity, because they have not maintained records on their accounts in a manner that would readily permit identification of such accounts. This requirement would be particularly challenging for the largest banks, which have millions of commercial account relationships.

Cross-border transactions. Most unlawful Internet gambling businesses are based outside the United States and therefore do not have account relationships with U.S. financial institutions. Instead, their accounts are held at foreign institutions, and restricted transactions enter the U.S. payment system through cross-border relationships between those foreign institutions and U.S. financial institutions or payment systems. The proposed rule, therefore, places responsibility on U.S. payment system participants that send transactions to, or receive transactions from, foreign institutions to establish policies and procedures reasonably designed to prevent these restricted transactions. For example, a U.S. correspondent bank could require in its account agreement that foreign institutions have policies and procedures in place to avoid sending restricted transactions to the U.S. participant.

Commenters stated that measures to prevent foreign institutions from sending restricted transactions to the United States would likely be unworkable. They believed that most foreign banks would not agree to modify their contracts with U.S. banks, particularly if Internet gambling is legal in a foreign institution&#8217-s home country. Detecting and preventing cross-border Internet gambling transactions presents challenges that differ from other criminal financial transactions, such as money laundering or terrorist financing. Laws in many other jurisdictions impose compliance obligations upon financial institutions with respect to those types of financial crime- there are, however, few comparable compliance requirements with respect to Internet gambling.

Given that Internet gambling is lawful in many countries where U.S. banks have correspondent relationships, it may be particularly difficult to craft workable procedures to prevent individuals in the United States from making payments to a foreign Internet gambling company&#8217-s account at a foreign bank. Moreover, commenters noted that, given the complexity of U.S. gambling law, it is unrealistic for foreign institutions to ascertain which forms of Internet gambling are unlawful and therefore should be prevented.

Many of these cross-border correspondent relationships support large volumes of daily payments that are wholly unrelated to gambling. It seems impractical to require U.S. banks to end these relationships because some small percentage of their overall payments may be directed toward unlawful Internet gambling. Therefore, there may be limited options for dealing with the international banking relationships through which most unlawful Internet gambling transactions are processed without causing significant disruption to international payment flows.

Overblocking. The proposed rule implements the Act&#8217-s overblocking provision by stating that nothing in the regulation is intended to suggest that payment systems or their participants must or should block transactions explicitly excluded from the definition of unlawful Internet gambling. Banks and other payment system participants supported the proposed rule&#8217-s implementation of the Act&#8217-s overblocking provision, stating that the Act does not require that these gambling transactions, or any other transactions, be processed, but, instead, simply requires that the regulation itself not mandate that these gambling transactions be blocked. Some of these commenters indicated that, even before the Act&#8217-s passage, they had decided to avoid processing any gambling transactions, even if lawful, because these transactions were not sufficiently profitable to warrant the higher risk they posed. In contrast, some organizations representing gaming interests commented that the rule should require payment system participants to process transactions excluded from the Act&#8217-s definition of unlawful Internet gambling. Certain gaming interests recommended that the rule&#8217-s policies and procedures for card systems at a minimum include the establishment of separate merchant category codes for the types of gambling that are not defined as unlawful under the Act. As noted in the proposal, the Agencies believe that the Act does not provide the Agencies with the authority to require designated payment systems or participants in these systems to process any gambling transactions, including those transactions excluded from the Act&#8217-s definition of unlawful Internet gambling, if a system or participant decides for business reasons not to process such transactions. Nor do we possess any other authority that would allow us to do so.

Conclusion

In recent years, funding Internet gambling through the U.S. payment system has become more difficult, due in large part to steps card issuers and money transmitting businesses have already taken on their own initiative to prevent these transactions. Board and Treasury staffs are currently focused on developing a final rule that leverages existing practices to prevent unlawful Internet gambling transactions and provides additional and reasonably practical examples of actions that U.S. payment system participants can take to further impede the flow of restricted transactions through the U.S. payment system. As the comments to the proposed rule make clear, this is a challenging task, and the ability of the final rule to achieve a substantial further reduction in the use of the U.S. payment system for unlawful Internet gambling is uncertain. As part of this effort, we are carefully considering all comments received on the proposed rule and determining what modifications may be appropriate in light of the issues raised by those comments. Our objective is to craft a rule to implement the Act as effectively as possible in a manner that does not have a substantial adverse effect on the efficiency of the nation&#8217-s payment system.

I would welcome any questions that the Committee members may have.

The US futures exchanges should not control clearing.

No Gravatar&#8230- says the US DOJ.

The Justice Department called for a shake-up of financial-futures exchanges, saying current policies may have inhibited competition. – WSJ $$$

Chicago Tribune

FT

BW

Read the previous blog posts by Chris F. Masse:

  • I get a kick each morning out of spying on the rich, famous, and powerful people updating their LinkedIn profile and connections. (Go to “InBox”, and click on “Network Updates”.)
  • ??? BetFair bet-matching logic ???
  • Eliot Spitzer has simply demonstrated once again that those who rise to the top of organizations are very often the most demented, conflicted individuals in any group.
  • Business Risks & Prediction Markets
  • Brand-new BetFair bet-matching logic proves to be very controversial with some event derivative traders.
  • Jimmy Wales accused of editing Wikipedia for donations.
  • What the prediction market experts said on Predictify

China is considering allowing gambling on horse races in 2009.

No GravatarWow.

Quand la Chine s&#8217-eveillera&#8230- le monde tremblera. :-D

Previous blog posts by Chris F. Masse:

  • LinkedIn feed of your network updates = complete crap.
  • Could a statistical reputation system built on top of Amazon’s Mechanical Turk be of any help to the prediction market firms?
  • Heartthrob Alec Baldwin discusses the global impact of the subprime crisis, as seen by ex-HSX Max Keiser. What’s next? Britney Spears disserting on Robin Hanson’s futarchy?
  • How will AMEX avoid the fate of HedgeStreet, an exchange with similar products?
  • 2008 hurricane binary option contracts

US DOJ searches financial records for traces of internet gambling and betting.

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INTERNET BETTING AND GAMBLING: CRISIS #23,765

&#8212-

Via Niall O&#8217-Connor of Betting Market, The Register&#8217-s Burke Hansen (a San Francisco attorney):

House of Cards. The American Department of Justice (DOJ) threw a spotlight on the murky underworld of internet gambling payment processing this afternoon with the indictment in Utah of seven individuals and four companies – including BetUs.com and serial violator BetonSports.com – involved with processing payments for online gambling transactions, according to the Associated Press. The indictment seeks to recover $150 million from the defendants under the Racketeering Influenced and Corrupt Organizations Act (RICO), in addition to hard assets such as real estate and property used in running the operations.

Ever since President Bush signed the Unlawful Internet Gambling and Enforcement Act (UIGEA) into law last October, internet gambling companies have been scrambling to process payments from frustrated American customers. […]

Although the UIGEA does not take effect until early July, major financial institutions pulled out of the American market almost immediately, forcing American gamblers and US–facing gambling suppliers to resort to increasingly roundabout methods of payment. […] Money laundering is just the disguising of the true nature of a financial transaction, and the convoluted payment systems allegedly developed by the defendants appear to qualify as that. […] Just how does the DOJ unravel these things? Although Tolman didn’t discuss that question, the DOJ most likely triangulates based on payment histories readily provided by American or foreign financial institutions. The DOJ could fairly quickly compare the payment history of a customer account formerly sending monthly payments directly to Bodog, for example, with more recent post-UIGEA history of the same account and guess with some accuracy where the gambling money now goes. […]

Frightening. :(