Intrade Prediction Market Targeted by Our Commodity Futures Trading Commission (For Absolutely No Good Reason)

In a press release strangely devoid of any mention of anyone being victimized or defrauded, the U.S. Commodity Futures Trading Commission (CFTC) announces it is suing Intrade, the famous "prediction market" business, based in Ireland.

In a press release strangely devoid of any mention of anyone being victimized or defrauded, the U.S. Commodity Futures Trading Commission (CFTC) announces it is suing Intrade, the famous "prediction market" business, based in Ireland. 

From that release:

Intrade and TEN [the corporate parent] allegedly unlawfully solicited and permitted U.S. customers to buy and sell options predicting whether specific future events would occur, including whether certain U.S. economic numbers or the prices of gold and currencies would reach a certain level by a certain future date, and whether specific acts of war would occur by a certain future date.

The CFTC's complaint also charges Intrade and TEN with knowingly filing false "Annual Certification" forms with the CFTC stating that Intrade limited its options offerings to eligible market participants. Contrary to these representations, the complaint alleges that Intrade unlawfully solicited and permitted retail U.S. customers to buy and sell off-exchange options on the website.

In addition, the complaint alleges that TEN violated an order issued by the CFTC in 2005 that found that TEN had previously engaged in similar conduct and ordered TEN to cease and desist from violating the Commodity Exchange Act and CFTC regulations, as charged.

And CFTC wants to get, from this Irish company for violating this American regulatory agency's diktats by actually allowing U.S. citizens a harmless liberty that their government wants to bar them from:

civil monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations of federal commodities law, as charged, among other relief.

Intrade, with whom I have never done business, reportedly asks its customers to insist it is legal for them to participate, though you apparently can't use a U.S.-based credit card to do so.

And why the goddamn hell is it the CFTC's business? From the release:

David Meister, the Director of the CFTC's Division of Enforcement, stated: "It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called 'prediction' contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt. The requirement for on-exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity. Today's action should make it clear that we will intervene in the 'prediction' markets, wherever they may be based…

"Wherever they may be based." Why do they hate us? Whoever they are. Again, note the lack of any claim any U.S. citizen or other person has been robbed or cheated. Meister basically is saying, we are doing this bullshit so that all the world may know we can and we will throw our weight around doing exactly this sort of bullshit! And, uh, "market integrity" except for the integrity of this market U.S. citizens want to participate in, which we are interfering with rather than assuring.

Economist Bryan Caplan loves Intrade and thinks this suit shows the CFTC's true--useless--colors:

The CFTC's real complaint is that consumers eagerly bet on Intrade because the company exemplifies market integrity: "I trust Intrade with my money because of their reputation, not government regulation."  Reputation: That's the same mechanism, of course, that underlies eBay, Amazon Marketplace, and the whole cornucopia of internet commerce that the mainstream information economist of 1990 would have dismissed as free-market Fantasy Island.

If the CFTC really wants to protect market integrity, it should start by publicly admitting that if the CFTC ever served a useful function, that time has long since passed.  Americans send money to Intrade because Intrade delivers the goods (and produces the positive externality of accurate forecasts in the process!).  

In the information age, firms' reputations are just a click away.  That's all the protection any consumer needs.  The only people the CFTC is "protecting" are their own obsolete employees.  

The press release, by the way, lists the specific names of the specific obsolete employees responsible for the case, and may they all be ashamed of themselves.

Reason on Intrade.

Comments

[heller]

TOP MEN

[Julio Cesar Samper Uribe]

Comrade, you need to be protected.

You will be protected.

And we will protect you.

We will protect you good and hard.

Do not resist, comrade.

It is for your own good

[LilDebbie]

Free Corzine!

[Sevo]

Yes, because people should never be allowed to profit from their best efforts at predicting some future event.
Like, oh, the number of cars Gov't Motors might sell.

[Archduke Pantsfan]

I have no regrets for portraying Mohammad as a womanizer and pedophile: Innocence of Muslims filmmaker

[Mike M.]

Absolutely unbelievable. The scummy vermin in the media are STILL trying to make it seem as though this stupid YouTube video actually has something to do with what's going on in the Middle East.

Give it up already you losers; everyone has known for weeks that this is a complete lie.

[Redmanfms]

Give it up already you losers; everyone has known for weeks months that this is a complete lie.

[R C Dean]

Since around, oh, say, September 12.

[Heroic Mulatto]

The scummy vermin in the media are STILL trying to make it seem as though this stupid YouTube video actually has something to do with what's going on in the Middle East.

You're over-egging the pudding a bit. Yes, from the Islamist point-of-view, the timing of the embassy attack was mere serendipity; however that doesn't explain the riots in Pakistan, Indonesia, Malaysia, Iran, Jordan, et al. Or am I supposed to believe that when a guy holds a sign that reads "Behead those who insult the Prophet" he really means "Ha ha! Disregard that, I love you!"

[LTC(ret) John]

But if you asked the guy holding the sign, "what are you protesting?" - he would likely be quite vague about the whole thing.

[Zeb]

Yeah, I'd bet that very few of those protesting have ever seen the video, even if that is in some way the impetus for the protest. It may be in some sense the "reason" for some protests, but I think that "excuse" is a better word.

[generic Brand]

Too bad you can't make that bet on intrade any more.

[Killazontherun]

Only a few over two thousand people had even seen the video when I did late that evening. Just check the stats on YouTube. Could not possibly be any fishier. Though your point about the butthurt that is fundamental to the creed of Islam is quite true.

[CatoTheElder]

CTFC did such a swell job of protecting customers at Jon Corzine's MF Global that it's only natural that they want to protect Intrade customers as well.

[Emmerson Biggins]

For real man. Even if you are a big believer in big government can't we all agree that protecting people from honest to goodness thieves and swindlers is more important that protecting people from themselves? What a bunch of fucking regulatory-captured assholes.

[OldMexican]

David Meister, the Director of the CFTC's Division of Enforcement, stated: "It is against the law to solicit U.S. persons to buy and sell commodity options[...]

So... We need government, right?

[IceTrey]

How can a prediction be a commodity? Aren't commodities goods? Is a prediction a good?

[heller]

Buying and selling commodity options is not the same thing as buying and selling a commodity. When a wheat farmer buys options, he's buying the right to sell his wheat at a certain price. So the farmer is trying to insure against the price of wheat going down, because if it does he still gets to sell his wheat at the price he payed for. So in essence, you are betting on whether the price of wheat will go up or down. Even if you aren't a farmer and you have no commodity to sell, you can still purchase and sell these options as a bet. The meaning of commodity options started out as just being about the prices of commodities, but many other bets work in the exact same way, so they too are called commodity options when sold in exchanges.

[Xenocles]

That doesn't answer the question. If I play roulette, can I say that I'm buying "black" options? Is the casino buying back "black" when it comes up on the wheel? With a wheat option there's actual wheat to buy and sell, even if some of the traders involved never actually take possession of it. What is the commodity at Intrade? How is it different from casino gambling (NTTAWWT)?

[heller]

It's not about buying and selling wheat, it's about wheat prices. Just like the events that you bet on at Intrade, wheat prices are not a commodity. Whether or not there is a commodity is not really important to the idea of commodity options.

The difference between that and betting on black is that one takes place in a market where supply and demand are the determining factors. The other takes place in a casino and the prices and payouts never change (your bet is not affected by any one else's actions). It doesn't make alot of sense, but that's the answer.

[Adam330]

But there are many casino games where your bet is affected by others' actions.

[heller]

Another example: weather derivatives. Weather isn't a commodity right? But it becomes a "commodity" when people trade weather options.

[Xenocles]

But you can't sell the weather. An "option" implies there's something to trade when the option comes due.

[heller]

People do it all the time. Look up weather derivatives.

[PS]

Land of the free, home of the brave...

[Mr Whipple]

They are interfering in the CFTS's ability to manipulate the market. What do you think would happen if people realized the the physical to paper ratio is really leveraged at 100:1?

[wef]

Americans send money to Intrade because Intrade delivers the goods (and produces the positive externality of accurate forecasts in the process!)

Aside from this yet another example of thug-state sociopathy, one quibble with Bryan Caplan's description of Intrade: Intrade and other bookmaking operations are not really prediction markets and they don't do forecasts. They are odds, or probability markets. At any point in time prior to the outcome of an event, the "accuracy" of the betting odds being generated would be assessed with respect to the relative frequency of final outcomes. Intrade is simply a type of tote board at a race track. In this sense, to be truly accurate, Intrade would have to be "wrong" in its so-called prediction (understood as leaning to one side of 50% or the other) with the same frequency that it had the probability of being "wrong."

[heller]

Actually, that's exactly what a prediction market is in financial terms. Not in strict statistical terms, but it is the correct usage in this case.

Theoretically, prediction markets should be accurate since improving the "prediction" is rewarded and inaccuracy is punished. This has been supported by a few studies.

[wef]

The problem with the use of the word prediction, in the case of a racetrack's tote board or Intrade, is that it quite properly evokes the meaning in everyday English speakers' minds of a forecast, a prognostication. As such, the word prediction is at best misleading. Worse, it leads people who do not understand what Intrade does to gripe ? for example, heard often after the Roberts court bs ? along the lines of, "Intrade got it wrong ? Intrade predicted that the Supreme Court would reject obabmacare. The so-called 'wisdom of crowds' is bullshit, blah, blah." No, no, no. When Intrade produced a 75% chance of SC rejection, that is all it was doing ? giving a 25% chance of non-rejection.

When poli-sci posers and sociology groupies hear the words "prediction markets," what do you expect them to think? They typically don't understand markets anyway, and that Intrade has to be ? by the logic of what it is doing ? "inaccurate" sometimes in its "predictions" just gives these statists the opportunity to claim that, "see! Intrade wrong again ? markets don't work."

One could say that Intrade and tote boards are reflecting predictions of probabilities. Or that, as options prices relative to strike prices "predict" implicit volatilities, Intrade is predicting probability distributions. But to the layman's ear this would be straining. It is more accurate and easier to defend the use of the term odds market.

[Zeb]

Seems to me that all predictions have probabilities associated with them (or should, anyway). Nothing is 100% certain.

[generic Brand]

Except for an Obama re-election, it seems.

[Cdr Lytton]

If Intrade was a successful prediction market, how come they didn't see this coming?