Don't bet on it
Don't bet on it is the title of a news story in The Economist magazine from December 1st, 2012. Intrade, a commercial Irish prediction markets operator, is the target of a lawsuit by the Commodity Futures Trading Commission (CFTC) for alleged violations of CFTC rules governing commodity derivatives. In resposne, Intrade pulled out of the US market and gave traders until December 23 to liquidate their positions. Since 2010, the CFTC has broad new powers to regulate prediction markets in the public interest.
Academic prediction markets such as the Sauder School of Business Prediction Markets and its US cousin, the Iowa Electronic Markets, are operated as not-for-profit entities. The risk of participation is limited by maximum investment limits. Unlike Intrade, our markets do not venture into the domain of conventional financial or futures markets. It makes little sense for prediction markets to emulate existing futures markets. To the extent that prediction markets move into the territory of commodity futures and other financial derivates, they ought to be subject to the same securities regulation as these markets. From this perspective, the announcement by the CFTC cannot come as a big surprise.
Posted Saturday, December 8, 2012 at 17:30