[This post was accidently embargoed due to a bug in our handling of WordPress drafts. It was sent out on the feed in October, but never appeared on the blog page.]
Chris Masse
provided a pointer to a
consent order
between the CFTC and TradeSports
(a.k.a. TEN, the Trade Exchange Network). The
order
is interesting because in allowing TradeSports to escape punishment by
paying a fine and agreeing not to sell options on commodities
(“without admitting any wrongdoing”), the CFTC is implicitly not
challenging TradeSports’ other markets. This appears to be good news.
The particular markets that the CFTC objected to were markets on the
prices of various commodities (gold, crude oil, and exchange rates)
and speculation on the FOMC’s rate announcements. There’s no mention
of TradeSports’ markets on supreme court appointments, elections
(foreign or domestic), pending legislation (Social Security Reform),
or (!) stock market indexes in several countries. The CFTC could have
declared that by making a market in instruments whose value depends on
the outcome of external events, TradeSports was creating a new
commodity. That would have been sufficient for the CFTC to go after
them. The fact that all these instruments are ignored in the ruling
seems to me at least a signal that the CFTC isn’t intending to try to
stop any of the rest of it. (They can always change their mind
later.) That doesn’t provide any protection from the gambling laws,
of course, but the International Court’s decisions seem to be helping on that front.
The CFTC also points out how cooperative TradeSports has been through
the whole process. Since they are applying to have a subsidiary
covered by the CFTC, this is no surprise.
One of the points in the order is that TradeSports “shall inform
residents of the US of what contracts are unavailable to them for
trade by utilizing a pop-up notice that will appear when such
residents attempt to enter orders on those contracts”. They don’t
seem to have implemented this yet: I was able to enter an order on
the FOMC’s December decision on the funds rate.