Prediction Markets in the US & the CFTC — Making it all work (Part 5 of 5)
June 25th, 2008If you're new here, you may want to get Mercury's Blog by Email or subscribe to my RSS feed. Thanks for visiting!
This is part 5 in a five-part series where I present first drafts of what I intend to send to the CFTC in response to their request for input on prediction markets or “event markets.” More background can be found in my first post here.
This post deals with questions of Market Participants.
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?
Absolutely. If retail customers are fully aware of this fact, it is completely appropriate to allow them to trade.
I expect that event markets will compete to be known for the protection of their customers’ interests. Those that don’t do so will not attract customers and fail as an exchange. If, after a period of time, the CFTC feels that consumers are not being protected sufficiently by the marketplaces own actions, they can then step in to make further adjustments to any regulations.
21. What unique protections and prophylactic measures are appropriate or necessary for the protection of retail users of event contracts and markets?
Retail traders of event contracts on event markets need to be provided with clear rules as to how the event will be judged, and a dispute resolution procedure for when those rules are unclear or interpreted differently.
Both of these can be done by the marketplace itself, though I would suggest that the CFTC not issue any “no-action relief” letter or similar mechanism until the marketplace has self-certified that they have these two measures in place.