secretary 

From: 

Sent: 

To: 

Philip Goetz [philgoetz@gmail.com] 

Monday, July 07, 2008 3:11 PM 

secretary 

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Subject: Concept Release on the Appropriate Regulatory Treatment~~ :_v~~}r-~or--nf~~R\~

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I do not have any professional qualifications relevant to this issue. 

My responses are grouped by the specific questions in the RFC. 

- Dr. Phil Goetz, Springfield VA 

C. Jurisdictional Determinations 

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? 

Event contracts may fall under all of these clauses of Section 1a(13) and thus qualify as 

excluded: 

(ii) (I): They are not based in substantial part on the value of a narrow group of 

commodities described in clause (i) . 

(ii) (II): They may be based solely on one or more commodities that have no cash market. 

(iii) and (iv): They are unlikely to be based on actions within the control of any party 

to the relevant contract, agreement, or transaction. 

In event contracts failing to meet (ii), individual participants whose actions may affect 

the outcome may be barred from participating in excluded markets based on failing to meet 

( iii ) and ( i v) . 

Section 1a(13) may be interpreted as meaning that excluded commodities must be associated 

with a financial, commercial, or economic consequence. This could be used as a necessary 

criterion for excluding markets. 

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? 

Here are some criteria that may be sufficient, though not necessary, to discriminate an 

event contract generating a social value, from 

gambling: 

- A sponsor creates the market on which the contract is traded at no cost to participants, 

including transaction costs or asymmetric odds (biased towards "the house"); or a nonprofit entity creates the market. 

- The event has economic significance. 

- Learning to predict the event has positive social benefits, or trains participants in 

useful skills: For example, learning to predict eclipses led to the development of 

astronomy and of science in general. Learning to predict which rulings will be struck 

down by the Supreme Court trains people in legal reasoning. 

- The creation of the market creates incentives for those people whose actions will 

determine the outcome, to take steps that have social benefit. For example, a market for 

predicting which accounting firm would be the next to be indicted or convicted, would 

motivate executives of those firms to implement programs to ensure compliance with the 

law. 

- In general, an event contract whose trading value influences the actions of people who 

control the outcome of the event, is likely to have social value, since in general 

companies are motivated to appear to act in socially-approved ways. 

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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? 

No. While this is sufficient to enable experimental markets such as the IEM, we need a 

mechanism to enable the creation and monitoring of large, billion-dollar markets in order 

to gain significant social benefits from them. The IEM is an experimental market, whose 

purpose was to bring us to the point we are at today. The next step is to create real 

markets. 

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