secretary 

From: 

Sent: 

To: 

Subject: 

jed .christiansen@mercury-rac.com 

Thursday, July 03, 2008 8:03 AM 

secretary 

Public Comment Form 

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Below is the result of your feedback form. It was submitted by 

(jed.christiansen@mercury-rac.com) on Thursday, July 03, 2008 at 08:03:21 

commenter_subject: Comment on 73 FR 25669 

commenter frdate: 7 May 2008 

commenter_frpage: 25669-25674 

commenter comments: Jed Christiansen is the Managing Director of 

Mercury Research & Consulting Ltd, a UK-based 

prediction markets consulting firm. He has worked 

with a number of corporations to develop and run 

prediction markets that provide companies with 

invaluable business intelligence. Jed is a a US 

citizen, and holds degrees from the University of 

Michigan and the London School of Economics. 

1. Whether event contracts are within the 

Commission s jurisdiction and if so, why (or why 

not)? 

I would argue that event contracts do fit within 

the Commission s jurisdiction, if only because they 

do not fit under the jurisdiction of any other 

institution. The Concept Release discusses two 

lines of reasoning, one of which implies that event 

contracts can be regulated by the CFTC, and another 

that implies that they are excluded. 

In order to progress and protect this innovative 

tool, it needs to fall under some institution s 

jurisdiction. Fundamentally, the CFTC is the 

institution that is best suited for this task. 

Though event contracts may be subject to 

interpretation, it is the CFTC that is best able to 

.make that interpretation and define how and where 

event contracts are able to be used. 

2. If event contracts are within the Commission s 

jurisdiction, should there be exemptions or 

exclusions applied to them and if so, why (or why 

not)? 

There should be exemptions or exclusions made for 

event markets that are being run by and exclusively 

for an internal corporation, organisation, or 

academic institution. 

For corporate markets, or those run by similar 

private or non-governmental organisations, there 

should be virtually no limits on what is allowed. 

Each organisation will be able to determine what 

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information is critical for them to aggregate 

through event contracts. Academic institutions 

should be allowed to conduct the fullest range of 

potential markets as they explore the maximum 

potential and most innovative applications of event 

contract marketplaces. 

The best way to treat academic, corporate or 

low-value markets is through the safe harbour 

treatment that a number of economists and academics 

have already suggested. 

The only area where I am hesitant for the 

Commission to provide exemptions or exclusions 

would be event contract marketplaces where retail 

customers could trade. In this case I believe there 

should be strong Commission involvement to ensure 

that there are protections for retail customers. 

3. How should the Commission address the potential 

gaming aspects of some event contracts and the 

possible pre-emption of state gaming laws? 

Gaming is a phrase that can be interpreted very 

differently by different individuals. Some people 

think that trading wheat and oil futures is the 

same as gambling. Others think that placing bets at 

horse tracks isn t gambling if you re knowledgeable 

about the sport. 

Where most people and institutions try and 

distinguish between what is gaming and what is not 

comes down to what is being traded. I argue that 

there is a societal consensus that contracts on the 

outcome of a random event (spin of a roulette 

wheel, roll of dice) is gaming. Additionally, I 

would argue that there is also a societal consensus 

that contracts on the outcome of a sporting event 

(football game, .basketball game, horse race) 

constitutes gaming. Except for those situations, 

there is no broad consensus as to what constitutes 

gaming, and thus the Commission would certainly be 

in its rights to address event markets as it sees 

fit in any other type of contract. 

Public Interest 

1. What public interests are served by event 

contracts that are designed and will principally be 

traded for information aggregation purposes and not 

for commercial risk management or pricing purposes? 

Event contracts do serve the public interest, by 

providing the public unbiased information on events 

of concern to society. The public wants to 

understand what is likely to take place in the 

future, whether that is the results of a political 

event, scientific discovery, or even the status of 

traffic in a major city. Though the event contract 

is designed for information aggregation, the 

information revealed can also cause people to 

change their behaviour, generating systemic 

feedback. 

Additional information, particularly unbiased 

market-based information, helps individuals and 

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organisations make better decisions by more 

accurately planning for the future. If an event is 

important enough that people will trade on the 

results, it is important enough to at least some 

sections of society to have that information. 

The news media serves to evaluate masses of 

information and news and filter it so that the 

public gets the pieces of news or information that 

are critical to them. However, this process is 

fraught with difficulty and bias. Problems with 

corporate ownership, political bias and lack of 

deep understanding in technical issues means that 

media coverage is frequently criticised for being 

inaccurate. Event contracts can serve the public 

interest by removing that filter and allowing 

society as a whole to judge the potential that a 

particular event would occur. This serves the 

public as providing a meaningful check and balance 

against potentially incorrect or sensational news 

coverage. 

Fundamentally, I believe that more information 

provided to the public about events that concern 

society is a public interest, and event contracts 

serve this purpose well. 

3. What calculations, analyses, variables, and 

factors could be used to objectively determine the 

social value of information to the general public 

that may be discovered through trading in event 

contracts? Should this be a factor in determining 

whether the Commission plays a role in regulating 

these markets? 

I don t think that any calculation, analysis, 

variable or factor should be used in determining 

whether the Commission plays a role in market 

regulation. The key to the growth and social value 

of event contracts is precisely that they are 

flexible to respond to the needs of the traders 

that participate in the marketplace. 

Jurisdictional Determination 

4. What characteristics or traits are common to or 

should be used to identify event contracts and 

event markets? 

Event contracts are futures contracts contingent 

upon the binary result or value of a future event, 

such as an election, scientific discovery, business 

development or news item. The event contract serves 

to aggregate the public opinion on the likelihood 

of that event occurrihg, or the value of an event 

when it occurs. 

Each contract has a specific criterion for 

judgement, which is written into the rules of the 

contract. Each contract also has a specific date by 

which the contract is judged. 

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 

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functional equivalent of gambling? 

Event contracts on the outcome of sporting events 

and event contracts on the outcome of a random 

event (spin of a roulette wheel or roll of dice) 

could certainly be considered gambling by societal 

consensus. Virtually every other event contract 

would serve the purpose of information aggregation 

and not be viewed widely as gambling. 

As described above, where most people and 

institutions try and distinguish between what is 

gambling and what is not comes down to what is 

being traded. In the two examples above there is a 

clear consensus in American society that trading in 

those event outcomes would be gambling. The same 

statement would not be true for other events 

contracts. 

14. Should certain underlying events or measures -

such as those based on assassinations or terrorist 

activities - be prohibited altogether due to the 

social perception and impact of such events? What 

statutory or other legal basis would support this 

treatment? 

Any event contract that is contingent on a United 

States civil or criminal law being broken should be 

prohibited. This would include any contract on 

assassinations, terrorist activities or similar 

events. There should never be any incentive to 

break a law, so there should never be any contracts 

that would pay someone if a law was broken. 

15. Are there event contracts, such as political 

event contracts, that should be prohibited from 

trading under the Act, or that deserve separate 

treatment or consideration, due to the nature and 

importance of their outcomes? What statutory or 

other legal basis would support this treatment? 

Event contracts on the outcome of a sporting event 

or the outcome of a random event should be 

prohibited as they are too akin to gambling. 

Event contracts that would require breaking a law 

in order to be judged successful should be 

prohibited to eliminate any incentive for criminal 

activity. 

All other contracts should be treated equally. 

Though some may seem deserving of separate 

treatment, such as political event contracts, that 

special treatment is simply unnecessary. Any 

attempt at manipulation simply becomes an 

opportunity for other traders to correct the market 

price. Even political event contracts can serve as 

hedging tools, as companies or industries that 

would be favourable to one political party over the 

other could hedge the risk of the unfavourable 

candidate being elected. 

Legal Implementation 

16. Is it appropriate for the Commission to direct 

certain or all event contracts onto markets that 

are regulated differently from and perhaps less 

stringently than DCMs? For example, it may be 

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warranted or necessary to treat event markets that 

aggregate information solely for academic or 

research purposes, event markets set-up for 

internal corporate purposes, or event markets that 

offer exceedingly low notional value contracts to 

traders differently than markets that possess the 

attributes of traditional DCMs. 

Event markets established for academic, research, 

internal corporate purposes, or low-notional-value 

should be treated under the safe harbour 

provisions that have been put forward by a number 

of esteemed academics. Experimentation is essential 

to allow these unique tools to grow, and a safe 

harbour for these purposes ensures that the public 

will not suffer any harm. 

However, to only allow event contracts to be traded 

on such markets is a very poor idea. Event markets 

should be allowed to be traded as other commodity 

futures, on regulated exchanges. 

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? 

The no-action relief letter would be a suitable 

regulatory scheme for most low-value markets, such 

as the IEM. For academic and corporate markets, a 

blanket policy statement would be preferable to 

allow new markets to quickly get established and 

begin practice. 

In particular, corporations should be able to 

quickly establish event contracts and event markets 

to meet their internal needs. Any CFTC regulations 

or advisories should be widely published and allow 

organisations to create markets when and as needed 

without any further involvement from the CFTC. 

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. 

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. They should also be 

warned appropriately of how the CFTC may or may not 

be able to monitor the events that underlie the 

contracts. 

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cornmenter name: Jed D. Christiansen 

cornmenter firm: Mercury Research & Consulting Ltd 

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