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Bell, Tom W. [tbell@chapman.edu] 

L!: ~unday, July 06, 2008 11:57 PM ?m. .!UL -7 At1 10: oe 

secretary 

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To: 

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Subject: I - ~ 

T. O Comment on Concept Release on the Appropriate Re~~£rflf1.fttns11~ ~1A~ontracts 

Dear Office of the Secretariat, COMMENT 

I here offer a comment on the CFTC's recent Concept Release on the . Appropriate Regulatory~ 

Treatment of Event Contracts. Specifically, I offer an answer to q~estion 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?" 

The CFTC should not forbid trading in claims based on assassinations, terrorist 

activities, or other criminal acts. Because event markets would offer only relatively 

thin and traceable trading, they would not offer an attractive investment option to 

anybody planning to profit from wrongdoing. A would-be terrorist would risk revealing 

both his plans and his identity if, for instance, he invested in a contract predicting 

another 9/11. He would instead find it more safe and profitable to simply short certain 

publicly traded stocks. 

Furthermore, event markets in terrorist or criminal acts might benefit the public by 

revealing life-saving information. Suppose, for instance, that an anthropologist's study 

of corrido culture convinced her that narcoterrorists had begun planning military raids on 

border checkpoints in Arizona and California. If she had the opportunity to buy terrorist 

event claims, she might both profit from her research and tip us all off about looming 

trouble. Sound public policy suggests that we should encourage that sort of trading--not 

forbid it. 

To judge from their reactions to the Policy Analysis Market proposed by the Pentagon in 

2003, politicians might need to learn more about the benefits of using trading to help 

predict assassinations or other terrorist events. That poses a public relations problem, 

however--not a legal one. The CFTC thus has no sound reason to presumptively forbid 

trading in contracts related to such events. 

Could you fault claims about assassinations or other terrorist events for giving 

incentives for wrongful acts? Not very plausibly; as I explain above, it is very unlikely 

that anyone would find it profitable or prudent to try to use an event market to cash in 

on wrongdoing. Furthermore, all sorts of investment instruments offer the same 

incentives. Thus, for instance, a would-be terrorist might go long on oil futures prior 

to pulling off an attack on a refinery. Indeed, that sort of scenario seems much, much 

more likely than one involving event markets. 

At root, concern about unseemly event market claims boils down to concern about violating 

a taboo about what sorts of things people discuss openly in a polite society. Those norms 

merit our concern, granted. They do not, however, justify imposing a speech restriction 

on event markets. And make no mistake about it; to bar such claims would constitute a 

restriction on speech. 

Specifically, if the CFTC banned certain sorts of event market claims relating to 

assassinations, terrorist activities, or criminal acts, it would thereby impose a contentbased restriction on speech. That would, under present First Amendment jurisprudence, 

trigger the highest level of judicial review: strict scrutiny. The ban would almost 

certainly fail to survive that scrutiny, as it would be too broad (stopping not just the 

bad guys but also the good ones), too narrow (since it would fail to forbid the use of 

other financial instruments, such as generic futures, from like uses), and not narrowly 

tailored (since there are other, better ways to discourage bad acts). Those sorts of 

claims would, moreover, fall within the core of the sort of speech protected by the First 

Amendment, as they would concern political events. 

Our freedoms of speech and expression include the right to ask troubling questions. The 

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CFTC has no good reason to ban event market claims about assassinations or other illegal 

acts. Nor can it do so constitutionally. 

Thank you. 

Tom W. Bell 

Prof. Tom W. Bell 

Chapman University School of Law 

tbell@chapman.edu 

http://ssrn.com/author=l83716 

www.tomwbell.com 

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