From: 

s,Jre , I -7 P 

To: 

Chris Masse [cfm@midasoracle.com] 

Q: 57 Monday, July 07, 2008 4:41AM 

secretary 

S~b, ~e t: ~'"' S : ~ ~; 1 

, Concept Release on the Appropriate Regulatory Treatment of Event Contracts 

l 

Chris F. Masse 

Midas Oracle 

cfm@midasoracle.com 

chrisfmass e@gmail.com 

.... COMMENT 

July 6th, 2008 

Commodit y Futures Trading Commission 

Three Lafayette Centre 

1155 21st St . NW 

Washington D. C. 20581 

Attention: 

Office of the Secretariat- secretary@cftc.gov 

Reference: 

• ~ l 

Concept Release o n the Appropriate Regulatory Treatment of Event Contracts 

73 FR 25669 

...,., 

C"> 

0 

...,., 

- -! 

:::;; 

!"T1 

C1 

:;o 

I'll 

-i 

~ 

~ 

-> 

·.:;.:, 

1-

I 

-.J 

:P' 

:J:: 

Q 

C) 

C:) 

- 1 

~Jt ' 

·-, I 

() 

---~

~r-l 

CJ 

My name is Chris F. Masse, and I'm the publisher of CFM (a vertica l portal to prediction 

markets, which is the only one I know of tha t lists extensively the URLs of all the 

world ' s play-money and real-money prediction exchanges) 

http://www. c hrisfmasse . com/ 

and Midas Oracle (a group blog on predi ction markets, which is the most popular resou rce 

on this topic) . 

http://www.midasoracle . org/ 

I ' ve been covering the predi ction market industry since 2003 (when the brouhaha caused by 

the Policy Analysis Market attracted t h e attention of ma ny) . I wo uld like to give my input 

to the CFTC on t he subject o f real- mone y prediction e xchanges . 

First of all, let me say that I welcomed : 

~1. The CFTC ' s decision to investigate and approve HedgeStreet's application as a DCM in 

2 003 and 2004 (in spite of the opposition o f the Chi cago Mercantile Exchange); 

http://www.hedges treet . com/ a bout hedge street/ pressre l e ases/press r e l e ase l . html 

http://www . he dge street. com/ fa q/ 

h ttp://www. fina n c i a l -spread - b e tting . com/he dgestreet - a p p lication . p d f 

http : //www. cftc . gov /files/submissions/comments/comdcm038cme . pdf 

# 2 . The CFTC' s d e cision to publis h a conce pt release o n " event markets " 

in May 2008 (73 FR 25669 ). 

h t tp : //www. c f t c . go v/ l a wandregulation /fed eralregister/propos e d r ules/2 008/e8 - 998l . html 

J ust a t echnical no t e , be fore I give you my thoug h ts . I n the fo llowi n g , I c all "p red i c tion 

market " the specific marke t where one pa r ticular event derivative i s t raded . (Fo r 

ins tance , the "Barack Obama will be ele c ted US Pre side nt in November 2 008 " predi ction 

market.) And I c all "predic tio n e xchange " t he g e neral ma rke tplac e whe r e many prediction 

markets (on p olitical electio ns and o the r e vents) a r e t r ade d . (He nce, I c all HedgeStreet a 

" p redi c tion exchange " ) . 

1 
Please, allow me to give you my thoughts on the subject of real-money prediction 

exchanges: 

ABOUT DISPERSED INFORMATION PRICED IN EVENT DERIVATIVE MARKETS, EXCLUDED COMMODIT IES , 

DCMs, AND EXTENDING THE COMMENTING PERIOD ON THE CFTC's CONCEPT RELEASE ON "EVENT 

MARKETS". 

~l. I fully agree with the point ~2 made by professor Vernon Smith in 

his comment (CLOl) to the CFTC. 

http://www.cftc.gov/stellent/groups/public/ 

@lrfederalregister/documents/frcomment/08-004c00l.pdf 

The information aggregation mechanism that constitutes the essence of 

each prediction market (for instance, the "Barack Obama will be elected 

US President in November 2008 " prediction market), and the objective 

probabilistic predictions generated by all these information aggregation 

mechanisms, are of high social utility. 

~2. I fully agree with HedgeStreet in their comment to the CFTC (CLl 2 ) 

that political elections qualify as "excluded commodities". 

http://www.cftc.gov/stellent/groups/public / 

@lrfederalregister/documents/frcomment/08-004c0l2.pdf 

The point made by HedgeStreet about economic consequences, risk 

management and hedging is extremely important with regards to: 

- the future revenues of the for-profit, commercial companies who would 

be operating the real-money prediction exchanges on political elections 

(since hedging-oriented derivative markets experi e nce much more volumes 

than speculative-only betting markets); 

- the f inanc ial innovations, which would be created by this process, and 

whose benefits will, on the long term, spread throughout society (just 

like what has happened with the traditional derivatives). 

However, I notice that HedgeStreet does not stat e specif ically whether 

the topi cs other t han political elections (mentioned in the CFTC's 

concept release on "eve nt mar kets ") qualify, too, as "excluded commodities". 

This issue is the cornerstone of the discussion on "event markets". I n 

the concept release, the CFTC mention many o ther prediction markets than 

those about political elections. I saw onl y one comment (from Jason 

Ruspini, CLl l) that elaborates in detail about non-politi cal " e vent 

markets" - - -as of Sunday, Juy 6th, 2008 , one day before the deadline for 

the commenting period. 

http://www. cft c .gov/stellent /groups /public/ 

@lrfederalregister/documents/frcomment/08-004c0ll.pdf 

Hence, I believe that the CFTC do not (as of this Sunday) have enough 

pieces of e xt ernal opinions about this important issue to ma ke their 

det ermination about the regulatory status o f " eve nt ma rkets". 

I am as king the CFTC to exte nd the dea dline to Se ptembe r 7th, 2008 . 

I believe that since the most interesting comments (other than Vernon 

Smith 's one, which appeared the first in May 2008 ) were made the last 

week preceding t he July 7th deadline, there weren ' t enough time for the 

previous commenters or some othe r commenters to agree or disagree wi th 

those recent comments. 

2 
On top of all that, I understand that some people and organizations 

might well submit their comment on Sunday, July 6th, 2008 ---the day 

before the deadline for the closure for t he comments. I know that l aw 

professor Tom W. Bell will do so. It is rumored that 2 predic tion 

exchanges will do so, too. It will be impossibl e for other commenters to 

assess those last comments, and give their opini on about tho se t o t he CFTC. 

I belie ve that more pe opl e and o rga niza tions would c ome fo rward i n the 

coming 2 months with interesting opinions about the "excluded 

commodities versus exempted commodi ties" debate (or s ome say , the 

"jurisdiction vs. exemption" debat e ), which is, as I unde rst and it, the 

cornerstone of the CFTC's concept release on "event markets". Indeed, 

some business media organizations I know of will publi sh news arti cles 

about this debate, after the July 7th de adline. He nce, many more p eople 

wil l b e drawn in the conve rsatio n abo ut " e ve nt markets", and we will a ll 

benefit from their input. 

As I said, one o ne hand, the debat e nee ds mo r e external c omments from 

people arguing that n on-polit ical events are " e xcluded c ommodities". 

On the other hand, the debate needs more external comme nts f rom people 

a r gui ng that abo ut t he " e xempted c ommod i t ies", "ECMs ", o r " no -action 

letter" point of views. The American Enterprise Instit ute's public 

petition o f May 2008, the conc ept release of May 200 8 , and the c omments 

s e n t t o t he CFTC publi she d o n the CFTC we bsite as this Sunda y, do no t 

give many lega l details abo u t this side of the a rgumen t. 

Pushing the deadline to September 7th, 200 8 wi ll allow ano the r r ound of 

i n f orma l and fo rma l disc ussions between the two s i de s o f t h i s i mpo r t ant 

issue. 

Already, o ne comme nt e r (Jas on Ruspin i ) i s on t he r ecord pub l icl y saying 

that, ha d he read the HedgeStr eet ' s commen t to t he CFTC, he wo u l d have 

put more emphasis on some of his arguments. 

http://www.midasoracle.org/20 08 /07/05/my-resp onse- to-the - cftc- on- e ve n t - con t r acts/ 

It's for all tho se reaso ns that I am aski ng the CFTC to ext end t he 

dead l ine to Septembe r 7th, 2 0 08 . 

#3 . I f ully agr ee with HedgeStreet in their comment to the CFTC (CL12 ) 

that the DCMs (and especially a non-intermedi a t e d DCM like HedgeS t r e et ) 

should be allowed t o o perate prediction markets on p olitical elections, 

as d iscussed by t he CFTC ' s concept re lease of Ma y 2 008 . 

As I said above, no t e nough comment ers have addressed t he spe cific issue 

of how t he non-po l i tical " e vent marke ts" s ho uld be r egulated (o r s emi 

r egulat ed , thr u t he "exe mption" way ). Hence , I can' t s e e how the CFTC 

can't r each a wis e decision o n the iss ue of wh ich t ype of " event 

markets" s ho ul d be o ffer e d b y whi c h type of derivat i ve exchanges (DCMs, 

ECMs , or exc ha nges t hat a r e g ranted a " no- action" letter). 

Aga i n, I am aski ng the CFTC to extend the de adline t o September 7 t h , 2 008 . 

Tha nks f or l i ste n i ng, 

Ch ris F . Mass e 

Panor ama 8 , Green Sid e 

305 , ave nue Sain t Phili ppe 

Les Temp liers, Sophia- Antip olis 

0641 0 Biot , Alpes- Mari t i mes 

3 
France , European Union 

http : //www .midasoracle . org/ 

http : //www.midasoracle . net/ 

http : //www.midasoracle.com/ 

4