Scanning the Web, the digirati mostly seem apalled that the Commodity Futures Trading Commission is going after Intrade, but honestly I don’t see that Intrade has a leg to stand on here.
In principle, Intrade is a “prediction market” and not a casino or an end run around regulation of commodities markets. But when Intrade goes and launches contracts on the price of oil and gold, then they’re clearly crossing that line. This is futures speculation, there’s a legal way to do it, and what Intrade is doing isn’t that legal way. Now in practice, I doubt there’d be any harm if the CFTC decided to play nice and let this slide. But refusing to let it slide is exactly what we need regulators to do. In the Clinton and Bush eras, regulators generally seemed to take the view that the regulations themselves were a kind of unfortunate superstition. Insofar as smart bankers and their lawyers could devise innovative ways to get around the spirit of the rules while theoretically staying within the letter of the law, everyone was supposed to applaud. It was all clever gamesmanship. “Regulatory arbitrage” is the technical term.
And that’s exactly what the CFTC is saying no to here. It looks like an oil futures contract and it quacks like an oil futures contract, so they’re not going to let it happen just because you phrase it as a “prediction market.” Good for them! That’s how it ought to be done.
Correction, Nov. 26, 2012: This post originally misspelled the name of the Commodity Futures Trading Commission.
