Skip to comments.Intrade Violates the CFTC’s Off-Exchange Options Trading Ban
Posted on 11/26/2012 12:05:07 PM PST by ExxonPatrolUs
Washington, DC The U.S. Commodity Futures Trading Commission (CFTC) today filed a civil complaint in federal district court in Washington, DC, charging Intrade The Prediction Market Limited (Intrade) and Trade Exchange Network Limited (TEN), Irish companies based in Dublin, Ireland, with offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers, all in violation of the CFTCs ban on off-exchange options trading. The CFTCs complaint also charges Intrade and TEN with making false statements concerning their options trading website in documents filed with the CFTC, and charges TEN with violating a 2005 CFTC cease and desist order (see CFTC Press Release 5124-05, October 4, 2005).
Intrade and TEN jointly operate an online prediction market trading website, through which customers buy or sell binary options which allow them to predict (yes or no) whether a specific future event will occur, according to the CFTCs complaint.
Specifically, according to the complaint, from September 2007 to June 25, 2012, Intrade and TEN operated an online prediction market trading website, which allowed U.S. customers to trade options products prohibited by the CFTCs ban on off-exchange options trading. Through the website, Intrade and TEN allegedly unlawfully solicited and permitted U.S. customers to buy and sell options predicting whether specific future events would occur, including whether certain U.S. economic numbers or the prices of gold and currencies would reach a certain level by a certain future date, and whether specific acts of war would occur by a certain future date.
The CFTCs complaint also charges Intrade and TEN with knowingly filing false Annual Certification forms with the CFTC stating that Intrade limited its options offerings to eligible market participants. Contrary to these representations, the complaint alleges that Intrade unlawfully solicited and permitted retail U.S. customers to buy and sell off-exchange options on the website.
In addition, the complaint alleges that TEN violated an order issued by the CFTC in 2005 that found that TEN had previously engaged in similar conduct and ordered TEN to cease and desist from violating the Commodity Exchange Act and CFTC regulations, as charged.
David Meister, the Director of the CFTCs Division of Enforcement, stated: It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called prediction contracts, unless they are listed for trading and traded on a CFTC- registered exchange or unless legally exempt. The requirement for on- exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity. Todays action should make it clear that we will intervene in the prediction markets, wherever they may be based, when their U.S. activities violate the Commodity Exchange Act or the CFTCs regulations.
In its continuing litigation the CFTC seeks civil monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations of federal commodities law, as charged, among other relief.
The CFTC acknowledges the Central Bank of Ireland for its assistance in the CFTCs investigation of Intrade and TEN.
CFTC Division of Enforcement staff members responsible for this case are Kathleen Banar, David Slovick, Jessica Harris, Erica Bodin, Girum Tesfaye, Elizabeth Padgett, Rick Glaser, and Richard Wagner.
Grotesque federal over-reach at least for the simple reason that INTRADE is a market of predictions and not a market that can require or enforce delivery. I guess the next step would be for the CFTC to move against AccuWeather for long rang crop forecasts on the grounds that it also influences the price of commodities like soybeans and corn.
I hope INTRADE just tells the CFTC that since they aren’t in the US, they are not subject to US law, so take a hike.
Some bankster who owns a commodities market didn’t get their cut of the action.