If you’ve been even a casual observer of election-year media coverage, you are probably familiar with Intrade, the Internet-based “prediction market platform.” Intrade enables members to make “yes” or “no” predictions on the outcomes of future events on a variety of topics by trading shares in markets for specific propositions such as whether President Obama will be re-elected in 2012, or whether the Dow Jones Industrial Average will close on or above 13,000 on Dec. 30. Intrade is based outside the U.S. however, and is not subject to U.S. regulation.
Recently, the North American Derivatives Exchange (NADEX), which is registered as a derivatives clearing organization with the U.S. Commodity Futures Trading Commission (CFTC), sought approval to create a political prediction market through the use of “political election event derivatives” that would allow those who wished to speculate on certain outcomes of the 2012 federal election to do so, for money, in a fully regulated environment. Specifically, NADEX sought to establish markets to trade derivatives contracts relating to whether Democrats or Republicans would hold the majority in the U.S. House of Representatives and U.S. Senate, and which party’s candidate would be elected president.
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