Good News: CFTC Busts Intrade

The CFTC recently announced the filing of charges against Trade Exchange Network Ltd. ("TEN"), the Ireland-based provider of the Tradesports and Intrade markets, for offering unauthorized trades on commodities futures contracts to U.S. citizens. Hat tip: Chris F. Massey. The parties simultaneously reached a settlement agreement [PDF file]. Surprisingly, even to me, I find it this turn of events chock-full with good news.

It is not good news, of course, that TEN suffered the CFTC's regulatory attention. But note that this does not presage the CFTC acting as a free-range global exchange-buster. TEN had apparently used a U.S.-based agent to promote the forbidden contracts. Even an isolationist would have to admit that suffices to establish CFTC jurisdiction over TEN.

The good news comes in two flavors: Express and implied. Expressly, the settlement agreement discloses that TEN plans to offer a U.S.-based, CFTC-regulated exchange. It says, at VI.10, page 5: "TEN, in September 2004, began the process of submitting to the Commission an application seeking to have its newly-incorporated U.S. business, and internet company known as Trade4Real, designated as a contract market. Ten took this measure in recognition of the need to be regulated by the Commission to offer certain products."

The implied good news comes out of that last sentence, as well as the whole of the settlement: The CFTC expressed no interest in regulating any claims not already traded on CFTC-regulated U.S.-based exchanges. It went after TEN only for offering contracts on, inter alia, Gold Futures Year End, Daily Crude Oil, and U.S. Dollar versus Yen Cash Rate. That sends the signal that the CFTC won't mess with an exchange offering trades on purely political or scientific claims.

Note that TEN does not claim that it will trade political or scientific claims on the CFTC-regulated, U.S.-based market that it has announced. It mentions only pretty traditional sorts of contracts. But it doesn't say it won't offer trading on political or scientific claims. And, even if it does not, its wrangle with the CFTC hints that somebody else might do so without suffering similar regulatory action. That should come as good tidings to The Washington Stock Exchange and the (soon to be relabeled) Simon Exchange.