PredictIt Could Be Doomed as CFTC Pulls No-Action Letter

PredictIt could be gone by February 15, 2023 after the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) pulled its no-action letter. [Image: Shutterstock.com]

No more looking the other way

Popular political betting exchange PredictIt may be on its way out. On Thursday, the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) announced that it was withdrawing its no-action position letter on PredictIt, a potential death knell for the site created by Victoria University of Wellington, New Zealand.

has not operated its market in compliance with the terms of the letter”

In the October 2014 no-action letter, the DMO required PredictIt to remain not-for-profit and small in scale, among other stipulations. As of this week, the DMO “has determined that Victoria University has not operated its market in compliance with the terms of the letter and as a result has withdrawn it.”

The DMO has given PredictIt until February 15, 2023 to close out all open contracts and positions. Neither the DMO nor the CFTC specified in the letter exactly what PredictIt did to violate the conditions of the no-action position.

PredictIt will operate until the end

PredictIt has issued a statement, posted on its website, emphasizing that customer funds are safe and unaffected by the withdrawal of the no-action letter. It contends that it has abided by all terms of the letter, but does seem to be cooperating with the DMO’s latest action.

Any existing markets will continue to trade through the February 15, 2023 deadline, unless, of course, they are resolved before that (for instance, barring something very odd, the Pennsylvania Senate race will conclude this fall). PredictIt has not, however, decided on how it will handle betting markets that won’t resolve until after February 15, such as the next US Presidential election.

A no-action letter effectively says that what a company is doing may violate the law, but the government agency is willing to not take legal action and allow the company to operate, provided the company abide by certain stipulations.

In the meantime, PredictIt is still accepting new customers and deposits and will honor all withdrawal requests. Essentially, it is business as usual for now, except for markets that won’t resolve until after the CMO’s deadline; expect volatility on those as bettors guess as to what PredictIt might do.

Put your money where your mouth is

PredictIt, as mentioned, is a political betting exchange. To “bet,” customers buy shares in an outcome at a price from $0.01 to $0.99. Winning outcomes cash out at $1, losing outcomes don’t cash out. For example, right now, if you think a Democrat will win Pennsylvania’s US Senate election this year, you can buy shares on that side for $0.72. If a Democrat wins, your shares will cash out at $1 each, meaning you profit $0.28 per share (less PredictIt fees). If a Republican wins, your shares become worthless.

if “betting” on elections is a more accurate predictor of the outcome than are public opinion polls

Professors at Victoria University of Wellington created PredictIt as a research tool to see if “betting” on elections is a more accurate predictor of the outcome than are public opinion polls. If people have money on the outcome, will their predictions of that outcome be more true than if they had nothing at risk?

PredictIt provides its research data to academics at no cost, hoping to offer greater insights into “fields of study as diverse as microeconomics, political behavior, computer science and game theory.”

As mentioned, no reason was given as to what PredictIt did to violate the terms of the no-action letter. If one had to guess, it might have something to do with its size. It has grown in popularity over the last several years, particularly in the build-up to the 2016 Presidential election; Donald Trump was a significant underdog to defeat Hillary Clinton and some people made a killing on PredictIt putting their money on Trump.

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