My understanding of the reason the CFTC has ruled against election markets in the US is the fact that it would make candidates the equivalent to a security and everyone working for the candidate who has insider knowledge on the state of the election has an unfair advantage over those not involved in an insider capacity. Therefore, before these markets can exists, the CFTC would need to have processes and protocols in place to guard against insider trading the same way they do with financial firms that are required to preserve all communications for a certain amount of time in the event a suspicious transaction needs to be investigated.
I am not sure I like the idea of a government agency monitoring all of the communications of political campaigns just so people can speculatively gamble on the outcome. But why not let us bet on things like Chinese political dynamics? Like we barely have any information at all about that extremely complex and closed system and it seems very unlikely anyone is going to be getting leaked insider information.
To allow arbitrary prediction markets we would have to prevent arbitrary insider trading. Looking through the Metaculus and Manifold markets that doesn't sound like a practical approach.
The question remains: Why is it no problem in the UK and elsewhere?
In the UK gambling is entirely legal, so election markets are regulated as such. UK election markets are NOT regulated by financial market regulators like they are here in the US.
That means insider trading is possible and probably happens to some degree. For example, one can currently bet on the date of the next UK election and I'm pretty sure that insider knowledge exists there.
I'd say the big problem about insider trading is its secondary effect: Nobody wants to bet against insiders. If people believe insiders dominate the market, then it hurts liquidity. Government and economy want stock trading to happen though, so insider trading is forbidden. However, for gambling they don't care about the market breaking down, so not treating it as financial market makes sense.
My understanding of the reason the CFTC has ruled against election markets in the US is the fact that it would make candidates the equivalent to a security and everyone working for the candidate who has insider knowledge on the state of the election has an unfair advantage over those not involved in an insider capacity. Therefore, before these markets can exists, the CFTC would need to have processes and protocols in place to guard against insider trading the same way they do with financial firms that are required to preserve all communications for a certain amount of time in the event a suspicious transaction needs to be investigated.
I am not sure I like the idea of a government agency monitoring all of the communications of political campaigns just so people can speculatively gamble on the outcome. But why not let us bet on things like Chinese political dynamics? Like we barely have any information at all about that extremely complex and closed system and it seems very unlikely anyone is going to be getting leaked insider information.
Interesting point.
To allow arbitrary prediction markets we would have to prevent arbitrary insider trading. Looking through the Metaculus and Manifold markets that doesn't sound like a practical approach.
The question remains: Why is it no problem in the UK and elsewhere?
In the UK gambling is entirely legal, so election markets are regulated as such. UK election markets are NOT regulated by financial market regulators like they are here in the US.
That means insider trading is possible and probably happens to some degree. For example, one can currently bet on the date of the next UK election and I'm pretty sure that insider knowledge exists there.
I'd say the big problem about insider trading is its secondary effect: Nobody wants to bet against insiders. If people believe insiders dominate the market, then it hurts liquidity. Government and economy want stock trading to happen though, so insider trading is forbidden. However, for gambling they don't care about the market breaking down, so not treating it as financial market makes sense.