There has recently been vigorous discussion of unusual trading activity on our political prediction markets. What could be motivating the activity has been subject to widespread speculation by academics, journalists, our own users and others. Some external commentators have claimed the unusual trading patterns indicate that our markets are being intentionally manipulated for political purposes. Others have gone further yet.
Part of the public utility of Intrade markets hinges on the quality, scope and usability of the predictive information they provide. Another part hinges on providing a marketplace where investors may assess and manage risk by trading on innovative markets.
The trading activity on our platform that is the subject of great speculation centers around two particular markets: 2008.PRES.McCAIN, and 2008.PRES.OBAMA. To a far lesser extent 2008.PRES.CLINTON(H). A number of such occasions are depicted in the charts below.
The trading that occurred during these times may be summarised as follows...
1. Multiple large volume Buy orders placed and matched rapidly caused the McCain market to move significantly above the previously prevailing market price by up to 10 pts.
2. Multiple large volume Sell orders placed and matched rapidly caused the Obama market to move significantly below the previously prevailing market price by up to 9 pts.
3. The market prices of the contracts then seemed to represent discrepancies between overlapping Intrade markets, and also between Intrade markets and similar markets on other platforms for some time thereafter.
We have carried out an extensive investigation into this matter including but not limited to...
1. A full and careful examination of the publicly available information on the trading - our exchange notably provides public free access to all time-and-sales and closing price data on all open markets.
2. A full and careful examination of all non-public information (orders, positions, accounts, IP addresses, physical addresses, customer documentation including copies thereof).
3. Communication both verbal and in writing with those involved.
4. Full and complete consideration of specific applications our Exchange Rules in light of the trading activity in question.
As a result of our investigations we would like to advise the following.
The trading that caused the unusual price movements and discrepancies was principally due to a single "institutional" member on Intrade. We have been in contact with the firm on a number of occasions. I have spoken to those involved personally.
We are satisfied that they are using our markets in good faith and in the ordinary course of their business and that there has been no contravention of our Exchange Rules. Our investigations lead us to believe that the member is using increased depth in these markets to manage certain risks.
Further, it is apparent that the cost of time in accumulating the desired positions by those "institutional" members responsible for moving the McCain market up and the Obama market down differs fundamentally to loyal "retail" members that Intrade relies on.
The Exchange views this unusual activity as an indication of the increased relevance and traction of Intrade markets as risk management tools coupled with the yet maturing state of the prediction market industry as a whole.
As our markets gain further fluency and are more broadly used to help manage risk (i.e. as they mature furtuer) we expect to see other cases where single, well-financed parties accumulate large positions in short periods of time in our markets and possibly distort prices away from prices on other platforms. As funds flow between platforms gets easier, arbitrage opportunities will last for far shorter periods that is currently the case.
In any and all future similar cases, we will diligently monitor the activity, the accounts and profiles of those responsible and take whatever action is in the best interests of all exchange stakeholders.
In an era when lack of transparency is rightfully being considered persona non gratis it is perhaps relevant to note again that we are determined to provide maximum transparency of all exchange activities free of charge including real-time market data, time and sales and volume as per the links at the bottom of this post. Additionally, we will start publishing more details about trading volumes and open interest on our exchange just as soon as possible.
We are thankful for your interest in this matter and in Intrade.
With very best regards
John Delaney
CEO
Intrade.com
Update: See comment in the New Yourk Times http://www.nytimes.com/2008/10/20/business/20predict.html?ref=business
http://data.intrade.com/graphing/jsp/downloadClosingPrice.jsp?contractId=376101
http://data.intrade.com/graphing/jsp/downloadTaS.jsp?contractId=376101&timezone=US/Eastern
http://data.intrade.com/graphing/jsp/downloadClosingPrice.jsp?contractId=409933
http://data.intrade.com/graphing/jsp/downloadTaS.jsp?contractId=409933&timezone=US/Eastern
36 comments:
intrader said :
Some good comments here....
https://www.intrade.com/jsp/intrade/misc/blog/?initialBlogId=jd_1
stevek said :
Actually, it appeared far worse during the democratic primaries. Every time something would go seriously wrong for Clinton and I would look to see how far it pushed her down on Intrade, she would have a spike up. It was consistant enough that I am certain it was not random noise. Intrade is clearly and regularly manipulated to form public opinion. The question is how much?
mike said :
I's persona non GRATA. Persona non gratis sounds like person who doesn't give itself away for free.
Sorry for the latin-nazism but that is literally hurting my eyes.
mike said :
It's persona non GRATA. non gratis sounds like "person not sold for free". Sorry for the latin nazism but that is hurting my eyes.
Anonymous User said :
I'm afraid I don't understand the motivation of any trader who intentionally tries to get a bad fill except to try to influence the market. The manipulation seems to be less relevant in that it appears to have been liquid enough to correct itself, and the trader gave a few people a gift to take home for being online at a critical time.
tradertrade said :
if this is an attempt at manipulation why in the world would the guy make it so obvious. He could have spent less and had a more powerful effect just by always buying in small chunks a few points above the market. The manipulaiton angle makes no sense.
jon said :
Without divulging proprietary info of the client (although that would be very instructive) could you explain with an example or two the statement, "Our investigations lead us to believe that the member is using increased depth in these markets to manage certain risks." From my naive perspective that statement reads, " ... our client is manipulating the market ..." So, some examples of how this or a similar manipulation is in the best interest of the market would be nice. Thanks.
jon, do you know what hedging is? said :
jon, do you know what hedging is?
eee said :
persona non gratis? need more latin...
Anonymous User said :
This may be a VERY popular (or a VERY unpopular) idea, so here goes...
Let's be honest about this. Some "trader" or entity is (thus far) successfully attempting to skew the numbers in favor of Senator McCain.
Mr. Delaney, you and I both know that this is wrong. So here is one possible solution: for the US Presidential contenders, perhaps you should reflect TWO sets of data - one which includes the effects of the "questionable trader or entity", and a more realistic, accurate set of data which EXCLUDES those effects?
I know, I know - it sounds "whacky", it's probably never been done before, etc. etc. But how about standing up and taking the bullet which had been targeted at the very integrity of the Intrade Prediction Market?
Please consider this. Thank you for your time.
jon said :
my query includes sarcasm inspired by
http://www.dilbert.com/2008-10-16/
Wicked Wanda said :
As long as there are these "innocent" transit influences, I won't be buying in -- just observing... and snickering.
eric said :
same thing happened in 2006 Mexican presidential election. Since the market was much much smaller, burning some money to raise candidates' odds lasted longer. In fact, the guy who lost remained comfortably above .50 until election day!
Van said :
Given the desire for transparency, why doesn't Intrade publish Open Interest data on current contracts?
AA said :
What about the fact that maybe this person who is "manipulating" the market has info that will be detrimental to Obama and will make money by buying McCain? OCTOBER SURPRISE? Could be...Michelle Obama Whitey tape?
Hank Mehle said :
And the stock market isn't "manipulated" on a regular basis? Please. This is a market not the statue of David. It's raw and ugly and...well...a market. How come the DOW swings 9% in a day?
And where are the comments and input from executives at the CME, the NYSE, the NASDAQ, the LSE, etc. relating to questionable trading patterns on their exchanges?
Obama and Intrade have similar hills to climb.
Anonymous User said :
Good decision by Intrade. For the commenters who still think this is manipulation - that would just make it an opportunity for you to get in on low Obama prices.
mv said :
This was clearly an attempt to manipulate Intrade, probably to buy a talking point or story that would hopefully kickstart some McCain momentum. Markets should report number of trades and average size throughout the day, along with some sort of volume-weighted average price, so that the outliers are obvious to those trading in good faith.
Anonymous User said :
I am very new here and so far only use the play market. This spiking has me very concerned and is one of the reasons I have chosen not to make the final plunge. (the other being concern about the legality for end users of certain citizenships). All in all very fascinating website/market.
Bye Bye Intrade said :
Who cares who you vote for, this episode proves Intrade is no longer trustworthy. It is now obvious Intrade is easily manipulated by anyone with money and power, and the people who run the site condone this. Delete from Bookmarks.
oneusehandle said :
It seems strange that people are upset by this "manipulation." If the market diverges from reality, there's an opportunity for profit. Especially since there are other prediction markets -- you can arbitrage between them and make riskless profit. I really can't see a way in which a trader acting "irrationally" is bad...
ProfessionalTrader said :
Hi John,
Thanks for your posting and extensive comments. I'm a real-money trader on the site, and have taken a significant position in one of the US presidential markets. I've seen some of the blog postings elsewhere with conspiracy-theory-type ideas about manipulation on Intrade, and have never been able to take them seriously.
Speaking with 20 years of experience, I think that anyone who's familiar with short-term price changes in the equity or bond markets has to laugh at the concern over short-term swings on Intrade. As you rightly point out, those swings can be a good thing - at least, they provided me with good entry points to buy Obama contracts more cheaply.
For what it's worth, I have very high confidence in Intrade, which is why I wired thousands of dollars from the US to your market for trading. I'm looking forward to a successful conclusion to the election, and withdrawal of a nice little profit ;)
best wishes for your market's future success,
brad
Itrade Member For 5 Yesrs said :
This is such BS.
Everyone loves a conspiracy.
Obama fans think someone is "dissing" their man. LOL.
Look, some high roller wants to throw down a ton of cash at crazy prices. GREAT. I have made about $15K profit in my account so far from the big guy.
Folks, ever been to Vegas? Seen a whale throw $1MM on a daft bet. It happens.
As someone else said kudos to intrade/delanay
Anonymous User said :
A full on long-short (on the table trade: what is hedging except a bet on Obama somewhere else. Again he insures himself a bad fill, more effective than a slow accumulation at skewing the market.
fasteddie said :
traders put in bad fills all the time to fade the market. If you are a true trader, then you take this as an opportunity.
mcfinex said :
As somebody who has traded in the future pits for 20 years, i don't see what the concern is. Has anybody ever heard of the word called "slippage"? The trader in question had larger order size then the present market can handle so it moved the market in order to fill his order. The market eventually moved backed to its rightful place. It gave me a opportunity and others from this price discrepency to profit so I have no complaints. This kind of "institutional" trading happens everyday in the commodity markets. The people who use the term "rogue trader" are just naive about how markets work.
SteveMDFP said :
Meh. Intentionally pouring money to alter the prices/odds is just a way for some maniac to lose a lot of money, and other traders to make money.
I did think that the odds were a bit skewed in favor of predicting a McCain victory. I want Obama. Those raised odds for McCain didn't demoralize the Obama supporters, they panicked and then energized them.
Overall, if there was an attempt to alter the odds, whoever was doing it lost both financially and strategically. Heh.
Sammie said :
Just back from vacation. Great post and comments.
@ SteveMDFP - agree. I traded against this trader who drove the McC up and BO down. Just some big swinger having fun or bookmaker laying off risk in a hurry. Bookmaker probably couldnt lay off the risk in hte size needed on at anyother venue.
No matter - I think this entire thing just shows how these maykets are still young and offer some great profit opps/.
New York Times said :
NYT covering this story
http://www.nytimes.com/2008/10/20/business/20predict.html?ref=business
bloo said :
agree with above, manipulation angle doesn't make sense, unless it's how some big deal amuses himself, or they seriously expect to manipulate the vote by altering the map on intrade.
Probably said :
Someone who has a vested business interest in seeing obama elected. They are just covering the risk that mccain gets in.
Anonymous User said :
"[T]he member is using increased depth in these markets to manage certain risks." I expect the "certain risks" involve the fact that the member probably over-loaded on McCain contracts when he was looking stronger and will loose his ass if he can't skew this market to make it look like there is more betting confidence in McCain than there actually is.
A wise old hillbilly once warned me at an Ozark farm sale when bidding on an antique item was going particularly high: "Trouble is, you don't know if you're bidding against a smart man or a damn fool."
anon said :
There is an obvious way to settle this debate.
An institutional trader wishing to square a position or to profit from nonpublic information will choose a time when markets are thickest to make his trades, because
he'll get the smallest possible price move then, and thus higher profit. A trader attempting to manipulate prices (for whatever reason) will make his trade when markets are thinnest, because he'll get the largest possible price move.
So when did this "institutional" trader make his moves?
Lucky Lad said :
Anonymous User at 5:24PM EDT on 10/17/2008
You are very smart. Please trade a lot of money! Our markets need lots of money from smart people like you....
Intradewatcher said :
As someone who does a lot of trading, and happened to see this event unfold "live", all I can say is it was wierd but not likely an attempt at market manipulation. The reason being that the price disturbance only lasted less than 5 min. If someone really wanted to hold the price of McCain up, they'd have to spend a lot more than that...... with obama now trading at 87, they clearly aren't doing that... The dynamics of it were someone who had a lot of money to spend and didn't really understand intrade, or didn't care about losing a big chunk to get instant liquidity.
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