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
