PredictIt seeks stay of execution over political market liquidation deadline

PredictIt, the US-facing political betting site, has filed for an injunction seeking a suspension of a US Commodity Futures Trading Commission (CTFC) order to liquidate its political wagering offering by February 2023.

The New Zealand-based site operates on a prior CTFC permission first given in 2014 which has been allocated to the Victoria University of Wellington, with all betting supposed to take place on a non-profit basis purely for research purposes.

PredictIt’s operational conditions include limiting them to 5,000 traders per contract, not charging any commissions or offering brokerage services, usage of a third-party entity to perform KYC on all participants and limiting advertising to those individuals “interested” in the subject matter.

The site must also disclose its unregulated status plus the fact that it is in operation for purely research purposes in order to comply with the “no action” order.

In addition, PredictIt must only offer event contracts consisting of two submarkets for binary option contracts concerning political election outcomes and economic indicators.

Despite its status as an academic project, PredictIt has built up a cult-like following in the US, with many broadcasters featuring PredictIt odds during recent elections.

The site lists a number of academic partners from universities across the US and internationally.

CTFC’s permission states it will not take any action against the site as long as this stance continues, with the regulator citing a prior permission given to US-based site Iowa Electronic Markets (IEM) operated by the University of Iowa, which operates on an almost identical basis.

However, in August, the CTFC suspended that permission, ordering the site to liquidate all of its existing political markets by February 15, 2023, markets which include betting on the 2024 US presidential election.

In the motion, filed in the US District Court for the Western District of Texas, the company detailed the consequences of the prior CTFC suspension order on its existing markets.

“That particular mandate, requiring premature liquidation of 2024 election contracts and others, is already causing unnecessary and damaging disruption, distortion, and dislocation in those markets,” the motion stated.

“Because the economic damages to market investors are being caused by a federal government action, sovereign immunity and other principles will make it difficult to recover these damages later, rendering the harm irreparable,” PredictIt added.

In addition to the motion to suspend, PredictIt’s backers, parent company Aristotle International Inc, have asked for the ability to add contracts to existing markets which were in place at the time of the CTFC order on August 4.

This would cover the inclusion of contracts for political candidates who have recently come to prominence in existing political markets offered on the site.

According to information provided in support of the motion, 75 existing markets would not expire by the CTFC deadline date, with more than 14,500 so-called ‘traders’ operating contracts in markets affected.

“Traders are attempting to salvage their investments, either by withdrawing their assets from the market entirely or attempting to predict what the prevailing belief about the outcome of events will be on the cut-off date, rather than what the outcome will actually be,” the firm stated.

In summation, PredictIt branded the CTFC decision “arbitrary and capricious,” suggesting it was unlawfully made.

The motion comes as PredictIt’s backers and two college professors, who ostensibly use the site for market research purposes (a core part of the initial reason for the permission), are suing the CTFC on the basis that its revocation of the permission to operate will cause irreparable harm to the firm.

In the suit documents, PredictIt suggests its investors will “be deprived of the opportunity to see their positions through to the occurrence or non-occurrence of the political events on which their contracts are based.

“They do not understand why the Commission, even if it for some reason wants the market to shut down, cannot let their existing contracts continue to trade until the election or event window would naturally close.”

It adds: “The revocation also will cause harm to the academic plaintiffs. Gone will be the days that they use the data generated by the market for research and teaching purposes. This will impact the quality of their legal scholarship and the student experience.”

The case continues.