PredictIt Gets Reprieve, for Now, as February 15 Liquidation Deadline Halted
Posted on: January 26, 2023, 10:35h.
Last updated on: January 27, 2023, 01:36h.
Trades on political futures at PredictIt will be allowed to continue past February 15, at least temporarily, after a federal appeals court granted the online exchange an injunction on Thursday.
The move by the US Fifth Circuit Court of Appeals comes a week after that court set a hearing for February 8 to hear arguments for an injunction against the Commodity Futures Trading Commission (CFTC), which pulled the exchange’s no-action letter last August.
That hearing will still take place in New Orleans.
With its no-action letter pulled by the federal regulator, PredictIt faced potential sanctions if it continued operations. In its notification letter, the CFTC said the exchange “should” liquidate all existing markets, including those for the 2024 presidential election, by February 15.
PredictIt, along with several traders and researchers who use the exchange, sued in a Texas federal court to block the CFTC from taking action. The commission has sought to either have the case dismissed or moved to the federal district court in Washington, DC. That’s where it and Aristotle, PredictIt’s service provider, are located.
In a statement Thursday evening, shortly after the court’s ruling, Aristotle said a three-judge panel is “likely to issue an opinion addressing what relief is proper” during the appeal.
“This ruling will assist a thorough judicial review of the CFTC’s abrupt closure,” Aristotle General Counsel David Mason, a former chairman of the Federal Elections Commission, said in the statement. “We look forward to the opportunity to appear before the Court on February 8 and present our arguments that the CFTC’s closure order violated the APA and needs to be reversed.”
Traders Say They Face ‘Irreparable Harm’
The case for an injunction is in an appeals court, because PredictIt and other plaintiffs took the case to that level last month after US District Judge Lee Yeakel failed to act on the motion for an injunction after it was filed in September.
The plaintiffs sought the higher court’s decision because of concerns that the February 15 deadline for liquidation was approaching.
In a briefing filed earlier on Thursday in advance of the February 8 hearing, the plaintiffs said the traders involved in the case face “irreparable harm” if the exchange is forced to close before the markets’ natural conclusions.
Because of the imminent Feb. 15, 2023 liquidation deadline, the eight Appellants who are Market investors are being deprived of the value of having carefully invested in what they believe to be the most likely political outcomes,” the filing stated. “They will not be able to see their contracts through to the end and realize the gain of having predicted correctly. More importantly, they lack a meaningful option to trade out of their 2024 election contracts, as spot prices are distorted for these contracts due to the CFTC’s mandate that they terminate early.”
The CFTC’s response to the plaintiff’s brief is due on Wednesday.
What is PredictIt?
The PredictIt exchange is similar to a stock exchange, where traders can buy or sell up until the event in question – such as the 2024 presidential election – concludes.
Traders buy contracts on a certain position – such as Florida Gov. Ron DeSantis winning the race – for an amount between a penny and 99 cents. If the contract is for the correct outcome, the trader receives $1 for each contract or share they own.
Researchers use the trading data to determine if the futures markets serve as better predictors of political races. The data is also used for studies in such fields as microeconomics and game theory.
The exchange was proposed by the Victoria University of Wellington, a New Zealand school, for research purposes. In 2014, the CFTC granted the exchange a no-action letter, meaning the agency would not seek to stop it if it met certain conditions. Those conditions included limits on the number of traders per market and the amount that traders could invest in a specific market.
In its revocation letter, the CFTC said PredictIt violated the terms of the no-action letter, but did not cite any specific condition it violated.
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