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John Delaney
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JohnRemington wrote: John,
I have contacted help@intrade.com to inquire about a segregated account, and have not received a reply. Perhaps you could post publicly the terms and fees associated with this type of account.


John,

This information is and has been posted from our HP for a few years I understand.

http://www.intrade.com/jsp/intrade/home/safety_and_security.jsp

Best,

John
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John Delaney
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GAW838 wrote: What is that the actual mechanisms for expiry would not be functional is the conditions for the contract expiring at 0 were actually it met.


GAW838,

The contract rules state in the unlikely event that Intrade decided to cease providing trading services it would advise all customers of its intention by way of public announcement and email notification giving at least 7 days notice. During that period it would allow customers to trade out of positions and withdraw funds. After that 7 day period it would then settle all markets at representative prices and process withdrawals to all customers.

Hope this helps,

John
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ark
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Joined: October 20, 2007 05:11:52 UTC
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What Intrade needs to do is to win back "confidence".

Change we can believe in. No more of the same.
greatunknown1
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@ Delaney As sincere as that promise may be insolvency is always a chaotic time for a business. Have you put aside segregated funds to cover the costs of expiring all contracts and returning all funds regardless of the state of intrade's finances?
Delphi
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GAW838 wrote: I get that intrade's corporate funds are segregated from deposits. My concern is that the actual mechanisms for expiry would not be functional is the conditions for the contract expiring at 0 were actually it met.


I suspect Mr. Delaney might point to the closure of Tradesports as one response. They announced their upcoming closure, but are processing withdrawals of funded accounts as we write here. Of course a skeptic might counter that the closure of Intrade might not be as orderly as Tradesports is being, if they indeed were on the way out of the business entirely (someone correct me if I'm wrong, but wasn't TS just spun off as a separate entity under TEN, but under the same overall management?).

Mr. Delaney, it might inspire some confidence among users if you felt like divulging some of the projects you mentioned earlier that your staff is working on, that were put off till after the US Nov. election. Also, is there any move afoot to engage the incoming US government on a more solid legal recognition (and perhaps regulation by the CFTC)? When that 2006 law passed, both houses of Congress and the White House were controlled by conservatives and they are swept from power. I understand you have an ally in Rep. Barney Frank, and the religious right has lost a great deal of their previous leverage and (I hope) credibility. It's been awhile since we've had an update on that front. Anything new?
GAW838
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I think there's a big difference between an intentionally shutdown of TS and what would almost certainly be a undesirable outcome of shutting down intrade. Obviously, intrade is not planning to shut down any time soon and is acting under the assumption that it will keep operated. It is not totally unreasonable to suggest that there is some possibility that intrade would not have the ability or inclination to expire these contracts and facilitate withdrawals if trading is longer possible on the site. A short would need intrade to be forced to shut downm yet still be capable of expiring the contract and paying out withdrawals. This is not just in terms of the money existing in segregated accounts, but also having any operational mechanism for these processes.

It may be a small probability in absolute terms that intrade reaches the point where it is unable to do this, but within the range of scenarios where the site is no longer taking orders, it is much more probable.

In any case, I don't have any intention of shorting thse contracts and would only get involved if the contracts dipped low enough to be worth locking up margin. I am not convinced, however, the the structure of the contract achieves the expressed purpose.
John Delaney
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GAW838,

How would you suggest we improve these types of contracts, if not for Intrade for similar markets we should list on other companies/


Regards,

John
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anthalon
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Joined: November 04, 2008 20:15:47 UTC
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On the flip side, humans and markets are generally willing to pay a premium on insurance. If determined to be reasonably likely that the contracts will expire with due process even in the event of Intrade closure and ceasing of operations, then the market would price in shorts who wish to hedge the costs involved in losing the service of Intrade.

In the end, I'd like to see Intrade, or something similar, provide through arbitrage an improved efficiency for other prediction markets which are entirely too proffitable and inefficient, ie the broader insurance market.
HILLARY 8 BARACK
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John

I want to make a reasonably large deposit, but I am really confused now.

Are you admitting you/other insiders are going to trade this market but saying that the additional liquidity provided thereby more than offsets the added risk.

John, I don't want to offend you but that, in my opinion, is so off the wall and irregular that it is going to kill all your business.

I can tell you right now that I would short 1,000 contracts of INTRADE.IN.BUSINESS.JUN,2010 at the current price of 87% if I thought there was a 50% chance that I would get paid because I think clearly that there is less than a 50% chance that you'll be in business then.

May I please ask you a question that must be on everyone's mind. If you stop doing business at some point before june, 2010 and then start doing business again before June, 2010 and are actually doing business on June, 2010, does that contract expire at 0 or 100. I assume that it would expire at 0 on the date you stopped doing business (anything else would be wrong, fraudulent, and unethical) but your rules don't make that clear.

Thanks
John Delaney
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HILLARY 8 BARACK wrote: John

Are you admitting you/other insiders are going to trade this market but saying that the additional liquidity provided thereby more than offsets the added risk.



Please refer to the rules of the Exchange that phohibit employees from trading on Intrade.
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GAW838
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John Delaney wrote: GAW838,

How would you suggest we improve these types of contracts, if not for Intrade for similar markets we should list on other companies/


Regards,

John


John:

For other companies, I don't think there is a problem. I would not be particularly interested in trading that sort of contract, but I am sure others would and I would have no problem with.

My objection to the contract on intrade's closing is unique to that proposition because of the inherent problems with expiry at 0. It's fine for you to say that you plan to give 7 days notice and have a well-structured process if Intrade ever shuts down. The problem with that is that intrade does not intend to shut down at all. It is likely, therefore, that any shutdown would be because circumstances (financial, legal or otherwise) forced the action. Under those circumstances, it is far from clear that the machinery for expiry and withdrawal would still be working properly. Who wants to win on such a big long-shot and then not be able to collect without a lawsuit?

I don't see any obvious solution to this problem; I wouldn't have listed the contract. If anything, the existence of the contract somewhat undermines my confidence in intrade.
John Delaney
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GAW838 wrote: I don't see any obvious solution to this problem; I wouldn't have listed the contract. If anything, the existence of the contract somewhat undermines my confidence in intrade.


GAW838,
Thanks for your post.

I knew before I listed it and again now is that it would/will undermine confidence for some people and that is a real negative. That said, not doing our very very best to maximize transparency (good and bad) particularly during a time when people are worried about their counterparties would be an even greater wrong.

These markets are far from perfect but for some they do provide information, and for us they simply seem appropriate to list “warts and all”.

Best regards,

John
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GAW838
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John:

I understand your position. I would only question whether distorted information from a problematically contructed market really makes a positive contribution to transparency. Also, if a primary purpose for the existence of these contracts is to provide a mechanism that enables hedging against intrade's shutting down, the risk that intrade shuts down and fails to expire and pay out on these contracts hampers the risk-reducing capacity. The contracts are already up, so this conversation is largely moot. It may make sense to throw potentially controversial contract ideas out onto the forum for public discussion prior to listing such contracts in the future.

While I have your attention, I would like to take the opportunity to present a suggestion regarding the fee structure that I have posted and e-mailed in the past and received no response to. A prior post on this matter is quoted below:

As long as we're offering suggestions to improve liquidity, I have long thought the fee structure good be set up better for this purpose, while still yield similar or even higher levels of revenue.

First, I would eliminate expiry fees. They distort prices and greatly discourage trading at the extremes.

To compensate for this, I would introduce a sliding trading fee scale, based on the price at which the trad occurs.

Between, 40 and 60, fees represent such a small percentage of both risk and potential gain, that I think a fee as high as $0.15 (for price-takers, as the system currently works) could be supported. The exact numbers are less important than the principle, but I would put the 40-60 trading fee at 12 cents.

I would then work down in increments of 1 or 2 cents, so that the fees for contracts trading below 1 or above 99 would only be 1 cent.

A possible structure under these guidelines would be:

40-60: 12 cents
30-40, 60-70: 10 cents
20-30, 70-80: 8 cents
10-20, 80-90: 6 cents
5-10, 90-05: 4 cents
1-5, 95-99: 2 cents
0-1, 99-100: 1 cent

Many variations of this sort of graduated fee structure are obviously possible, and maybe it would preferable to have increments of 1 cent all the way through to minimise distortion on the margins. I stuck with 2 cent increments most of the way as a bow to the simplicity ths apparently valued in the current system.

Given the large portion of positions that are closed out before expiry, I would guess that this structure would increase revenues even if it did nothing to increase volume. If this is not the case, the exact numbers good be adjusted. Moreover, I expect that this system would boost trading volume in at least two ways. First, it would further incentivise price-maker orders, since price-making traders would not have to worry about expiry fees if the hold to expiry in the money. Second, and more importantly, it would significantly encourage more trading at the extremes, where the influence of burdensome trading and expiry fees exacerbate time value of money considerations to distort prices and depress volume. Not only does it discourage shorting below 2 or or buying above 98 for traders who think an event is a lock, it deprives long-shot traders of the opportunity to get in at a very long buy price or very high sell price that reflects the genuine beliefs of traders.

Aside from fees, the other big change that could help promote liquidity is, whenever possible, linking contract groups for margin purposes. I understand that there are technical limitations that currently prevent intrade from using worst-case-loss marginning for shorts in a market that does not fill the outcome-space. In many cases where new options are unlikely to be added, such as the congress-president combination group, this could be addressed by something as simple as adding an any other outcome (field analogue) contract that would fill the outcome-space. I understand that in some cases intrade wants to allow room to add new contracts to a group, but there are also some groups where this concern is inapplicable, yet the market is still not margin-linked. Not being able to short mutliple contracts in a group without taking on significant and unnecessary margin requirements greatly reduces volume of affected markets, especially when the expiry date is far away. It often produces greatly overbid markets, that persist as arbitrage opportunities because the return on investment is too small if a trader has to short ten contracts, each with sepearate margin requirements. This not onlu hurts ther trader's who would like to short multiple contracts, but alo traders who want to buy one or more, but don't have the opportunity to do so at non-inflated prices. The elimination of expiry fees would also help in this area, as the 10 cent per short that means that an overbidding can persists up to (n-1)*1 point, where n is the number of contracts listed in the market and that's before you consider the impact of trading fees.

I totally understand that intrade has to make it's money somehow, but I firmly believe that there are better ways to structure that revenue extraction, that would benefit traders, outside users of intrade data as well as intrade's bottom line.
ko
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GAW838 wrote: The problem with that is that intrade does not intend to shut down at all. It is likely, therefore, that any shutdown would be because circumstances (financial, legal or otherwise) forced the action. Under those circumstances, it is far from clear that the machinery for expiry and withdrawal would still be working properly. Who wants to win on such a big long-shot and then not be able to collect without a lawsuit?


It doesn't appear that Intrade posted these contracts with the idea that they were going to be making a ton of money on them. The purpose is for transparency and hedging ability. So the solution is for Intrade to set up all the at-risk funds on these "trading on Intrade's Future" contracts into a third party escrow account that would be managed by their regular arbitration process.
fartman2
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GAW838 wrote:
I don't see any obvious solution to this problem; I wouldn't have listed the contract. If anything, the existence of the contract somewhat undermines my confidence in intrade.


The Problem
for all of the reasons previously stated by GAW and others, this set of contracts is so structurally flawed (re: predictability of payoff at expiry), that the trading price cannot be viewed as having any meaningful predictive value. The structural flaws would scare aware far too many knowledgeable investors and leave the contract only to those who are either the biggest risk-takers or least knowledgeable about the law -- neither group is, necessarily, the best to depend on for an assessment of Intrade's viability.

The Solution
If Intrade is to have an Intrade.Future contract, Intrade should NOT be the organization overseeing its expiry. This means, by implication, that Intrade should not have any access whatsoever to funds that are frozen as a result of long or short investment in these contracts.

Instead, Intrade needs to enter into an iron-clad contract with a dependable third party (the "3rd party agreement") in which Intrade effectively gives up all of its rights to the frozen monies, and the third party agrees to administer the money according to the contract's terms in the event of an Intrade closure. The 3rd party agreement must be structured in such a way that would preclude any creditors or claimants (besides the legit Intrade.futures contract owners) against the defunct Intrade entity from laying any claim on the monies or preventing the 3rd party from timely distributing the monies to appropriate contract holders. As part of the 3rd party agreement, Intrade.futures holders should be explicitly granted a cause of action against the 3rd party for nonperformance of the 3rd party agreement, or to simply force execution.

I cannot think of any other solution but this. Anything less would not, as far as I can see, suffice.
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