The incoherence results because the concepts of artificial price and specific intent to influence market price that are central to the CEA’s anti-manipulation jurisprudence are inapplicable in the context of political prediction markets. After abandoning the CEA’s anti-manipulation jurisprudence, the CFTC will have at least three options with regard to regulating the manipulation we worry about in political prediction markets: it can develop a revised anti-manipulation doctrine with elements that are coherent when applied to political election markets; it can encourage private contracting between market participants to prohibit certain trading activities; or it can take no action and simply allow political prediction markets themselves to control manipulation through self-deterrence mechanisms.
Part II of this Article offers a brief background to prediction markets generally. Part III catalogues five examples of activity considered manipulative in political prediction markets, and draws conclusions about the types of trading activities that trouble market analysts. Part IV addresses the CEA’s current anti- manipulation jurisprudence, and explains why this jurisprudence is incoherent when applied to manipulation in political prediction markets. Part V suggests three alternatives to the CEA’s anti-manipulation jurisprudence to control manipulation in political prediction markets: a new regulatory scheme, private contractual enforcement, or self-deterrence. Part VI concludes by urging the CFTC, if it acquires jurisdiction over political prediction markets, to exercise restraint in the regulation of manipulative trading, in order to promote further experimentation and development of these markets.