TS blows another call

There's been a slight controversy over at Tradesports about the DEM.HOUSE.OVER29.5 (Democrats to gain at least 30 House seats ). Apparently, TS operated under the rules that the Democrats needed 17 pickups to gain the House.

I sent them an e-mail about this contract yesterday:

My application to be approved for the TS forums has been pending for about a month, so I can't complain about a contract via the forum.

The size of the Democratic caucus, for most of 2004-2006, was 203 members, 202 Democrats plus Socialist Bernie Sanders, who always caucused with the Democrats and whom the Democrats never opposed. http://clerk.house.gov/histHigh/Congressional_History/partyDiv.html

The size of the Democrats' gains, in the context in which it was discussed as well as traded, meant the amount of increase in the size of the Democratic caucus, because all business in the House of Representatives, including determining the majority, is done on the basis of caucus, not party affiliation. This amount itself is thrown open to question because Menendez, of NJ-13, was appointed to the Senate in December 2005, after the end of the 2005 session of the House, when one-half of Menendez's service was over. At that point his seat became vacant. However, the Republicans did not contest that seat, because it was so solidly Democratic, and I defy you to find anybody in the entire American media (major online sites, or mainstream media) who called the Democrats' keeping Menendez's seat a "pickup" for the Democrats. . The understanding in the United States was that the Democrats needed 15 seats to gain control of the House, and in the days leading up to the election, the House over-15 Democrats pickup very closely tracked (100 - HOUSE.GOP.2006), reflecting the market's general belief that DEM.HOUSE.OVER14.5 meant that the Democrats needed 15 seats to capture the House, not the 17 that someone apparently unaffiliated with Tradesports announced some time ago (Oct 18, allegedly), before the majority of volume had been transacted.

Daily Kos puts the current number at +29, with a seat in Connecticut flipping 150 votes each way according to each recount. Real Clear Politics says +28, with the certainty of a Louisiana seat going Democratic. *No one* says it's currently +31, which is what the ruling below implied:

According to forum member gekko6,

Re: GAW838: I've must admit I have never read this newsletter, which is written by a freelance writer with no official standing at Tradesports.[emph. added] Obviously he interpret [sic] the contract the same way as TS, but that does not mean that his interpretation is correct or in any way binding on the contract. If such a clarification had been clearly posted under the contract rules, it would have been a different matter.

The contract does not clarify that anything over 201 will be considered a gain. It only informs us that "currently the Democrats hold 201 of these seats." This is true, if you by "hold" excludes the one vacant seat. But the
crux of the matter is whether a vacant Democratic seat can be regarded as a pick-up. The contract is not clear on this, and therefore the contract should be settled on the basis of the universal understanding of a pick-up, which do not include retaining previously held but vacant seats. I dare anyone to document a single source - media, academic or official, that regards holding a vacant seat a pick-up.

The Vermont seat, going from Independent caucusing with Democrats to Democrat is not specified in the contract, and could therefore be regarded as a pick-up. That is why I asked for a clarification, and TS answered me in an e-mail November 08, 2006 3:38 PM: "This seat will not be included as a pick-up as Sanders did caucus with the Democrats." [emph. added]

If Vermont is not considered a pick-up, then obviously the benchmark cannot be 201. And how can NJ13 be considered a pick-up if Vermont is not?

---

In any case, it appears clear from the slightly lagged sync between the DEMS.HOUSE.OVER14.5 and HOUSE.GOP.2006 in the closing days that the market-majority traded with the understanding that 15 'pickups' were necessary for the Democrats to take the House, not 17.

Thanks,

--
Alex Forshaw

TS' reply:

The contract rules published on the site state that the Democrats controlled 201 House seats before the recent elections. This is the figure published on C-Span for the 109th Congress. [And yet, as of Nov. 8, your own understanding was that they had 202 seats. You didn't know what your own definition meant.--ed] Any addition to this number will be considered a pick up. This means any seat previously held by an Independent that was won by a Democrat would be considered a pick up for the Democrats. The remaining pick up contracts will be expired once all remaining House election results have been declared.

The contract rules are published to help avoid the type of confusion you describe below. If you need clarification on any contract rules then I would advise you contact us directly rather then reply on the forum or the interpretations of other members.

Please let us know if we can help you further.

Kind Regards,

So now TS has gone back on its word to TS forummer "gekko6," and said that VT-AL will, in fact, constitute a pickup for the Democrats. (I choose to trust gekko6's word here because I find it preposterous that a TS user would lie about what TS told him, on TS's own forum.) It seems pretty clear to me that TS failed to communicate to most of its users that it had a very different understanding of this event than did the TS market-majority. Credibility is the biggest asset for an exchange, and credibility lowers total transaction costs (seeking out necessary information is not as necessary if you trust the exchange. Unless your decision to trust them turns out to be wrong.). TS just ratcheted up those transaction costs. Again. If traders have to hire a goddamn lawyer to know what TS means, they won't continue to trade with you, TS.

This isn't the first time, either. I remember the Senate confirmation of Harriet Miers future, and after her nomination was withdrawn, TS simply voided the contract and said that because no vote took place, nobody would be rewarded one way or another. That was probably $1500 in potential gains lost due to a technicality. Great call, guys.

Markets don't forget. Not quickly, anyway.

P.S. In life, nothing has more negative marginal utility than arguing ex post facto that "your" understanding of the wording/event was different from the overwhelming majority's take, after the chips are down... This is also known as the "People very quickly come to the conclusion that you are not trustworthy enough to do business with, if you get a reputation for BS Rule." It is the market overseer's responsibility to transmit accurate rules information to its consumers the traders, not vice versa. --Traders trade a security based on the event, not the exchange's interpretation of the legalese, which seems to change every week.

P.P.S. TS--why have you kept the event open all this time? According to your definition, the Democrats have already won the event. Unless you didn't know that.