Tuesday, April 27, 2010

You wouldn't bet on it - if ASIC gets its way

The Reserve Bank will next meet to vote on interest rates a week from today, but don't expect to be able to bet on the outcome.

For only the second time in two years Centrebet won't accept your money.

The last time it believed the result was a foregone conclusion. This time ASIC has stopped it.

The Securities and Investments Commission has written to the Alice Springs based bookmaker warning that bets on interest rate changes may be "derivatives" as defined in section 761D Corporations Act.

That section defines a derivative as an arrangement in which the value of a consideration is derived from the value of something "of any nature whatsoever," including an interest rate or exchange rate.

On the face of it the section would outlaw all manner of bets including the recent high profile wager between economics professor Steve Keen and financial markets economist Rory Robertson on the value of house prices which saw the loser walk from Canberra to Kosciusko...

The letter from ASIC senior manager Jonathan Coultas to Centrebet says offering a derivative without a financial services licence "is an offence punishable by a fine not exceeding $22,000 or imprisonment for 2 years or both".

It threatens the bookmaker with "court orders shutting down your business".

"Totally shattered and a little bit confused," said Centrebet public relations manager Neil Evans when asked how he felt. "We have spent hundred of hours doing this for two years with not a word said."

Centrebet's market was hardly low profile. It has been reported on eight times in this newspaper and the odds it offers have been used as a guide to the weight of public opinion about what the Reserve Bank board will do.

Less-well known has been the market operated by Centrebet's competitor Sportsbet.com.au.

It is continuing to take bets on Tuesday's Reserve Bank board despite knowing of ASIC's threat.

Two of its bets it has taken on - each on no change in rates - are for $10,000 each.

"We have received nothing from ASIC in terms of whether we can or can't bet on that market. We will keep taking money until they tell us to stop," said spokesman Haydn Lane. "Apart from sports events and elections it is our most popular markets."

Asked why he thought ASIC had targeted Centrebet and not his organisation Mr Lane said it could be because in March "Centrebet started betting on the ASX 200, I think that sort of kicked them into action a bit with them, but we've certainly heard nothing".

Centrebet also suspects ASIC was provoked by its action last month in opening a market on the stock exchange share price index. "This other market seems to have been caught up in it. We've stopped in May but a rival bookie is going ahead."

Asked to explain why it had targeted one bookmaker but not the other an ASIC spokesman was unable to comment on operational matters. However he confirmed that ASIC had written to Centrebet.

Melbourne Law School professor Ian Ramsay said the ASIC letter had effectively shut down the Centrebet market on Reserve Bank decisions. It would not be worth the bookmaker's while to fulfill the requirements needed to get a financial services license.

For now Sportsbet.com.au is offering $1.20 for each $1 successfully bet on no change next Tuesday, and $3 for each $1 bet on a rate hike.

Mr Lane said he is hoping he doesn't have to stop mid-stream and give back the money.

Published in today's SMH and Age

Asic to Centrebet

AFR Editorial, April 17:

ASIC's nanny gambling curbs just don't rate

It's become commonplace in the wake of the global financial crisis to refer to the financial system as a giant casino. And in a sense that's true. But the critical issue is not that large amounts of money are wagered on predictions of future events, but that those making the bets may be unaware of the proper odds, or that the races are fixed. Or indeed that they are wagering at all.

Post-crisis focus should be on the integrity of financial markets, malfeasance by agents, structural imperfections and appropriate regulation and supervision.
The scrutiny should not be on the betting per se.

For better or worse, any financial reward carries a risk, and attempting to price that risk is the business of financial markets. It's an odds play.

Now we hear the Australian Securities and Investments Commission has told betting agency Centrebet to stop offering odds and taking bets on share price indices and the Reserve Bank's monthly interest rate changes.

ASIC claimed that the "financial bets" offered over the ASX 200 share index and RBA interest rate changes may be "derivatives" as defined in the Corporations Act, and that these services may amount to a financial services business, requiring a financial services licence.

Centrebet has suspended offering odds on both markets and has written to ASIC saying it would like to continue its interest rate betting service. It's also stated that its operating licence from the Northern Territory government allows it to bet on interest rates and stockmarket indices.

Curiously, Sportsbet.com.au, which is also licensed in the NT, and also offers interest rate betting, has not received any attention from ASIC. So why the heavying of Centrebet? The online lucky shop has been offering odds on Reserve Bank rate rises since August 2008, without any comment from ASIC. But in March this year it started offering odds on the monthly finish of the ASX 200 share price index, in effect setting up in competition to the ASX. Centrebet stated at the time that it also planned to extend its financial betting to the oil price, and individual stocks as well, although those latter plans are apparently now on hold.

Centrebet is trying to expand its market beyond the traditional gambler to appeal to white collar financial types. And it was succeeding. It received 200 bets on the monthly close of the S&P/ASX200. Now ASIC may well be right; Centrebet's activities with respect to the share price index may technically contravene the law as written. The interest rate betting is more uncertain.

But really, is this something to which a very stretched, crucial agency should be devoting time and resources? Is the spirit of the law intended to stop such bets? Why has it acted now, instead of August 2008, and why has Centrebet been singled out?

Does ASIC really think the integrity of financial markets is being compromised because maybe some investment bank's forex desk or options traders are laying off the RBA rate rise risk by flipping screens and hedging with Centrebet?

For the punter, the monthly RBA board meeting and the daily sharemarket are probably two of the cleanest markets you could hope for. If those markets are fixed, then ASIC would really have some worries.

So, too, if punters were pulling their money from their superannuation and wagering it on Centrebet's ASX200 with a side bet on Martin Place in Race 5 at Randwick.

But there is no evidence of this happening. Those making such a bet can be perfectly sure what they are betting on, the odds being offered, and the counterparty they are dealing with.

Gambling, love it or hate it, is part of the Australian culture. Punters know they are making a bet when they go to a bookmaker. This is not a market we need to be nannied in. Centrebet should be free to resume taking bets on interest rate changes and ASIC should concentrate on bigger issues than a Darwin bookmaker straying into turf that the Australian Securities Exchange regards as its monopoly.

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