Financial-Spread-Betting: Mr. Delaney, please tell us a little about yourself.
John:
Hi Andy, I am the grand old age of 36, I hail from the Irish midlands, a small town called Ballinakill. My parents were involved in many small businesses when I was growing up and having seen how well our accountants were doing I decided initially to pursue a career in Accountancy, having qualified in 1992. Shortly thereafter while working for Irelands largest Insurance company, Irish Life, I decided the Investment industry was what interested me.
I completed an MSc in Investment & Treasury in the early 90's at Dublin City University and then moved on to AIB Investment Managers in Dublin.
3 years thereafter I joined Oppenheim Investment Managers and during my time there I successfully completed a first class honors MBA at Dublin City University.
At that stage the idea and opportunity of person to person trading on innovative contracts seemed like a very interesting idea that I decided to pursue.
I have often been asked about what move from Investment Management into my current business which I see as Exchange Operation. I guess in a nutshell, I thought that instead of working to someone else's benchmark as a pension or investment fund manager, take my own capital, intellectual and financial and work to my own benchmark. Build a business with a good team just like my parents had done.
Now Trade Exchange Network is making its accountants and other advisors very happy ;-)
Intrade opened its doors to exchange betting?
John: Intrade opened to the public 1st March 2002. Intrade launched 1st August 2001.
Financial-Spread-Betting: How and who came with the initial idea for the development of Intrade
John:
The idea is very simple. Take advantage of a new technology, the internet, to remove a major market inefficiency, bookmakers massive margins, and offer a valuable innovative and scaleable service. That is the basis of p2p trading or betting.
As a founder of Intrade I believed and still believe that that there are communities of people most interested in p2p trading as distinct from betting against a bookmaker.
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Financial-Spread-Betting: How is Intrade best described? - are you a bookmaker, a betting exchange, a trading exchange, a stock exchange or an online future broker? When people use Intrade to trade - are they trading against the house or against other people?
John:
Intrade may be best described as a trading platform. WE certainly are not bookmakers. The contracts offered are priced on a 0-100 perspective, so it is not spread betting, your upside and downside are known. Intrade, was designed with a very strong slant towards the Financial Trading Community. Listing all 'non-sports'
contracts.
Whether you are betting, trading, speculating, investing or just having a little "flutter" or "punt" on our platforms is in the mind of the person confirming their transaction. However in the main I would say that the majority of our members view their activity as trading or betting against other similar people.
Financial-Spread-Betting: To whom do you think will exchange betting on Intrade appeal most?
John: As I've mentioned Intrade has succeeded over the years in its efforts to appeal to a broader audience base. Most of our clientele are primarily concerned with trading with our Financial contracts.
Financial-Spread-Betting: What has been the clients' reaction?
John:
Fantastic we believe but our growth is the proof. People vote with their feet or trading $ in this case.
We've come a long way since the site launched ... our members are loyal and support us with not just their business, but also positive comments and our members' friend referrals have actually become a significant part of our ongoing growth.
Some of our VIP members manage to find time to get in over a hundred contracts in a day ... obviously, that's the kind of vote of confidence
that we appreciate most.
Financial-Spread-Betting: What kind of contracts are available to trade?
John: You can just look at our site's home page to see the answer to that one. Andy..... you can buy a contract to see the Patriots once again win the Superbowl, or the Chicago Cubs to win the world series ...you can trade where the Dow Jones Industrial Average will close on the day, the week, the year. We have a relatively new contract that essentially states that Bush's advisor Karl Rove will step down in a given period of time... and even if where Hurricane Emily will hit the US shores first. As you can see, we tend to limit the contract choices to almost anything that our members would like to see traded... within reason of course.
Financial-Spread-Betting: What are the main advantages of using Intrade as opposed to a traditional bookie/futures trader?
John:
Fees, Service, Margin, & Transparency,
Fees: WE charge no fees to price makers and only $0.04 per lot on price takers.
We offer the ability to trade on margin.
With our exchange, you pay no margin or vigorish - as you would to the sportsbook folk, we typically offer better payouts than traditional bookies, and one aspect that also keeps our members coming back is or "in-game", or "in-running" feature, you can actually come to us during the middle of a game, or event, to balance, or hedge a prior bet that you made prior to game with some bookie or the like.
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Financial-Spread-Betting: Where exactly is your business located? Do you have any international offices?
John: Though we have clients in over 120 countries throughout he world, our office is based in Dublin Ireland.
Financial-Spread-Betting: What dealing platform do you use? Is it proprietary? What would you say really stands out about it?
John:
Our system is very proprietary, and very fluid to improvement and change as members or market conditions dictate.
It really is a model that focuses on the eases of use and profits of our clients.
Other parties have developed applications that link to the exchange such as www.t2tpro.com
Financial-Spread-Betting: Could you give us some insight about how a bet is priced?
John:
Initially, the market is set by a market maker... not unlike you would see on the New York Stock Exchange for example.
As the contract becomes more active the spreads tighten and the market maker takes a less prominent roll as the members are actively trading against each other.
Financial-Spread-Betting: What is the minimum transaction size? Do you have a maximum? Are accounts only denominated in USD?
John: You can trade a single contract for under $10. All contracts are denominated in US$ but you can fund your account in any currency.
Financial-Spread-Betting: Do you accept International clients?
John: Yes - we have clients in over 120 countries including the USA.
Financial-Spread-Betting: Is interest paid on the balance of the accounts?
John:
Yes, if your account meets certain criteria.
Basically, you must have maintained a balance of $20,000 (defined as BOTH available funds and frozen funds combined) or more with the exchange for the entire calendar quarter to be entitled to interest for that quarter. Though with interest rates where they are, I can say that we have either attracted anyone or retained anyone to our site strictly on the interest paid.
Financial-Spread-Betting: Please describe how your transaction fees work (if possible with an example).
John: Pretty simple actually... for the most part, the exchange charges as much as a flat $0.04 fee per transaction (yes - that's only 4 cents). The Exchange charges exchange fees on trades and contract expiries. There is no charge for entering an order; Trading Fees only accrue to Price Takers. The exchange does not charge a Trading Fee on Price Maker Order. Price Makers and Price Taker pay Expiry Fees.
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Financial-Spread-Betting: Are clients able to trade on margin?
John: Yes - if they meet a simple criteria.
Financial-Spread-Betting: Is Intrade able to offer live betting (i.e. in-game betting)?
John: Yes - absolutely. As discussed prior, this is one of most attractive benefits over using a traditional sportsbook.
Financial-Spread-Betting: Are gains/winnings taxable?
John: It is very difficult to offer advice that may be relevant ot over 120 tax jurisdictions. Generally we believe they are not, but if a member is concerned about such matters they need to consult their advisor.
Financial-Spread-Betting: Rumour has it that Intrade has filed an application with the US Commodity Futures Trading Commission ("CFTC") to acquire regulatory approval. Please detail.
John:
This is no rumour at all. We are very excited about this potential.
Below are some relevant details from a press release.
We announced towards the end of May that we established a US subsidiary, whose aim is to launch a US regulated exchange featuring a range of economic and financial style contracts to its members.
The company anticipates filing an application with the US Commodity Futures Trading Commission ("CFTC") shortly to register its US subsidiary as a Designated Contract Market and Derivatives Clearing Organization and for the approval of proposed rules of the entity.
The company believes that offering trading and clearing services for innovative contracts on a regulated platform will allow members to manage certain financial risks that are currently not provided for on traditional futures exchanges.
Subject to regulatory approval the company's US subsidiary will offer its members an efficient, scalable high speed, high volume electronic platform to trade cash settled, binary options on such subjects as weather, economic indicators and financial indices.
Financial-Spread-Betting: Could contracts give rise to "speculative attacks" on the market in futures contracts as on Bush's reelection probabilities in 2004? At the time there was speculation in that some industry observers believed that the market was being manipulated to reduce the confidence of Bush supporters by forcing the share prices down. The attacks on the Bush futures have involved massive sell orders placed by a single individual - the same individual all four times. Each attack caused a massive temporary drop in the price of the Bush re-election futures. It whacked the Bush futures from a price of 54 (indicating the market's estimate of a 54 percent probability of a Bush reelection) all the way down to 10 (indicating a 10 percent probability of reelection) in just eight minutes. Six minutes after the attack the Bush futures were back to 54.
John: I can say that you've done your homework, Andy.... And from your own example, you've indicated that the markets always seem to correct themselves. As every professional trader knows, there is little inefficiency in an open market system such as ours... and again from your example, it was expensive for someone, and didn't last very long at all.
Financial-Spread-Betting: Could it be that Soros was manipulating Intrade? Isn't it interesting that a market can be essentially manipulated in this way?
John: Our traders are a pretty sharp group... many are actually professional traders, hedge fund managers, and other savvy investors by day who are simply not easily duped by market manipulating as you describe it.
Financial-Spread-Betting: Does this mean that individuals can speculate on Intrade for political motives? a scheme to spread fear, uncertainty, and doubt among Bush supporters, and to create the false impression of winning momentum for John Kerry? Isn't this market manipulation?
John:
Andy, Intrade is an exchange that facilitates trading by matching orders from its customers.
Additionally, Intrade fulfils a "clearing house" function by implementing margining, administrating payments and maintaining customer accounts. Intrade ensures that trading profits and losses are transferred between customers in a timely manner and allows customers to close out positions by trading with any other customer. Intrade does not enter into trades on the exchange. As I said previously The markets always have a way of correcting themselves - that's what keeps it interesting.
However if we see attempts of direct market manipulation we intervene without delay.
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Financial-Spread-Betting: Do you offer contracts that speculate on anything including death or do you draw lines?
John: This certainly isn't the first time I've been asked this question. We do not list so called death contracts.
Financial-Spread-Betting: What happens if my betting exchange goes bankrupt? I ring one day, the receivers are in and I've got thousands of pounds with you because I've been a consistent winner. Am I protected? And if protected, by whom?
John:
Great question at the risk of sounding like this is propaganda the following are relevant.
Trust, Security and Confidentiality are cornerstones of the exchange and these matters are of the utmost important to us. Important facts for you to consider.
Segregated Funds: Your funds are held in segregated accounts with Allied Irish Banks, Irelands largest bank which are completely separate and distinct from the exchanges own reserves.
Auditors: The Exchange is audited by PriceWaterhouseCoopers and its audit report is unqualified.
Safer by Design: If the Dow Jones crashes, the New York Stock Exchange doesn't go bankrupt. In the same way, Intrade doesn't lose money when an unusual result arises. Whenever you trade, Intrade will 'freeze' sufficient money in your account to cover your potential losses. If you lose, we simply transfer the already frozen money from your account to a winning customer account. If you win, we pay your winnings from a losing customer account.
History: Over US$ 1,000,000,000 has already been traded on the exchange.
Over 1000,000,000 contracts have been matched, cleared and settled. The exchange is operational for almost 3 years and has over 50,000 members.
Member Specific Bank Accounts: As you know, your funds and those of all exchange member funds are held separate and segregated from the Company's own capital at Allied Irish Banks and Anglo Irish Bank. To provide additional transparency we have introduced a unique service where an individual member can have a specific account established within the suite of segregated accounts.
This service further separates your funds from those of other members and enables you to see on an individual Bank Statement your balance, and transactions. This service which includes receiving a periodic hard copy bank statement is being offered to members with $50,000 or more in their account for free.
Financial-Spread-Betting: How big is your client base? Are you attracting enough hedgers?
John: Without getting into the minutia of our client information, we have over 50,000 members, many are in fact hedgers, many are simple sports fans, others have a strong opinion on one issue or another and they simply want a vehicle to profit from their stance It really is a divers group.
Financial-Spread-Betting: Intrade is said to offer segregated accounts. Please explain.
John:
Simply said, we do not co-mingle your funds as a Intrade client with corporate funds.
With the Trade Exchange Network, Ltd. your funds are held in segregated accounts with Allied Irish Banks, Irelands largest bank which are completely separate and distinct from the Exchanges own reserves
Financial-Spread-Betting: Who is predominantly making up your customer base at this time?
John: I would say our client base is mostly used by financial traders.
Financial-Spread-Betting: What challenges do you see ahead?
John:
Well managing growth is always a challenge, Andy. We have been fortunate to have enjoyed some fantastic growth in just the short three years that we have offered our services.
Like Ebay, or even Napster originally, we are in business to offer just the platform - we are a person-to-person exchange and need to be both aware and flexible to adapt to our members' needs as the landscape changes, evolves , grows, and simply takes us to the next level. What is important to us, is our members...first and foremost. For just that reason we strive to always remember the path behind us as we look up at the path ahead.
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