Betting on Shares On-Line: The Nature and Regulation of Internet Equity Bets

Abstract:     
The current debate on internet gambling has focused on the on-line delivery of conventional betting products, such as lotteries, bets on horse races and bets on sporting events. This article examines a new class of internet betting products, namely products that enable bets to be placed on the future values of individual shares, stock market indices and exchange-traded equity derivatives.

The article explains the different types of equity bets that may currently be placed on-line - "spread" bets (which are contracts for differences) and "fixed odds" bets (which are digital options) - and considers the regulatory issues arising out of the provision of on-line equity betting services in Australia.

The article discusses the regulatory status of internet equity bets under the Australian gaming and wagering legislation and the Australian Corporations Law. An equity bet will, if it can be characterised as a contract by way of gaming or wagering, be void under the former legislation. However, the Corporations Law creates a safe-harbour from the gaming and wagering legislation for "futures contracts" (a safe-harbour that will be extended to all "financial products" by the amendments to the Corporations Law set out in the Financial Services Reform Bill which is expected to be enacted in October 2001). In addition, a party intending to provide on-line equity betting services in an Australian jurisdiction may need to be comply with the licensing provisions of the Corporations Law governing futures contracts (and, following the enactment of the above Bill, the separate licensing regimes governing dealings in financial products and the operation of financial markets).

Finally, the Australian federal government has recently announced plans to impose a blanket prohibition on the provision of internet gambling services in Australia. It is, however, unclear whether this prohibition would extend to internet equity betting services.

Note: This is a description of the article and not the actual abstract.

Keywords: Equity Derivatives, Equity Bets, Internet Gambling

JEL Classification: G18; K22

Accepted Paper Series